Germany must undertake the greatest transformation in its post-war history. Legally mandated GHG neutrality by 2045 requires a fundamental restructuring of our energy system, international energy supply, building and vehicle stock, infrastructure, and large parts of industry.
- By 2045, fully renewable heat generation in industry and buildings; almost complete replacement of industrial plants in steel, chemicals, cement; almost complete replacement of vehicle stock with alternative drive systems; outright renunciation of fossil fuels and raw materials
- Electricity as transformation’s central energy carrier in 2045 with 993 TWh net electricity consumption; renewable energy expansion to potential limits, greatly expanded and digitized grid infrastructure, battery storage, and green hydrogen–powered gas plants to ensure security of supply
- Enormous demand for GHG-neutral hydrogen and synthetic fuels in 2045 in the amount of over 540 TWh and €54 billion—more than today’s imports of mineral oil
The immediate changes required in this decade are drastic. To achieve the legally set climate target 2030, Germany needs to largely eliminate investment in fossil technologies within the next nine years—and in some sectors right away. In addition, coal-fired power generation must fall much faster than previously planned.
- Clear but very narrow path to 2030 climate targets: Immediately and wherever possible, decisions against the use of fossil fuels and in favor of GHG-neutral alternatives are needed by millions of people; for example, decisions for almost double the amount of energy-efficient building refurbishment, renewable heating solutions, and electric vehicles
- In industry, wherever possible, no more reinvestment in fossil plants; complete replacement of entire plants in parts of heavy industry; for example, replacement of one-third of blast furnaces by direct reduction plants in steel manufacturing
- A 40 percent increase in net electricity consumption by 2030; doubling the EEG expansion rates of wind and PV; expanding and bringing forward the Federal Network Agency’s Network Development Plan by five years; phaseout of coal-fired power generation and addition of over 40 GW of new (H2-ready) gas-fired power plants
Implementing climate protection measures requires additional investments of about €860 billion by 2030, or about €100 billion per year–almost 2.5 percent of Germany’s gross domestic product (GDP).
- Tripling of additional investments by 2030 necessary to achieve the agreed climate protection targets compared to current climate policy
- Energy sector with just under half of the required additional investments (€415 billion); industry with lowest additional investments compared to other sectors, but with highest net additional costs due to expensive energy source changes
- A total of €16 billion in net additional costs for implementing climate protection measures, resulting from €41 billion in additional costs for measures such as industrial and building decarbonization, green fuels, and charging infrastructure on the one hand and €25 billion in savings (in particular through electromobility) on the other
Achieving the 2030 target requires almost cutting emissions in half compared with 2019, a goal current climate policy will not achieve in any sector. Without a change in direction, Germany will reduce annual emissions only by about 184 Mt CO2e—half as much as necessary. Critical decisions and changes in direction are required, beginning in the legislative period starting in the fall of 2021. If these decisions and changes are delayed, either Germany will no longer be able to achieve the climate targets or doing so will require significantly higher investments.
- Neither European nor national regulation currently sufficient to achieve Germany’s legally agreed climate protection targets
- Many green alternatives currently still have uneconomical additional costs compared to conventional technologies—central obstacle to conversion for stakeholders, which must be offset by new regulation
- Other challenges such as high investment costs for private households and companies, lack of infrastructure, or operational obstacles to implementation (in particular lengthy planning and approval procedures) to be addressed through regulation
Implementation of the required climate-protection measures is complex from both a political and a regulatory perspective; simple answers fall short. Germany needs a broad mix of instruments that includes both overarching and sector-specific measures. These enforce rapid infrastructure development, make the use of fossil fuels more expensive, and help lower the cost of renewable technologies. To set the course for GHG neutrality in 2045, the regulatory framework will also need to build support for the substantial investments required among citizens and businesses.
- Incentives for climate-protection investments are needed for millions of individual decision-makers and tens of thousands of individual companies; infrastructure must also be expanded on a large scale
- No simple regulatory solutions in view of the very high complexity and heterogeneous interests of stakeholders—simple regulatory solutions do not go far enough
- Interaction between (CO2) pricing, subsidies, and regulatory law in a balanced mix of instruments is necessary for efficient, effective, and at the same time fair achievement of climate protection goals
Climate Paths 2.0 proposes a Program for Climate and Germany’s Future Development involving about 20 instruments that can drive forward the development of sustainable infrastructure, significantly accelerate the conversion of energy, transport, and heat to renewable sources, and initiate the transformation of Germany’s industrial base toward GHG neutrality.
- Cross-sectoral instruments needed to lay the foundation:
- More robust CO2 pricing and energy taxation to make fossil fuel use less attractive
- Abolition of levies and charges on electricity in heating applications in buildings and industry to encourage a switch to electricity-based applications
- National infrastructure program for electricity, hydrogen, district heating, rail, and CO2 networks
- National biomass strategy to prioritize sustainable biomass in the most efficient applications and to lay the foundation for negative emissions needed for greenhouse-gas neutrality in 2045
- Sector-specific instruments are needed in addition to overcome specific decision-making obstacles in each sector:
- In industry, particularly the considerable differences in operating costs between renewable and fossil heating solutions—and the large investment challenge for emissions-intensive industries that cannot manage this transformation on their own
- In transport, current purchasing barriers to alternative propulsion vehicles due to lack of availability of charging infrastructure and high initial investment; investment barriers for green-fuel production plants
- In buildings, overcoming the enormous investment burden for energy-efficient building refurbishment and the current cost disadvantage of renewable heating solutions in existing buildings
- In the energy industry, especially the serious obstacles to implementation in the expansion of renewable energies and grids as well as the lack of investment incentives for constructing new gas-fired power plants for backup capacities
The rising costs of CO2, energy, and materials will add financial burdens of about €15 to €23 billion for companies in 2030. Maintaining industrial competitiveness requires reliable compensation instruments for the most affected sectors.
- Prevent transfer of production (carbon leakage) or investment activity abroad (investment leakage) as a result of rising CO2, material, and energy prices—both of which would tend to lead to higher CO2 emissions abroad
- Protect emissions-intensive industries by continuing and advancing the existing system of free allocations before effective alternatives are in place—parallel testing and further development of the proposal on EU CO2 border adjustment necessary
- Protection of electricity-intensive industries necessary; for example, by combining existing exemptions in a “supercap” and transferring electricity price compensation to power purchase agreements for renewable electricity (PPAs)
Implementing the climate protection measures will add an additional financial burden of €20 to €30 billion in 2030 for private households that do not (or cannot) switch to low-emission technologies. To ensure that the burden is shared fairly, social compensatory measures are necessary.
- “Nonswitchers” to green technologies particularly impacted by rising CO2 price— “switchers” (e.g., to heat pumps and electric cars) in a better position considering government subsidies
- Private households with low incomes proportionately burdened most by higher costs for electricity and heating
- Targeted compensation for private households with low incomes possible via basic income support and adjustment of the minimum wage; in the event of a higher CO2 price burden broad relief measures such as the abolition of the EEG levy are conceivable
Government support for the transformation and balancing the shared burden for private households and companies will require additional annual public spending of €47 to €50 billion in 2030 and a total of €230 to €280 billion between 2021 and 2030. Spending will have to be financed through cuts to the federal budget, levies, taxes, or new debt.
- Climate protection’s burden on the government budget: Fiscal expenditures for subsidies, reduced revenues via energy tax, and compensation payments only partially offset by CO2 pricing
- Government spending on climate protection very high, but not without precedent in Germany’s history: Compared to Germany’s gross domestic product, the average annual government expenditure for climate change mitigation would be in the order of magnitude of the Marshall Plan
- Counterfinancing of increased government spending required; for example, through savings, new levies, increased taxes, or debt in form of an intergenerational fund
Germany’s national endeavor can only have a major impact on global climate change if it brings international followers and partners on board. This is all the more reason for Germany to strongly endorse a European and internationally coordinated climate policy. In addition, Germany should work toward a significantly more open setup of EU state aid law, thus enabling government support for climate transformation.
- German “climate foreign policy” required with medium-term goal of comparable ambitions and CO2 price signal at least among the largest emitters within the G20
- Alignment of targets in a European effort-sharing model in order to cover national climate protection targets as comprehensively as possible with EU instruments and thus avoid distortions of competition within Europe
- Ensure compatibility of public support for green technologies and relief mechanisms with EU state aid law
The next federal government must set the course on climate quickly. Germany needs both more effective and better coordinated political governance at the federal and state level and a substantial acceleration of planning and approval procedures.
- Set climate protection as a top priority to ensure much stronger and central coordination
- Fundamental acceleration of implementation in infrastructure development through far-reaching regulatory streamlining, shortening, and acceleration of planning and approval procedures (including legal protection procedures) required
- Monitoring of early indicators needed for efficient and early countermeasures in the event of undesirable developments—instead of current ex post evaluation of emissions
Achieving Germany’s legal climate target is a massive undertaking for society at large, which requires an immediate course correction already in the first months of the new legislative period. At the same time, successful implementation of the comprehensive modernization program described here offers a historic opportunity for Germany to transform into a climate-neutral industrial country and to make an ambitious contribution toward limiting the effects of climate change, thereby securing the prosperity of this and future generations.
- Major step needed early in this legislative period in order to set a decisive course toward greenhouse-gas neutrality within less than nine years
- Broad consensus across legislative period needed on the scope, duration, and speed, as well as the fair distribution of the costs and burdens of transformation
- Transformation a huge opportunity for Germany to lay the groundwork for our future prosperity by modernizing the national economy, reducing dependence on energy imports, and opening up new global markets for climate-protection technologies