Energy crisis and climate policy lead to strong increase of German state subsidies

German state subsidies are set to increase to 67 billion euros in 2024 from 38 billion euros in 2021, mainly driven by efforts to green the economy and the energy crisis fuelled by Russia’s war against Ukraine, according to a government report.  While tax credits remain unchanged, the increase in financial support is largely due to programmes under the country’s Climate and Transformation Fund – a part of the state budget earmarked to speed up the transition to a climate-neutral economy. These include support for the energy-efficient modernisation of buildings, establishing a hydrogen economy, or supporting the microelectronics sector.

Experts and commentators have long criticised the government for its narrow definition of subsidies in the report, which also excludes billions of euros of climate-damaging subsidies such as lower taxes on diesel fuel, no taxes on kerosene, or free allowances for industry companies in the EU Emissions Trading System (EU ETS). The Federal Environment Agency (UBA) has said that Germany's total of climate-damaging and environmentally harmful subsidies adds up to more than 65 billion euros annually. The International Monetary Fund (IMF) said this week that global fossil fuel subsidies surged to a record 7 trillion US dollars in 2022 as governments supported consumers and businesses during the global spike in energy prices during the crisis. In the subsidies report, the government writes that the effects on greenhouse gas emissions will have to be evaluated in a more systematic way in the future, and promises a definition framework for climate-damaging subsidies. However, measures are already categorised into climate-friendly or climate-damaging, or marked as irrelevant regarding the climate.

A recent report commissioned by Germany’s Bertelsmann Stiftung criticised the government for failing to reduce subsidies which are “superfluous, ineffective and harmful to the climate and the environment”. In its latest assessment of government climate proposals, the Council of Experts on Climate Change also called on the government to finally tackle climate-damaging subsidies. The government said in its 2023 climate programme that it wants to present a reform package, "but when and in what form is very unclear," said council member Brigitte Knopf. "The government must present a concrete plan."