Amidst Germany’s election campaign, nearly 200 people died in extreme floods across the country. Four months later, combating climate change became the central theme of the new post-Merkel government.
Most roofs will be equipped with solar panels. More than a thousand wind turbines will be built, nearly doubling the share of renewable sources in energy generation in the country by 2030. In the same year, the last coal mine will be closed, bringing forward the initial forecast by eight years. In addition, 15 million electric cars will drive along the famous German autobahns.
These are the ambitions of the next appointed chancellor, Olaf Scholz, who describes the measures as “Germany’s greatest industrial modernization in over a hundred years”. This is all part of the government’s plan that he and his coalition partners announced on Wednesday (24).
Who will pay for all this is another question. The issue was hotly debated by the parties that joined Scholz’s Social Democrats, the progressive Greens and the pro-business FDP.
In their campaign, the Greens pledged to spend €50 billion annually, for ten years, to fund investments in the transition to renewable energy — and pay for it by giving up the strict balanced budget rule.
The FDP agreed to join the government only under the condition that there will be no tax increase and that the balanced budget law, the so-called debt brake enshrined in the German Constitution, will be respected.
It was no coincidence that the biggest battle in the six weeks of discussions needed to form the coalition was who would control the Ministry of Finance and, with it, national spending. Robert Habeck, co-leader of the Greens, and Christian Lindner, leader of the FDP, both coveted the job and disputed it intensely.
Lindner ended up winning, and Habeck will head a new super-ministry of Economy and Climate.
“With regard to finances, it is no secret that coalition members have very different positions,” Habeck told the Süddeutsche Zeitung newspaper in an interview published on Thursday (25). “We talk at length about taxes, cutting subsidies and regulating the market. If you ask me where I’d like to see more done, it’s in this area.”
For climate change experts, one of the biggest questions is whether the commitment to putting Germany, Europe’s biggest economy, on the path to carbon neutrality by 2045 is still mostly advocated by the Greens, or whether today it is already a project shared by all members of the new administration.
“Will the coalition’s achievements match its ambitions, or will the parties revert to their ideological points?” asked Lutz Weischer, who heads the Berlin office of environmental watchdog Germanwatch.
There are some encouraging signs, he says. By converting the green transition into a national project of industrial competitiveness and social justice, each of the three parties managed to get their base to adhere to the proposal.
The new government inserted into the 177-page text its letter with a commitment to institute measures that will limit global warming to 1.5°C by the end of the century, as stipulated in the Paris climate agreement. The document contains 198 mentions of “climate” in all areas of public policy, from culture to foreign policy.
“The climate crisis puts our livelihoods at risk and threatens freedom, prosperity and security,” states the preamble to the coalition treaty. “Achieving the Paris climate goals is our top priority. We want to reinvent our social market economy as a social-ecological market economy.”
Lindner proudly described the treaty as “the most ambitious climate protection program of any industrialized nation.”
“If that’s really the spirit of the new government, it’s really going to change the game,” Weischer said. “It remains to be seen if that is the case.”
Enshrined in the Constitution in 2009, the German debt brake limits annual indebtedness to 0.35% of nominal GDP, which equates to approximately 12 billion euros a year – far from the 50 billion euros that the Greens consider necessary.
But there are signs that the new government has found some indirect solutions to borrowing needed.
One of them is to explore the temporary suspension of the debt brake during the pandemic. Last year, as finance minister, Scholz lifted the spending cap, which is allowed in a national emergency. The coalition’s treaty provides that the limit will only be reinstated at the end of 2022.
This will give the new government time to borrow and put the money in a fund that will continue to operate even after the borrowing limit comes back into effect.
Another way to raise money is to strengthen the state development bank, known as KfW, which can take out loans that the government can set aside for infrastructure projects and other investments without it showing up in the federal budget.
According to economists, there are also ways to manipulate the formula by which the debt brake is calculated, raising the spending limit in this way.
Few predict that this “creative accounting” will be enough to raise the 50 billion euros a year the Greens have lobbied for, but the commitment to achieving a major increase in public investment was widely applauded.
“I think this agreement marks a change,” said Clemens Fuest, president of the Ifo economic institute. “Many transformation investments are being promoted more intensively now.”
Environmental organizations and climate activists are skeptical. “This coalition agreement is not enough by itself to guarantee the 1.5°C limit,” the Fridays for Future youth movement said in a statement. According to Greenpeace, the program “only suggests a radical ecological advance.”
Habeck recognized the difficulties ahead. “No other country in Europe is doing what we are doing,” he said. “Our neighbors either stick with coal, like Poland, or bet on nuclear power, like France, or they do a little bit of everything and a little bit of renewable energy. We’re leaving the two old technologies behind.”
“There will be decisions that will be difficult,” he concluded. “I’m aware of that.”
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