25 November 2021

On 24 November 2021, the three political parties projected to form Germany’s new government signed a coalition treaty, securing their executive position.  The so-called “traffic-light” coalition — led by Olaf Scholz and composed of the Social Democratic Party, the Green Party, and the Free Democratic Party — announced that “achieving the Paris climate protection targets is [their] top priority,” and that they will “create a regulatory framework that clears the way for innovations and measures to put Germany on the 1.5-degree path.” Here we dive into the climate provisions of this framework and their potential impact on transatlantic climate policy.

Among the new government’s greatest ambitions are an overhaul of the German electricity grid, an accelerated adoption of renewables, and a long-term, economy-wide deployment of hydrogen-compatible infrastructure. In the short-term, Germany has decided to lean into liquified natural gas (LNG) as a transition fuel away from more carbon-intensive fossil fuels. LNG plants can be transitioned into hydrogen infrastructure, meaning Germany’s hydrogen strategy will have significant implications for transatlantic energy markets. A US-Germany LNG trade partnership could create a positive feedback loop of increased natural gas use, catalyzing the supplantation of other fossil fuels across both countries’ energy sectors. Canada also stands to benefit from the anticipated expansion of LNG markets in Germany, considering that in 2019 alone, Canadian natural gas flows to the United States dropped by 8% due to the US’ growing production capacity. Closer to home, the new coalition seeks to position the EU as “the [world’s] leading market for hydrogen technologies by 2030.”

Long discussed but often dismissed by domestic policy actors, an international climate club has also been proposed by the new government. Drawing on support from the EU and other members of the global community, such an agreement would create a universal CO2 price floor and harmonized border carbon adjustment. A climate club would likely encounter backlash from political allies and opponents alike. Such an agreement would come with trade benefits for club “members” and restrictions for “non-members,” likely gratifying party-countries and aggravating non-party countries. Canada, which has various emissions trading systems, would likely benefit from such an arrangement, while the US, which doesn’t currently price carbon, may not.

The new German government also plans to increase the country’s use of renewables. The coalition treaty states that “two percent of German land” will be outfitted with onshore wind technologies by 2030, and rooftop solar panels will be mandatory on all new commercial and incentivized on new private ones. Overall, renewables in the electric energy sector are to account for 80% of the total share by 2030.

The coalition agreement also significantly changes the country’s climate finance landscape. Germany’s debt brake will no longer include the deficit of the Climate and Transition Fund. As a result, the incoming government will pump over EUR 50 billion into the fund, directing immense resources towards green transition investments such as charging points for electric vehicles and better insulation for homes.

Alongside these new climate measures comes an important reshuffling of several government ministries. Most significant for the transatlantic climate space is the newly created Ministry of Economy and Climate Protection, which will be led by the Green Party. The Greens will be in charge of an additional four ministries, including those for the environment and foreign relations. The SPD will take the chancellorship and lead six ministries, including those for labor and health. The FDP will lead four ministries, including those for finance and transport. These ministries’ leadership by the austerity-minded FDP will have significant consequences for Germany’s climate agenda, as finance and transport have among the largest of all ministerial budgets and their corresponding policies have an immense ability to influence the country’s climate direction.

Source: Clean Energy Wire