When the German cabinet reaches a decision about a piece of draft legislation, it’s usually little more than a formality. The ministers generally only have to raise their hands, since objections and concerns have been cleared in advance by their staff.
A bit more than a week ago, though, the vote on amendments to Germany’s climate protection act was on the agenda. And those amendments are far-reaching. They are a roadmap for Germany’s phaseout of coal, oil and gas – the fuels that drove the country’s rise to the world’s fourth-largest industrial power.
One cabinet member, though, was clearly uncomfortable with the package of amendments: Transport Minister Andreas Scheuer of the Christian Social Union (CSU), the Bavarian sister party to Chancellor Angela Merkel’s center-right Christian Democratic Union (CDU). He mentioned how "difficult” the process was going to be.
The other members of the cabinet, though, said nothing in response – and raised their hands. And with that, the German climate revolution had been decided.
For decades, the German government barely moved at all when it came to climate protection, juggling concerns with objections from lobbyists and getting bogged down in the details. Suddenly, though, things are moving very quickly indeed. In one fell swoop, the governing coalition has decided the country must be climate-neutral by 2045.
The impetus ultimately came from Germany Constitutional Court. In late April, the court ruled that the Paris climate agreement’s commitment to limiting the global temperature increase to below 2 degrees Celsius amounted to a legal obligation to the next generation. Ignoring that obligation, the court found, would amount to depriving future generations their most fundamental right: freedom.
"Two weeks ago, I didn’t think it would be possible that I would be sitting here,” said a visibly overwhelmed Environment Minister Svenja Schulze of the center-left Social Democrats (SPD) following the cabinet’s decision. On the day of the high court ruling, Schulze had instructed her ministry to write a new version of the climate protection law. By 2030, greenhouse gas emissions are now to fall by 65 percent relative to 1990 levels, 10 percentage points more than previously agreed. By 2040, they are to fall by 88 percent and be at net zero five years after that.
The industrial sector, energy companies and consumers now face a major challenge. Can they meet it? Will there be social conflict? If the incoming government fails to find an affordable path into the new age of sustainability, not only could the economy suffer irreparable damage, so too could democracy. The question as to who will bear the burden of climate change will determine the battles over political distribution in the coming years.
In the best-case scenario, the climate protection act will become the biggest modernization program since the postwar period and secure prosperity for future generations. "Many political actors probably don’t fully understand the ramifications of the task ahead,” says Felix Matthes, research coordinator in the Berlin office of the Öko Institut, an environmental research institute.
According to his calculations, Germany has an emissions budget of 6.1 billion tons of CO2 left. If things continue as they are now, there will hardly be anything left for the years after 2030. For this reason, more needs to be saved sooner. "The technologies for change are available,” Matthes believes. In a study for the Climate Neutrality Foundation, he and his research team calculated the path Germany must take to achieve its targets.
The most important instrument is the price of CO2 emissions. The more expensive it is, the greater the incentive becomes to cut them. Matthes, though, believes that won’t be enough and argues that more incentivizing instruments are required to drive the shift to sustainable technologies. "Now it’s a matter of cleverly combining the mechanisms,” Matthes says, "as quickly as possible but also in a way that doesn’t leave anybody behind.” The engineer was commissioned by the German government to calculate what burdens would emerge for citizens and how these can be fairly distributed. Three areas stand out that affect everyone in the country.
Greenhouse gas emissions from buildings in Germany amounted to around 120 million metric tons in 2020. They are set to go down by 43 percent, to 67 million tons of CO2 equivalent, by 2030.
Almost one third of greenhouse gases in Germany are from building energy usage. Nevertheless, every year only 1 percent of the building stock is renovated to increase energy efficiency. In 2018, the rate was only 0.8 percent. DENA, the German energy agency, has stated that the pace is "far from sufficient.”
In its study, "Climate-neutral Germany 2045,” the think tank Agora Energiewende wrote that the renovation rate must now increase significantly, to 1.75 percent per year. They envision a future in which oil and gas heating systems are only used "in a few, rare cases” after 2025, with a growing focus on heat pumps. The think tank calls for 6 million of these to be in use by 2030, and 8 million more by 2045. The government already provides financial subsidies for the replacement of windows, the insulation of facades and the renewal of heating systems. When heat pumps are installed, the state covers up to 50 percent of the investment to a maximum of 30,000 euros. Nevertheless, Germany was already failing to meet its previous climate goals in the building sector.
State funding will therefore no longer suffice. More support is required – but from whom? On this issue, a social conflict is developing, primarily between tenants and landlords. Since January, the buildings sector has been included in national emissions trading, with the price of emitting one ton of CO2 standing at 25 euros, making heating oil 7.9 percent more expensive per liter and raising the cost of natural gas by 0.6 cents per kilowatt hour. Previously, landlords had been able to pass the full cost onto their tenants.
The cabinet, though, has decided that in the future, those costs are to be shared. According to a sample calculation by the Environment Ministry, a family with one child that rents their accommodation, for example, will only have to pay half of their previous fee of 86.60 euros, which is to say, 43.30 euros. But the price is set to go up quickly, increasing the burden on tenants and owners. And the owners are unhappy. Andreas Ibel, the president of the German Association for Private Real-Estate and Housing Companies, argue that owners have no influence on tenants’ electricity and heat consumption. "Someone who has the window tilted open all day in the winter while having the heating turned up to full power is literally blowing CO2 out the window.”
The Öko Institut has already calculated what owners will face when they have to pay 50 percent of the costs. Per average tenant household, it will result in an average extra cost of 100 euros per year for heating oil and 70 euros for natural gas in 2025. According to the study, the level of additional costs would initially offer homeowners little incentive to carry out additional renovations. With a higher CO2 price, however, things look different. If the price in 2030 reaches 125 euros per ton, owners would pay an additional 210 euros per year for heating oil and 160 euros for natural gas. If the price climbs to 180 euros, landlords would pay an additional 304 euros a year for heating oil and 230 euros for natural gas.
According to the study, a climate levy based on a building’s energy standard would have an additional effect: the greater the energy usage, the greater the fee. According to the authors, the owner alone should have to pay it and not be allowed to pass it onto the tenants.
In 2020, 221 million tons of CO2 were emitted for energy production in Germany. By 2030, that total is to sink by 61 percent to 108 million tons of CO2 equivalent, with the help of renewable technologies such as wind power.
The key to climate neutrality lies in producing electricity from renewable sources like solar or wind – in huge quantities at affordable prices. Much more green electricity will be necessary in the future, after all. Electric cars will have to be powered. Airplanes will rely on synthetic fuels produced with the help of renewable energies. Steel mills and chemical factories will be powered by hydrogen from green energy instead of by coal or natural gas.
Germany’s electricity needs will climb by 9 percent by 2030, according to calculations from the Öko Institut. At the same time, lignite- and bituminous coal-fired power plants are to be taken offline – plants that have supplied Germany with a significant portion of its energy mix. Initially, the phase out of coal was to be completed by 2038. "But with the new targets, we need to be done by 2030,” says Matthes. The consequence could be an enormous supply gap, with correspondingly high prices.
Current trends on the energy market intensify those developments. The price that power-plant operators have to pay for every ton of CO2 emitted has been climbing quickly for months. Emissions certificates are now going for 50 euros each, more than twice the price of just six months ago.
One might think that would be an incentive for operators to close down their fossil-fuel plants and switch to renewable energies. But bituminous coal, natural gas and even the dirtiest lignite plants have been supplying a huge share of Germany’s energy mix in recent weeks. And that is only tangentially a function of the cooler than average spring weather the country has been experiencing. The phase out of coal and nuclear limit supply, leading to lignite plants remaining online and, because of the cost of CO2 emission certificates, further driving up the already high electricity prices in the country, potentially by 50 percent by 2030, according to a study by the consulting firm Prognos.
The government has made plans to use CO2 tax revenues to lower electricity prices. But whether and when that might happen is completely unclear. Thus far, Berlin hasn’t even managed to introduce subsidies to help low-income citizens, as social organizations have been demanding for years.
The problem can only really be solved with a massive push to expand wind and solar power production. The opposite, though, is the case: Instead of the planned increase of 3 gigawatts of wind power per year, Germany has only managed 1 gigawatt. The primary reasons for the snail’s pace are incredibly long approval procedures, resistance from environmentalists and neighbors, and excessive bureaucracy.
To set up a wind park, companies like EnBW need an average of six years. That means that even the old expansion goals, calling for 65 percent of Germany’s power mix to be supplied by renewable energy sources by 2030, would not have been met. The new climate protection act calls for the share of renewable energies to be at least 70 percent, according to Matthes’ calculations.
It is hoped that a new program that the coalition government intends to pass by the end of this legislative period will alleviate that situation. But in both North Rhine-Westphalia, where CDU chancellor candidate Armin Laschet is governor, and in Bavaria, there are strict rules in place for how close wind turbines can be built to residential buildings. The state governments have thus far been wary of changing those rules for fear of protest from both residents and environmentalists. A future government including the Green Party wouldn’t be likely to change that situation. "The fronts run right through the middle of all political parties,” Matthes says.
In 2020, 146 million tons of CO2 were emitted. The goal: A decrease of 43 percent to 85 million tons of CO2 equivalent by 2030.
When it comes to the climate, no sector needs to catch up as much as transportation. Had there been no coronavirus lockdowns, the sector would have overshot the current emissions limit this past year by 15 million tons of CO2. The federal government’s tightened goals are now putting additional pressure on automakers. After spending years sleepwalking through calls for change, Volkswagen, Daimler and BMW have recently begun racing to outdo each other with their announcements about electrical cars. Volkswagen has been the most ambitious: By 2030, 70 percent of the VW cars sold in Europe are to be purely electric.
If the sector needs to be climate neutral as early as 2045, it will essentially mean that no more internal combustion vehicles could be sold after 2030, according to the consulting firm BCG. More than 90 percent of newly registered cars would have to be fully electric.
A national ban on combustion engines, as the Green Party is calling for, wouldn’t even be necessary for that to happen. Christian Hochfeld, director of the think tank Agora Verkehrswende, is calling for a drastic tightening of the fleet limit, which refers to the overall emission average across all vehicle models produced by a company. It currently stands at 95 grams of CO2 per kilometer. "By 2030, because of the new climate goals, we will need to be up to 75 percent below that,” he says. That, he adds, would be a clear signal to carmakers that they could no longer sell more that a tiny number of vehicles with internal combustion engines.
Customers also need an incentive to switch to e-mobility. The vehicle tax for combustion engines and a penalty for purchasing gas-guzzlers could have a coercive effect. But a significantly higher CO2 price on fuels would be more important. Since January, there has been a price increase of 6.9 cents per liter of gasoline and 7.8 cents per liter of diesel. If the CO2 price goes up next year from 25 euros per ton to 45 euros, as the CDU has indicated, then gasoline would become another 5.5 cents more expensive, and diesel another 6.2 cents.
The SPD rejects this plan out of concern for low-income drivers, and has managed to remove the increase from the immediate plan. But that could change if the CDU and the Greens form the next government. Still, for as long as low-income drivers do not yet own an electric car, the social costs of high CO2 prices need to be offset. This is currently being done through a commuter allowance, which would have to go up as CO2 prices rise.
Hochfeld argues that electricity costs should be lowered or a climate premium should be paid out as compensation. "We will need to continue relying on the very successful purchasing bonuses and tax rebates for purely electric company cars.” It’s true that these currently disproportionately benefit higher earners, but those cars will end up on the used vehicle market in just a few years, making them affordable for more people.
In the future, more trips will have to be made by foot, bike or train, or with public transportation. In some rural areas, such transportation systems must still be established, while they must be expanded in congested cities. And ticket prices need to come down. Hochfeld proposes a price of one euro per day, or 365 euros per year – a strategy already being implemented in Vienna. That, too, would be a step towards greater equity.
The Social Issue
Whether it’s housing, transportation or electricity prices, the costs of climate protection disproportionately fall on low-income earners. That can easily be seen in the portion of their incomes that must be devoted to energy costs. The effects are already felt with comparatively low CO2 surcharges, an analysis by the union affiliated Macroeconomic Policy Institute (IMK) has shown.
A price of 35 euros per metric ton affects poorer households more than well-off ones. If the levy is increased to 125 euros, as many people are calling for, the social divide would deepen: Low-income earners would lose up to 3 percent of their net household income. For the top 20 percent, it would only be a few tenths of a percent.
But the pricing of CO2 is both a problem and a solution, because the instrument doesn’t just have a strong effect on behavior, it also provides the state with billions of euros in revenue that it could return to citizens. Ottmar Edenhofer, the director of the Potsdam Institute for Climate Impact Research, argues that this should be done "according to social criteria.”
Edenhofer is proposing a step-by-step plan. First, the government should use its CO2 revenues to lower electricity prices, given that they represent a larger part of the household budget for low-income earners than for those who earn more. As a second step, the government should pay all citizens an equal climate premium. This would more than compensate the losses for low-income earners and thus "even shrink the gap between the poor and the rich.” He is supported in this proposal by Klaus Müller, head of the Federation of German Consumer Organizations, who goes even further. "All additional revenue from CO2 pricing must flow back to citizens, ideally per capita,” he says. He argues this would be an important step in ensuring that climate measures find broad social acceptance and don’t get targeted as a seemingly elite project, as happened with the yellow-vest protests in France.
If properly implemented, a social CO2 price would also contribute to cross-party consensus. The Greens could present themselves as climate saviors, the CDU and CSU as parties focused on the economy. And the SPD could present itself as the party of low-income earners. But what would be a positive aspect in normal times is perhaps more of a negative at the moment: The climate protection law will be followed by the campaign this summer for the upcoming federal German election. At the moment, this means consensus isn’t the priority – rather conflict.