Germany Set to Scale Down Climate Ambitions

(Bloomberg) -- Two years ago, Thyssenkrupp AG, the nation’s biggest steelmaker, was awarded €2 billion ($2.1 billion) in subsidies to help pay for a hydrogen furnace. It was the biggest-ever commitment of its kind, and a high point in Germany’s planned transition to clean fuel. 

Yet plans to burn hydrogen are now on hold. Since the government collapsed late last year, funding for key energy transition programs have been frozen, and the leading political parties have made clear that their priorities lie elsewhere.

Germany has spent billions in subsidies to cut carbon emissions by two-thirds by the end of the decade. But at a time when climate concerns remain largely unresolved, Europe’s biggest economy is set to scale back those efforts – and cede its position as the bloc’s frontrunner in the energy transition.

With the US under Donald Trump retreating from global climate efforts, countries across the world are looking to Germany to help close the gap. That may be wishful thinking, say people familiar with state workings. Meeting climate-related commitments had already been a challenge for the outgoing government of Social Democrat Olaf Scholz – whose coalition included the Greens and the pro-business Free Democrats — because of budget constraints, and the people said it’s very likely that climate-related funding will be cut further after the elections.

Given the reduced role of the US and the immediate social and economic risks posed by climate change, “the comprehensive embedding of climate policy measures in an overall political strategy is now more important than ever,” said Hans-Martin Henning, who heads a government climate advisory group. His organization recently released a report on the targets that still have to be met for Germany to reach its 2030 climate goals. Another report published this week by the foreign office and intelligence service ranked climate risk as among the top five threats to the country.

Both the conservative opposition, which is leading in the polls, and the outgoing Social Democrats have pledged to stick to the goal of hitting net neutrality by 2045. Yet in the wake of Trump’s return to the White House and a string of attacks by failed asylum seekers in Germany, they have prioritized security and immigration issues over the energy transition. Climate topics barely featured in a two-hour TV debate on Sunday in which the four chancellor nominees locked horns. The conservatives have also said that they plan to raise spending on NATO while sticking to the country’s strict borrowing rules, limiting how much room they will have to financially maneuver.

Only the Greens’ proposals were found to fully align with climate targets, the Reiner Lemoine Foundation said. However, the party’s chances of returning to power are slim.

The center-right CDU/CSU has laid out its agenda for the energy transition, but several off-the-cuff remarks by chairman Friedrich Merz have generated concern among those in renewables. A comment about windmills being “ugly” prompted trade unions and wind industry officials to defend the industry, and steelmakers have been on guard since Merz expressed doubt last month about the timeline for green steel. 

In a final push before Germans head to the polls on Feb. 23, the conservatives and Social Democrats have promised to reduce energy prices – a key issue for voters — but been light on details. “It’s important to get clarity on how this will be financed,” said Julia Metz, Programme Lead Climate and Industrial Policy Germany at think tank Agora Energiewende. Reaching net neutrality will need €93 billion in overall public funding annually through 2030, according to her organization, “and it requires a mix of policies including government funding programs.”

This new approach to climate funding will represent a major break from the current government’s strategy. Under Scholz, Germany drastically accelerated its renewables buildout and broke ground on a 9,000-kilometer hydrogen network. Last year, credit rating agency S&P Global Ratings named Germany as “the most advanced” country in Western Europe in terms of hydrogen adoption.

Key to government efforts to get a hydrogen economy off the ground was a €23 billion ($23.8 billion) global program to help decarbonize energy-intensive industries. Several smaller companies were awarded contracts in an initial auction in October, and plans for a second auction were in the works. After the government’s collapse, however, that never happened.  

This plan and others will likely be scrapped as conservatives have stated their intention to reallocate money from the main climate fund and cancel climate subsidies. Instead, they have proposed that payments be made directly to households and businesses to relieve the burden of energy costs – which are expected to rise even more after a new European Union pricing plan for heating and transport fuels goes into effect in 2027.

Listen on Zero: Green Growth Is Expensive. The Global Economy Can Afford It.

Another sector that would be hit hard by changes to the climate fund is green heating. A government-funded program to reduce the cost of heat pumps has seen huge uptake recently as people anticipate that its days are numbered. The conservatives have also alarmed the green heating industry by vowing to abolish a controversial ban on fossil fuel-run boilers. Given that “an entire value chain” has adapted to the current climate finance system, a spokesperson for the green heating lobby commented, new changes “could lead to irritation and trigger new restraint on the heating market.”

Consumers aren’t the only ones making adjustments. Big industrials are also scaling back their bets on government support. At Essen-based Thyssenkrupp, which has already been battered by Trump tariffs and a potential trade war with China, the $2 billion hydrogen furnace will instead run on fossil fuels. While the furnace was expected to start run on clean energy in 2027, according to a company spokesperson, “the exact date for the switch from natural gas to hydrogen cannot yet be estimated.”

(Updates with election platform check in 7th graph.)

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