Gov't adopts Germany's 2025 budget but uncertainties about climate funding remain

Germany’s government has formally adopted the country’s draft budget for 2025 and amended the 2024 budget, which had become a difficult task after a court ruling in late 2023 declared billions of euros earmarked for climate and transformation projects as unlawfully booked. The new budget worth about 480 billion euros “will adhere to our constitutional rules and to European fiscal rules,” finance minister Christian Lindner said at the budget’s presentation, newspaper Die Zeit reported. The formal presentation of the government’s internal agreement comes after a first release of the plans, in which the cabinet of chancellor Olaf Scholz said the agreement included “record” investments in climate and transformation efforts, a claim that observers immediately questioned.

Germany’s constitutional court in November last year said the government’s Climate and Transformation Fund (CTF) that rededicated unused funds originally reserved to respond to the coronavirus pandemic failed to adhere to the country’s limit on new government borrowing, as the CTF did not deal with a sudden and unexpected national crisis, but was rather a long-term policy project. Lindner said the new budget would comply with the so-called ‘debt brake’, but did not specify how the government plans to cover an expected funding gap of about eight billion euros in securing new credits in line with the constitutional debt ceiling. The draft budget has been passed by parliament’s budget committee and a final decision on the funding plans is due only in November. 

According to the finance ministry (BMF), Germany’s ongoing economic slump will make higher expenses for social support necessary while simultaneously slashing tax earnings. Energy system costs would require “significantly higher” remuneration to grid operators in 2024. Support payments to renewable power installation operators within the CTF framework would amount to 10.3 billion euros, also because earnings from the EU’s Emissions Trading System (ETS) are lower than expected, the BMF added.

Economy and climate action minister Robert Habeck said the government’s draft included a “growth initiative” that would increase the country’s pace of economic recovery through reduced bureaucracy, integrating more people in the labour market and incentives for private investments, all while continuing with fast renewables expansion. “The package can deliver a strong growth impulse,” and provide the country with “stability and a perspective under difficult framework conditions,” Habeck argued. “There will be no hard austerity measures,” he stressed. The minister added that the government’s forthcoming Power Plant Strategy would complement efforts in renewables expansion “to secure our electricity supply after exiting fossil energies.”

Energy policy think tank Agora Energiewende said the draft budget had avoided an answer to the key question of how future investments in the Climate and Transformation Fund can be put on a new and legally sound footing. “It lacks a clear signal to companies and citizens that necessary investments will be made,” which included renewable power, grid modernisation, climate neutral industry facilities, a reliable railway service and affordable housing. “The most precious resources for achieving the climate targets are trust and acceptance – and these could be damaged greatly if this is delayed further,” commented Agora’s industry policy expert Julia Metz. She called for a cross-party initiative that settles the funding question long term and avoids future battles over the legality of funding climate and transformation projects. Environmental NGO Nabu also criticised the lack of clarity regarding the CTF’s future, which could jeopardise the transformation in the industry and mobility sectors. However, “the good news is that cuts to climate and environmental protection are limited,” said Nabu head Jörg-Andreas Krüger. However, investments in restoring ecosystems should still be increased to better adapt the country to global warming and reduce the impact of extreme weather events.