On April 9 the conservatives (CDU/CSU) and social democrats (SPD) presented their coalition treaty. It lays out the key policies of the incoming federal government – including on climate change. Although climate is not a priority area, there are a variety of entry points for decarbonization policies.
Negotiations to form a coalition
After four weeks of negotiations, the conservatives (CDU and CSU) union parties and social democrats (SPD) agreed on a coalition treaty – “Responsibility for Germany”. The treaty lays out the key policies of the new federal government in the next legislative period.
The sister parties CDU and CSU form the strongest parliamentary group after the federal elections. A ruling coalition with the SPD was seen as the only politically viable option. Based on exploratory results, the content of the coalition treaty was formed by 16 working groups, including one on Climate and Energy.
Now that the agreement has been reached, the approval of the party committees is still pending. Subject to the respective signoffs, the new government could take charge on May 7, 2025. Friedrich Merz would then be put to the vote in the new Parliament as the new Federal Chancellor.
Even before its formal creation at the end of March, the prospective coalition parties had already agreed on far-reaching constitutional amendments. These include an easing of the debt brake for defense spending and the establishment of a special fund for infrastructure with over EUR 500 billion.
Under pressure from the Greens – whose votes were needed for the required 2/3 majority – climate aspects were also strengthened. As a result, the goal of climate neutrality by 2045 is now also enshrined in the Constitution. To this end, EUR 100 bn is to flow from the special fund into the Climate and Transformation Fund.
Climate policy targets in the coalition treaty
As expected, climate change is not a focus of the coalition treaty in the current political context. However, the 144-page document contains a variety of climate policy measures. Most of these have their origins in the election programs of CDU/CSU and SPD.
Climate targets
Overall, the coalition treaty reinforces both the German and European climate targets and defines the goal of a climate-neutral industrialized country with:
- Climate neutrality by 2045 in Germany by combining climate protection, economic competitiveness and social justice;
- Focus on GHG reductions in Germany with additional contributions from carbon removals, and, to a limited extent, from high-quality and credible carbon reductions in non-European partner countries.
The treaty backs the EU interim target for 2040 for a 90% emissions reduction compared to 1990. This support reinforces the EU Commission’s proposal from last year – in the current debate about lowering the ambition. However, the following conditions are formulated:
- EU targets for Germany should not exceed the German climate target for 2040;
- Negative emissions are eligible to a limited extent;
- Carbon credits from non-European countries are also eligible.
Such international credits could be generated under the market-based mechanisms of Article 6 of the Paris Agreement. However, a limit of 3% of the 2040 targets has been defined, which would correspond to no more than 25 Mt of CO2 per year.
Carbon pricing
Carbon pricing remains a “central component in the mix of instruments”. This role is weaker than in the CDU/CSU election program, which had called for it to be expanded to become the lead instrument. Further provisions include:
- Advancing emissions trading systems at the European and international level, and expanding carbon pricing to new countries;
- Pursuing an economically viable price path that ensures competitiveness and social acceptance;
- Supporting the introduction of ETS-2, with a smooth transition from the German emissions trading to the ETS-2 starting in 2027;
- Promoting instruments that avoid carbon price jumps for consumers and companies;
- Supporting affected households with resources from the European Social Climate Fund, including socially tiered relief and subsidies for housing and mobility;
- Compensating affected economic sectors, while not making use of the opt-in for the agricultural sector in the ETS-2.
The focus is on avoiding additional burdens from carbon prices through regulating price paths and compensation payments. However, there is no mention of a “climate bonus,” which has been called for by experts and the parties’ election programs.
Carbon border adjustment
In contrast, CBAM is highlighted as a means to strengthen industry. The relocation of energy-intensive companies due to differing climate standards (carbon leakage) is to be prevented via:
- Supporting the EU Commission’s proposals to simplify CBAM;
- Advocating for export compensation for products covered by CBAM;
- Allowing for free allocations for export-oriented sectors if carbon leakage protection via CBAM is not effective.
It remains unclear how such a continuation of free emission allowances in ETS-1 would work. Anyway, the designs of CBAM and ETS are the responsibility of the EU.
Industrial decarbonization
To strengthen industry, the coalition treaty also includes policies for decarbonizing industrial production processes, e.g. through:
- Creation of lead markets, e.g., through quotas for the low-emission steel, a green gas quotas, or public procurement;
- Supporting the steel industry in transitioning its production processes, including CCS and recycling of steel scrap;
- Developing a Chemicals Agenda 2045, along with supporting the circular economy and chemical recycling of plastics;
- Continuing funding programs for industrial decarbonization, including carbon contracts for difference tied to criteria such as securing industrial locations;
- Accelerating the development of a hydrogen economy with a pragmatic ramp-up – utilizing all forms of hydrogen;
- Strengthening the climate club.
Some of these policies are a continuation of measures initiated by the previous government. Under the leadership of the Greens, the Ministry of Economic Affairs had started carbon contracts and green lead markets as innovative instruments.
Decarbonization in other sectors
There are also various decarbonization policies for the energy, buildings and transport sectors – expanding on ongoing measures:
- Decisive expansion of renewable energy sources and commitment to the planned phase-out of lignite-based electricity generation by 2038;
- Modernization of the heat supply systems to meet climate targets in the building sector; including a roadmap for non-fossil energy sources;
- Anchoring carbon reduction potentials as a central metric in a technology-neutral, flexible and streamlined buildings energy act;
- Technology neutrality in road transport, including bringing forward the review of carbon reduction targets for heavy-duty vehicles and supporting fleet electrification without imposing legal quotas;
- Examination of options to reduce overlapping carbon prices in road freight transport;
- Avoiding competitive disadvantages for European companies by the Sustainable Aviation Fuel (SAF) quota through use of revenues from ETS-1 for aviation;
- Prompt implementation of the Renewable Energy Directive III (RED III) and increase in the national GHG-reduction quotas.
Notwithstanding these diverse policies, the coalition treaty lacks clear pathways and targets for sector-specific decarbonization.
Carbon management
Technologies for carbon capture and storage (CCS) and utilization (CCU) are to complement the expansion of renewables and production efficiency through:
- Enabling carbon capture, transport, utilization, and storage – for hard-to-abate industrial emissions and gas-fired power plants – through a legislative package;
- Prioritizing the ratification of the London Protocol and establishing bilateral agreements with neighboring countries;
- Enabling offshore carbon storage beyond the territorial sea, within the exclusive economic zone (EEZ) and continental shelf of the North Sea, as well as onshore storage; with an opt-in by federal states;
- Recognizing direct air capture (DAC) as a potential future technology to achieve negative emissions.
These policies build on the previous government’s Carbon Management Strategy. They strengthen the role of active carbon management in achieving climate goals.
Climate adaptation
To address the impacts of climate change, the adaptation strategy is to be implemented, and existing funding is to be used or adjusted for:
- Financing preventive measures with the federal states and supporting municipalities in adapting to climate change; incl. the establishment of a special framework plan for nature conservation and climate adaptation;
- Accelerating flood and coastal protection measures, e.g., by increasing funding for the joint task of agricultural structure and coastal protection;
- Implementing prioritized measures of the national water strategy and further development with the federal states against the backdrop of climate change;
- Improving the framework conditions for the development of climate-resilient and species-rich mixed forests and support for forest owners.
Despite the increasingly noticeable climate impacts, adaptation remains far behind the ambition for climate change mitigation. And its focus is on natural measures, while the role of a climate-resilient economy is not yet mentioned.
Big goals without a clear plan
Despite all the criticism of weak climate and environmental ambition, the coalition treaty contains a variety of policies for decarbonization. Like previous coalition treaties, it reads as a long list. The lack of a coherent framework may be the usual result of political compromises.
It is to be seen if and how these policies can be implemented. For now, all policies are subject to funding availability. With an additional EUR 100 bn in the Climate and Transformation Fund and annual revenues of over EUR 18 bn from carbon markets, there should be no shortage of money for climate measures.
However, there is a large gap between the long-term ambition and the outlined short-term policies. The coalition is clearly committed to climate neutrality in 2045. However, it remains unclear how this very ambitious target is to be achieved.
This is particularly evident in the sectoral policies, especially for buildings and transport. According to the latest projections, their emissions cuts are already insufficient. For now, progress in the energy and industrial sectors offsets these shortfalls. However, without additional measures, long-term targets may be missed.
There is also a lack of new climate policy approaches. Some innovative initiatives by the previous government (e.g. carbon contracts and CCS/U) are being picked up. So, there is at least continuity in some climate policy directions.
In general, the framing of the coalition treaty implies that decarbonization, competitiveness and social justice can all be aligned without tradeoffs. The existence of conflicting goals is not recognized.
The move of the climate portfolio from the Ministry of Economic Affairs back to the Ministry of the Environment does not help with a holistic view on these goals. There is a risk of playing off economic with climate goals in the new coalition.
Sources and further information:
- CDU, CSU and SPD: Responsibility for Germany (coalition treaty)
Photo by Maheshkumar Painam on Unsplash
