Germany Boosts Climate, Chips Fund to €212 Billion in Green Push

(Bloomberg) -- Chancellor Olaf Scholz’s government on Wednesday approved a top-up of Germany’s special Climate and Transformation Fund by more than €30 billion to about €212 billion ($233 billion) for the period 2024 through 2027.

The mechanism, which is known by its German acronym KTF and is not part of the regular federal budget, is designed to help speed Germany’s transition to an emissions-free economy. It will pay for climate-protection measures, such as financial aid for the replacement of fossil-fuel boilers with heat pumps, as well as investments in semiconductor production and expansion of railway infrastructure, among other things.

The fund is overseen by Economy Minister Robert Habeck of the Greens and is part of a wider trend in Europe of governments trying to accelerate the process of cutting harmful emissions to help meet the continent’s ambitious climate targets.

It enables Habeck to push ahead with investment in Germany’s green transition, while allowing Finance Minister Christian Lindner — a fiscal hawk from the business-friendly Free Democrats — to restore a constitutional limit on net new borrowing that was suspended to help address the impact of the Covid-19 pandemic and the energy crisis.

The overall price tag for future-proofing Germany’s energy system is projected to amount to over $1 trillion by 2030, according to BloombergNEF.

The costs include investments in upgrading power grids and above all new generation to manage the phase out of nuclear and coal plants, handle increased demand from electric cars and heating systems, and meet climate commitments.

Following cabinet approval, which was confirmed Wednesday by the finance ministry, the financing plan for the KTF will now be sent to parliament for ratification.

Here’s a breakdown of the approximate funding allocations for the years 2024 through 2027, as set out in a draft of the financing plan obtained by Bloomberg:

• €63.5 billion to ease the burden on citizens and companies
• €60.7 billion for building modernization
• €18.6 billion for ramping-up hydrogen industry
• €13.8 billion to help expand electro-mobility
• €12.5 billion for railway infrastructure
• €12.2 billion for semiconductor manufacturing

The fund is partly financed from revenues from European emissions trading — with expected income of €8-€13 billion per year — and via the national carbon price — with projected revenue of €11-€22 billion per year.

According to the draft document, the government also plans to use €19.2 billion in 2024 from a separate fund for military spending and €46.8 billion from the Economic Stabilisation Fund, which was created to help mitigate the impact of the pandemic.

(Updates with cabinet approval starting in first paragraph)

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