Environmental Policies in Germany

The last three centuries in Germany were characterized by an increase in environmental policy making. In 1997, the government joined the Kyoto Protocol which was one of the first international efforts to collectively reduce emissions (BMWK 2022). Other policies like the ecological tax reform in 1999 that increased taxes on engine fuels or electricity in pursuance of incentivizing sustainable technologies facilitated the transition towards a carbon free economy (United Nations 2022). In recent years, Germany set ambitious objectives to mitigate emissions.

After signing the Paris Agreement, the government introduced the “Climate Action Plan 2050”

in 2016, thus committing to climate neutrality by the middle of the 21^st century. Within this plan, sectoral emission reduction targets are defined, for instance, a cut of 42 % in the transport sector and of 51% in the energy industry in comparison to 1990 (BMUV 2022). However, the main legislation for the overall climate goals is the “Climate Change Act” of 2021. After an overruling of the Federal Court of Justice, stating that intergenerational equity is not ensured

47 by the previous targets, this policy tightens the objectives for emission reduction significantly.

Consequently, Germany aims at reducing GHG emissions by 65% relative to 1990 and achieve climate neutrality by 2045 (German Federal Government 2021). In order to continuously abate emissions, policies were increasingly being more implemented as the OECD Environmental Policy Stringency Index highlights. Figure 1. shows how the majority of Germany’s environmental policy mix consists of non-market-based policies, like performance standards.

Figure 1: Environmental Policy Stringency in Germany is increasing

Own figure based on Kruse et al. 2021

However, figure 1 also depicts that in recent years the western European country increasingly relied upon technology support instruments, like feed-in tariffs for solar or wind energy (Kruse et al. 2021). Nonetheless, market-based policies should also be taken into account. Although the previous figure based on OECD’s environmental policy stringency index does not highlight an increase in market-based policies, developments in 2021 show the opposite. Germany’s government implemented a carbon price in 2021 for heating and transport sectors. Starting 2021, companies that trade or use heating oil, natural gas, petrol or diesel have to pay a CO2 price. Simultaneously, a national ETS was introduced, in addition to the already present European ETS, to trade emission allowances in these two sectors. The fixed price per ton of CO2 was set at EUR 25 and will increase to EUR 55 in 2025. Revenues from the national

48 emission trading system are used for investments in sustainable mobility infrastructure, as well as to address distributional effects by assisting poorer households through, for instance, housing grants (German Federal Government 2021a).

7.2.1. Energy Policy

Germany’s government underlines that a sustainable energy transition, “Energiewende (DE)”, is fundamental for an ecological and economically successful future (BMWK 2022a). This is reflected in former and current efforts to introduce policies that facilitate the adoption of renewable energies, as well as phasing out non-renewable energy sources. In the first half of 2022, Germany’s energy mix consisted of 46,4% of renewables, while lignite and natural gas dominated the non-renewables with 19,2% and 14,6% respectively (Clean Energy Wire 2022).

The government set the objective in 2022 that 80% of the energy mix should consist of ecological energy generation sources until 2030. To achieve that figure, numerous important policies were introduced in recent years (Climate Action Tracker 2022).

In 2020, Germany decided to start phasing out coal plants. The controversially debated policy sets to decrease emissions from this energy source fully until 2038 and the first lignite power plant was already shut down that year (BMUV 2020). Similarly, the current government also aims at strengthening the use of renewable energy sources for heating, in order to begin the phaseout of natural gas starting in 2024, even though the short-term goal is to diversify the gas supply due to the war Russia’s in Ukraine (Montelnews 2022).

Moreover, laws were implemented within the “Easter Package” in 2022 that aim at increasing the share of wind and solar energy to provide a push for the ecological transition (Climate Action Tracker 2022). The new Renewable Energy Act (EEG) states that renewable energies are of significant public interest that should be prioritized over issues arising in the construction of these technologies, such as the protection of species. Within this process of adopting more

49 renewables, Germany increasingly relies on wind onshore. Wind onshore has significant importance in the overall energy mix with a share of 20,3 % (Federal Statistical Office 2022).

The “Onshore Wind Power Act” in 2022 strengthens this development by dedicating 2% of the country’s land area to wind power. Additionally, new policies limit the minimum distance rules of turbines to residential areas, which traditionally hindered additional construction since they were under the jurisdictions of each of the 16 federal states. Only if construction targets are met, distance rules can be introduced. According to the legislation, 13 states are required to designate 1.4% for onshore wind power by 2027, while the three city-states, Hamburg, Berlin, and Bremen, are obliged to use 0,5 % of their area by 2032. Overall, these measures aim at doubling the country's onshore wind capacity to 115 gigawatts by 2030 (Clean Energy Wire 2022). Besides the efforts to increase electricity generation from wind power, the current government aims also to facilitate the adoption of solar PV installations. Investments to reach a total capacity of 215 gigawatts by 2030 are supposed to be achieved. Schemes like higher remuneration for smaller scaled private and decentralized rooftop installations should incentivize the increasing adoption of this technology (Clean Energy Wire 2022a)

7.2.2. Main obstacles to environmental policies

In January 2022, the Federal Ministry for Economic Affairs and Climate Protection highlighted that with the current pace of transitioning to a carbon free economy the targets will be missed.

Consequently, additional policies, like the “Easter Package” to increase adoption of renewables, described in the previous chapter, were introduced (Spiegel 2022). Nonetheless, Germany missed its climate targets in 2021, and it is unlikely that they will entirely reach them in the upcoming years according to Economy and Climate Protection minister Robert Habeck (Reuters 2021). Despite policy efforts to decarbonize the energy sector, several policy issues hinder this rapid transition.

50 One of the main challenges that Germany faces is the vast amount of environmentally damaging subsidies. According to figures from the German Environment Agency, 65 billion Euros were spent in 2018 on industries or practices that generate more emissions, instead of reducing them (German Environment Agency 2021). Figure 2 highlights the classification of granted governmental funds by industry. It shows that subsidies for the energy sector represent the second highest category with 39% of all funds.

Figure 2: Breakdown of the volume of harmful subsidies by sector

Own figure based on German Environment Agency (2021)

For instance, companies in the lignite industry are exempt from mineral resource extraction tax and some states, like Niedersachsen or Sachsen, do not charge a fee on water extraction. The German Environment Agency estimates 287 million Euros in subsidies for solely this case.

Billions of Euros are also allocated to major coal extractors like LEAG and RWE, despite the decision in 2020 to phase-out coal power plants until 2038. The previous German government in 2020 decided upon subsidies as high as 4,35 billion Euros for these organizations as compensation for the phase-out, which resulted in significant public and political opposition (Bundestag 2020). Other reports suggest that Germany supports the fossil fuel industry directly with subsidies amounting to 37 billion Euros which makes it the European country with the

51 highest allocation of funds to environmentally harmful industries (Investigate Europe 2020).

Moreover, the government subsidizes the free allocation of EU ETS emission allowances for the fossil fuel-, as well as energy-intensive industry with up to 2 billion Euros. Although carbon leakage might be minimized, crucial governmental revenues that could be used for investments into renewable energies fall away (German Environment Agency 2021).

Nonetheless, billion-dollar spending on subsidies for fossil fuel companies and energy intensive industries are not the sole reason why decrease in emissions is progressing slowly. Bureaucracy and corresponding long administrative processes hinder the rapid construction of renewable energy technologies like wind or solar. To build wind turbines, around 80 different permits are needed and federal states differ in their local requirements in construction (Focus 2022). The overall process to build one turbine usually lasts up to eight years with delays due to lawsuits from nature conservationists or protests from anti-renewable groups (Tagesspiegel 2022).

Similarly, solar PV technology for private households needs to surpass bureaucratic obstacles.

If a private individual wants to supply his neighbor with solar power as well, he becomes a small-scale electricity provider which creates the need for additional compliance and reporting measures (Sueddeutsche 2022).