For the latest climate package developments, read the article Tracking progress of Germany's 2030 climate action package.
For a deep dive into the climate package's origin and the debate around carbon pricing in Germany, take a look at the CLEW dossier Climate cabinet to put Germany back on track for 2030 targets.
The climate package context
The German government coalition on 20 September 2019 agreed on an outline for a comprehensive climate plan meant to ensure that the country reaches its emission reduction targets in line with the Paris Agreement. After a long overnight session ahead of a self-imposed deadline, the country's so-called climate cabinet, which consists of government members especially relevant for climate action, agreed on a strategy paper that outlines key policy measures to reduce emissions in all sectors of the economy and support the transition to clean energy generation and low-emission technology.
In a cabinet meeting on 9 October, the government then decided the details to this package, by adopting the draft Climate Action Law and the Climate Action Programme 2030.
Germany's 2030 climate targets stipulate a reduction of greenhouse gas levels by 55 percent compared to 1990 levels, which means carbon emissions have to fall from about 866 tonnes in 2018 to 563 million tonnes at the end of the next decade. The 2020 goal to reduce emissions by 40 percent has practically come out of reach, with the environment ministry expecting a reduction by roughly 32 percent in its latest emissions projection report.
The document says that Germany's climate targets mean "a change of our way of living and running the economy" and stresses that supporting the transition to clean energy generation and low-emission technology brings "great opportunities for Germany as a country of business, innovation and jobs." The government argues that investments under the programme will ultimately spare Germany high costs resulting from climate mitigation and adaptation as well as from buying emissions allowances from abroad. "The 2020s will be the decade of resolute implementation of the energy and mobility transition."
Implementation and monitoring
All sectoral emissions reduction targets mentioned in the document arise from Germany's Climate Action Plan 2050, the document says. Annual reduction levels, the sectoral targets, will be made legally binding. The government says it will evaluate progress in every sector with the help of an external expert committee to create "objectivity" and "maximum transparency."
The climate cabinet, which initially was installed as a temporary institution, will be made permanent and charged with testing the "effectiveness, efficiency and accuracy" of all measures every year. If a given sector fails to make sufficient progress regarding the "legally binding" emissions reduction targets, the responsible ministers will be obliged to come up with an "ad hoc programme" within three months to get back on track. Based on this programme, the climate cabinet will then decide how the Climate Action Programme 2030 can be "jointly adjusted" so as to make sure that the "underlying" targets are met. Alternatively, the government can also adjust the sectoral budget.
National CO₂ pricing mechanism and ETS reform
Germany will introduce a national carbon pricing system in the transport and buildings sector, both of which are not part of the existing European emissions trading system (ETS) - except for aviation emissions. The national carbon pricing will start in 2021 with a fixed allowance price of 10 euros per tonne of CO2. Allowances prices are then going to rise to 20 euros in 2022, 25 euros in 2023, 30 euros in 2024 and finally to 35 euros in 2025.
Retailers of heating and engine fuels will have to purchase these allowances, thereby creating a "trading platform" that later enables an auctioning and trading of allowances. If there are more allowances than Germany can have under its emissions budget defined by EU regulation, these will have to be purchased abroad.
A fixed emissions budget will be set by 2026 and subsequently decrease each year in line with Germany's Climate Action Plan 2050 and EU emissions budgets in non-ETS sectors. Prices in auctions then will form based on market mechanisms but are confined by a corridor with a minimum price of 35 euros and a maximum price of 60 euros per tonne of CO2. The minimum and maximum prices for 2027 will be decided on in 2025.
The German government says it will work towards establishing a Europe-wide emission trading system for all sectors in close cooperation with the European Commission. A first step in this regard should be a "moderate" floor price in existing ETS sectors, energy and industry, and all other sectors eventually should be included in the ETS.
The government insists that all additional earnings generated with carbon pricing will either be invested in climate action measures or returned to citizens as a compensation.
Compensation mechanisms for citizens
In order to reduce the financial burden for citizens and companies, the government plans to gradually reduce Germany's trademark renewables surcharge and also other policy-related components of the power price "if applicable", such as grid fees, in order to lower the price households and businesses pay for electricity. Renewables support "will remain untouched" by the surcharge reduction and is instead going to be financed with the earnings from carbon pricing. The renewables surcharge that power customers pay with their power bill will fall by 0.25 cents per kilowatt hour (kWh) in 2021, by 0.5 ct/kWh in 2022 and by 0.625 ct/kWh in 2023. "If the earnings from CO2 pricing rise, power price will be lowered further accordingly."
Moreover, commuters will receive an increased tax relief of 35 cent per kilometre if they travel more than 21 kilometres to their workplace until the end of 2026. Recipients of housing allowances receive a ten-percent increase of these allowances "to avoid social hardships" associated with rising heating costs.
The buildings sector is responsible for 14 percent of Germany's total emissions, which translates into 120 million tonnes of CO2 per year, the document says. Emissions have to fall to 72 million tonnes by 2030. Withouth the package's measures, emissions reduction would be no greater than 90 million tonnes, meaning that these contribute a further 18 - 20 million tonnes.
As a complement to existing support programmes in the buildings sector, energy-efficient retrofitting of buildings will become tax-deductible by 2020. Costs for insulation or for replacing old heating systems or windows can be reduced by up to 20 percent through tax deduction.
A "swap premium" for old oil-fired heating systems will repay up to 40 percent of the costs for a new and more efficient system. In addition, the government plans to legally ban the installation of new oil-fired heating systems by 2026 if more climate-friendly alternatives are available for a particular building.
Energy consulting services will be made mandatory in certain situations, for example if a building changes ownership. Costs will be covered by existing support programmes.
In order to enhance the government's role-model function in building modernisation, public buildings will be held to higher efficiency standards and have to integrate climate-friendly technology solutions if possible.
Emissions in the transport sector need to fall to no more than 98 million tonnes by 2030. At current rates, emissions will stand at about 150 million tonnes in that year, meaning that the climate action programme's measures need to induce additional reduction of over 50 million tonnes over the next decade.
The government plans to bring the number of public charging points for electric vehicles to one million by 2030. Public funding for charging points will be granted until 2025 and carmakers and energy companies will be encouraged to expand the charging infrastructure as well. If required volumes cannot be achieved through market mechanisms, the government says it might regulate construction by law. All service stations in Germany will be ordered to install charging points and the construction of fast-charging points could be counted as a decarbonisation effort for oil industry companies. Construction of charging points on private or company premises will also be supported and regulatory hurdles removed.
The number of electric vehicles registered in Germany should reach 7 to 10 million by 2030. To support reaching this figure, the government will prolong allowances for company cars with batteries or plug-in-hybrid engines until 2030 and reduce taxes for purely electric company cars. The buyer's premium for passenger cars with electric, hybrid or hydrogen/fuel cell propulsion systems will be extended. It will also be raised for cars costing less than 40,000 euros. In addition, federal states and municipalities will be allowed to set their own emissions standards for busses, taxis and rental cars.
To increase the role of bioenergy in fuel use, more emphasis will be put on possibilities to base biofuels on waste. An expansion of the cultivable land for energy crops "is not to be expected", the document says. Restrictions will also apply to imported bioenergy components.
The motor vehicle tax will be based on emissions per kilometre for new registrations by 2021.
The federal government will increase its annual payments for the expansion of public transport systems to one billion euros per year by 2021. Together with the national train service provider Deutsche Bahn, the government will invest about 86 billion euros by 2030 to expand and modernise the railroad network.
In order to make train rides more attractive to customers, a reduction of the value added-tax on long-distance connections will make train tickets about ten percent cheaper. The government will also increase its annual payments to Deutsche Bahn by one billion euros. Several "model projects" for urban public transport, for example a year-round ticket for 365 euros, are meant to reduce congestion through car use.
The government aims to have about one third of all freight traffic run on vehicles with electric engines or with electricity-based fuels. The lorry toll will be reformed with the goal to make climate-friendly engines more attractive.
Fuel cells and fuels produced with power-to-x technology are said to play an important role in future freight transport and the government plans to support "development and large-volume scaling" of electrolysis and other refinery procedures for electricity-based and climate-neutral fuels.
The government wants to do away with "flawed incentives" regarding low flight ticket prices and plans to increase the aviation levy by 2020 to avoid that airlines use "dumping prices". Tickets must not be cheaper than the combined costs of applicable taxes, surcharges and other fees.
The 2030 emissions target in the energy sector is no more than 183 million tonnes of CO2. The sector has contributed the most to Germany's overall greenhouse gas reduction since 1990 and the government says the measures listed in the programme will bring an additional reduction of 83 million tonnes.
The government-appointed commission proposed to phase out coal by 2038 the latest, a measure that the government parties now say they will "implement in close coordination with the federal states". The installed capacity of coal power will be reduced to 17 GW by 2030 and the government promises to enshrine the coal exit roadmap into law by November 2019.
Raising the share of renewable energy sources in power consumption to 65 percent by 2030 from about 38 percent in 2018 had already been agreed on by the government parties in their coalition agreement. However, how to achieve this goal turned out to be a much contested question in the talks. The expansion of onshore wind power, which is projected to be Germany's central power source of the future, has almost come to a standstill in 2019, as wind farm developers grapple with dwindling building land and licensing troubles.
To "increase the acceptance" of wind power, the government says onshore wind turbines must maintain a minimum distance to residential areas of 1,000 metres - both for new turbines and in the case of replacing older models with newer ones (repowering). However, individual municipalities may opt out of this rule and federal states can apply their own minimum distance 18 months after the introduction of the rule. The existing minimum distance in Bavaria of 10 times the turbine's height (10H rule) "will remain unchanged." In addition, municipalities will from now on receive part of the profits generated with turbines built on their land.
Agriculture and forestry
The agriculture sector should emit no more than 61 million tonnes in 2030 but at current emisison reduction rates it will rather stand at about 67 million in that year. The government thus hopes to induce reduction of a further 6 - 9 million tonnes.
With new regulation for the use of fertilisers, excess levels of nitrogen are supposed to fall. Gas-tight liquid manure storages and low-emissions spreading technology is supposed to reduce nitrogen levels.
Organic farming will receive better support. Livestock farming will receive support in line with animal protection and emissions reduction goals. Food waste should be further reduced through a national strategy.
The capacity of soils as carbon sinks will be better exploited through targeted planting of helpful plant species and other measures.
Moor- and wetlands will receive better protection.
Wood should be used more as a construction material and reforestation of forests should be intensified. Moreover, the composition of plant species in forests should be adapted to changing weather patterns to make these carbon sinks more resilient to heat waves and droughts.
Industry emissions should fall to no more than 143 million tonnes by 2030. The government says there currently is a gap of about 45 million tonnes that is supposed to be closed with the programme.
Support and counselling for industrial companies seeking to reduce their carbon footprint should be streamlined and offered in a "one-stop-shop." A national decarbonisation programme will look into industry process emissions that are particularly hard to tackle with current technology standards. It is meant to optimise production processes, increase the use of renewable energy sources and raw materials.
The action programme says that carbon storage technology will be researched especially for industry emissions that are difficult to avoid in order to facilitate climate-neutrality by 2050. The government says it wants to initiate a dialogue process with stakeholders to increase the acceptance of carbon storage.
The government says its goal of maintaining a balanced budget without any new debt will be respected under the programme. Germany's Energy- and Climate Fund is said to remain the central funding instrument for energy transition and climate action measures, which are projected to cost over a three-digit billion euro sum by 2030.
Earnings generated through carbon pricing will fill the climate fund and also compensate other losses in the government budget related to climate measures, such as tax rebates. This is supposed to ensure that the budgetary effect of earnings and expenses in connection to climate action remains neutral.