On Saturday 2 December, on the third day of the COP28 climate summit in Dubai, German Chancellor Olaf Scholz told delegates they must make a worldwide commitment to end the use of coal and gas, and triple renewable power capacity by 2030. However, his climate push was undermined just days later when his Economy and Climate Minister Robert Habeck abruptly cancelled his trip to Dubai to stay in Berlin and deal with Germany’s current budget crisis.
That crisis is undermining Germany’s climate diplomacy on the world stage as it threatens to derail the government’s domestic climate plans by depriving it of the funding for them. Last month, Germany’s constitutional court ruled that the government’s decision to fund its green transition by reallocating €60bn ($64.74bn) in unused debt taken on during the Covid-19 pandemic was unconstitutional. It violated the so-called “debt brake” that forbids German governments from taking on debt except in emergencies. While the pandemic was an emergency, the court decided that climate change, as it has been defined by the government, is not. The reallocation decision by the Social Democrat, Green and Liberal coalition government was taken to court by the centre-right opposition Christian Democrats, the party of former chancellor Angela Merkel.
Go deeper with GlobalData
The German Gfovernment now has to figure out a way to plug a €60bn hole in its budget for climate action. The crisis comes at a time when tensions within the coalition government are high as it sinks to new depths in public approval polls. The Greens are calling for the gap to be filled by new subsidies. The economically conservative Liberals are calling for stricter market-based instruments like carbon pricing. The Social Democrats are split between those two ideas. The Liberals are also calling for drastic spending cuts in other parts of the budget, such as social protection, to free up cash.
Another option is for the government to officially declare climate change an emergency akin to a pandemic and test whether the court will accept that argument. Although the EU has declared a climate emergency, as have 68 German towns, the national government of Germany has not. Meanwhile, some Green and centre-left politicians in the ruling coalition have said it is the debt brake itself, a uniquely German invention, that is the problem and that it should be legislated out of existence.
Habeck has said that the court’s ruling has delivered a body blow to Germany’s “economic core”, with millions of euros that businesses were expecting now in doubt. “We must quickly find a way out of this,” he said last week, noting that the key task at hand is to reassure local governments and businesses that green investment projects will be carried out as planned. Habeck emphasised that all of the projects that were set to receive the climate funding “must be implemented in the coming years”.
Time is running out. Last week, a different German court ruled that the government must present emergency climate action programmes with short-term measures for transport and buildings because both sectors have repeatedly missed their emissions reduction targets, violating the country’s 2021 Climate Action Law. Germany’s expert council on climate change has said that the government’s plans for the sectors, laid out in July 2022, are insufficient to reach its goals. Germany is well off course for several of its sectoral climate targets, including on renewable energy.
How well do you really know your competitors?
Access the most comprehensive Company Profiles on the market, powered by GlobalData. Save hours of research. Gain competitive edge.
Thank you!
Your download email will arrive shortly
Not ready to buy yet? Download a free sample
We are confident about the unique quality of our Company Profiles. However, we want you to make the most beneficial decision for your business, so we offer a free sample that you can download by submitting the below form
By GlobalDataWhile the government tries to find a solution, the budget crisis is costing Germany climate credibility with the rest of the world. Its own courts are both condemning it for being off track on its climate targets, and depriving it of the financing to do anything about it. Jürgen Resch, head of the NGO Climate Action Germany (DUH), which brought the lawsuit over the missed targets, called it “a judicial double whammy for climate protection and a resounding slap in the face for the German government for its disastrous climate policy”. DUH has several other lawsuits pending regarding Germany’s missed climate targets.
The so-called “traffic light coalition”, named after the colours of the Social Democrats, Liberals and Greens, came into office promising to be the greenest ever – but now it is stymied both by its inability to deliver and its growing unpopularity with the public. Approval rates for the government have fallen to 36%, with nearly two-thirds of Germans now saying they want a new government. Polling for the next election, which is due at some point before October 2025, shows a surge in support for the far-right Alternative for Germany party, with a record 21% putting them in a comfortable second place after the centre-right Christian Democrats with 30%. Both parties have been appealing to the public with a promise to walk back climate legislation, with the Christian Democrats putting out advertising promising to end restrictions on the most polluting cars, for example.
All of this is on display for the rest of the world to see, as Germany calls for more ambitious action on climate from other countries at COP28. The constitutional court’s ruling was, to say the least, unfortunately timed, coming just a week before the UN climate summit. According to his spokesperson, Habeck still hopes to make it to Dubai for the end of the summit next week. It is in Germany’s interest to resolve its domestic budget crisis by then, or risk derisory laughter when it calls for more climate action from others.
