How Will Germany Pay For Its €50bn Local weather Plan? – Forbes


After months of intense negotiations between the governing parties in Berlin, Germany on Friday announced a €50 billion package of measures designed to help the country meet its 2030 emissions reduction goals.

The announcement came as millions of people took part in climate strike protests across the world calling on more policy actions to fight climate change.

The country is already set to miss its 2020 climate targets, and German Chancellor Angela Merkel said the actions are necessary to not fail again in ten years time. But already the plan is being attacked on two fronts – by climate activists who say it’s not ambitious enough, and by fiscal hawks who say Germany doesn’t have the money to pay for it.

The measures include setting up a new national emissions trading system for the transport and building sectors, lowering taxes on rail tickets and raising them on air travel, incentivising electric car ownership through the tax structure, and increasing spending on public transport to €1 billion each year starting in 2021.

The new German emissions trading system would run in tandem with the EU’s Emissions Trading System and would not overlap, because it will cover areas not covered by the EU’s scheme. Fuel companies will need to buy emissions permits in order to use gasoline, diesel and heating fuels. The price of these permits will start at €10 per tonne of carbon in 2021, rising to €20 per ton in 2022 and €35 per ton in 2025. From 2026, each market participant will have a cap on emissions.

“Ridiculously Low”

The legislation was meant to be announced on Thursday, but negotiations between Merkel’s conservative CDU and their governing coalition partners, the center-left SPD, dragged on for an intense 19 hours. The delay reflects not only how reticent many German politicians are to embark on ambitious spending plans, but also hesitation among the SPD to endorse a much-hyped plan that many will criticise as underwhelming.

This was indeed the reaction from NGOs. Martin Kaiser, the director of Greenpeave Germany, said the price out on carbon in the German ETS is “ridiculously low” which will remain “completely ineffective for another ten years”. Ottmar Edenhofer, director of the MCC research institute, said “the price path is too low and does not extend far enough into the future to have a steering effect.”

German environment minister Svenja Schulze, a member of the SPD, was ready with her defence. “We would have wished for a higher CO₂ price, but it’s a good compromise,” she said.

”Should we not be on track – there are some ministers with very optimistic assumptions about what their measures will achieve – then we will have to make adjustments,” she added. “This obligation to adjust is immensely important.”

Merkel insisted the measures are enough. “In my opinion the chances that we reach our 2030 targets have increased, compared to 2020, and we will do everything to take additional steps if necessary,” she said at a press conference on Friday. She credited the Fridays for Future school strikes as being a motivating factor. Friday’s global protests saw the largest protests in Germany the movement has yet seen.

“Something that impresses me as a scientist is when Greta Thunberg says ‘unite behind the science’,” Merkel said. “We’re not doing something ideological here, but something for which there is massive evidence and which we need to counteract.” But she cautioned that it isn’t as easy for lawmakers to make these choices as man of the protesters seem to think. “What distinguishes politics from science and impatient young people is that politics is what’s possible. And we’ve sounded out the possibilities.”

How To Pay For It

A survey by ARD-Morgenmagazin this week found that 63% of Germans think that action against climate change should be prioritized over economic growth. But as soon as the actual costs of action are spelled out to them, that figure drops to 33%. Only 21% of those polled were in favor of a carbon tax.

German Vice Chancellor Olaf Scholz, also from the SPD, cautioned that there will be a cost. “The truth is that climate protection cannot be achieved at zero cost. This applies to both the federal budget and to citizens.”

But he and Merkel insist that the plan will be “budget neutral”, meaning that Germany will not have to borrow in order to pay for it. He said additional revenue from the German ETS would create “more room to manoeuvre than one might think.”

The self-financing promise was key to get Merkel’s conservative CDU on board. CDU politicians have said that cutbacks elsewhere in the budget will be necessary to fund the plan – something that is bound to be unpopular with the public. 

But the SPD is very much against cutting public spending. They say there is no reason why Germany shouldn’t increase spending and maybe even take on debt to pay for fighting the climate crisis. Though Germany’s constitution strictly limits the government taking on deficits, it does allow for some additional spending margin – no higher than 0.35% of GDP. That translates to something around €12 billion.

The German Greens have called for this constitutional requirement, which was only enacted in 2011, to be abolished in order to clear the way for climate spending. 





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