Germany’s €130 billion recovery budget puts the focus on climate-friendly industries and technologies, underscoring Chancellor Angela Merkel’s pledge to reboot the economy and wean it off fossil power and cars that laid the foundation of the country’s export prowess.
The plan unveiled after 21 hours of intense negotiations is the most ambitious yet by any government to support green initiatives.
Divided into 57 different points addressing sectors from taxes to families to agriculture, the budget allocates about €41 billion to areas like public transport, electric vehicles and renewable energy, according to calculations by Bloomberg News.
The accord is also notable for what it omits.
Unlike in the aftermath of the financial crisis, when the powerful automotive sector received financial aid in the form of purchase incentives, no money was allocated to combustion-engine vehicles this time.
Instead, buyers of battery-powered cars stand to benefit from bigger subsidies, highlighting the change in priorities in Europe’s automotive heartland.
“Governments are sensibly addressing this problem in phases,” said Professor Cameron Hepburn, an expert in environmental economics at the University of Oxford.
“Phase 1 was rescue, which is largely colourless. This is the beginning of Phase 2, and we’re starting to see how green and not green the responses are going to be.”
Bloomberg reports Germany, which is aggressively pushing renewable energy as it phases out nuclear power plants, is seeking to strike a balance between getting the economy back on its feet after weeks of lockdown and propelling the country toward a greener future.
It’s a difficult act given the role that energy-intensive manufacturing and the car industry still play for the workforce and exports.
A third of Germany’s virus recovery plan could help lower emissions.
Until now, governments of the world’s largest 50 economies have committed about US$18 billion of their coronavirus measures to stimulate low-carbon elements of the economy, such as energy-efficient buildings and sustainable farming, according to data compiled by Bloomberg prior to Germany’s announcement.
That amounts to less than 0.2 per cent of the nearly US$12 trillion that these economies are planning to spend on the recovery so far.
Germany’s package, when adjusted for the size of its economy, is half the US$800 billion the United States government spent on economic stimulus after the 2008 financial crisis.
About US$90 billion of the US spending at the time went to green initiatives that established solar and wind energy in the country and helped Tesla become the world’s second-largest carmaker by market value.
However, Germany’s green spending as a proportion of the total package is almost three times higher than the US’s a decade ago.
As a result, the plan won praise from observers with high climate standards.
Germany’s Green Party leader Annalena Baerbock called it “better than feared” and Greenpeace Germany executive director Martin Kaiser saying he was “pleasantly surprised.”
“The magnitude of money is still too little to kick-start the transformation needed to meet the goals set under the United Nations sponsored Paris Agreement,” Mr Kaiser said.
“But it’s a clear indication that society is going green.”
Still, the initiatives also drew criticism mainly from opposition parties for being fragmented and lacking vision.
The reduction in VAT, in particular, risks creating a purchase incentive for combustion-engine cars because of a marginally price drop.
At the same time the €2.5 billion in funds allocated to public transport and the €5 billion for the Deutsche Bahn national railway are directed more at propping up distressed operations than reshaping the future of mass transit.
“If you try to achieve the two important political goals of economic recovery and climate protection with the same instrument, you will achieve suboptimal results with both,” said Gabriel Felbermayr, president at the Kiel Institute of World Economy, a leading research centre in Germany.
The single largest green measure is an overhaul of the way Germany has financed its switch to green power, which so far relied on mandatory surcharges that were added to consumers’ electricity bills.
At a cost of some €11 billion, the government will step in and cut retail-power costs by two euro cents for every kilowatt-hour consumed, which in turn will help drive down the green surcharge for consumers.
The initiative potentially cuts both ways.
While it alleviates the burden on consumers weighed down by Europe’s highest electricity prices, cheaper power could in turn lead to higher consumption and more emissions, said Professor Hepburn.
The government also wants to boost research and commercial development of green hydrogen, key to reducing the carbon footprint of high-emitting industries such as steel that can’t operate on renewable energy only.
The German plan envisions investing €9 billion through 2040 to build 15 gigawatts of clean hydrogen capacity.
Green hydrogen, in which renewable energy is used to produce hydrogen by splitting water, is not a yet a commercially viable solution.
Arguably the most contentious point in the plan was the support for the car industry.
In the end, the government settled on doubling incentives for fully-electric and hybrid cars, overruling calls by German carmakers as well as some politicians who proposed including support for combustion-engine vehicles as well.
A combined €8 billion will go to promoting supply and demand of electric vehicles.
At €9000 a car, Germany’s support for EVs will be the most generous across Europe.
Though the highest subsidy is limited to EVs costing less than €40,000, which means excluding some luxury cars made by the likes of BMW, Mercedes, Audi and Tesla, BloombergNEF analyst Aleksandra O’Donovan projects that it could boost the country’s EV sales in 2020 by as much as 23 per cent compared to last year.
Some funds will also go to help agriculture and livestock farmers transition toward more climate-friendly models, sustainable management of forests and initiatives to lower emissions from shipping and air transport.
EcoNews is an independent publication that relies on contributions from its readers.
WE’RE BUILDING A PLATFORM WITH A CLEAR FOCUS ON THE ENVIRONMENT, CULTURAL AND SOCIAL GOOD. CONTRIBUTE AND TOGETHER WE CAN MAKE AN IMPACT.
If you value EcoNews, but are unable to contribute via sponsorship or advertising we ask that you promote our online store The Native Shop – www.nativeshop.com.au via your social media to assist us to fund this valuable service.
