Dispatch from Germany | December '25

Stories to watch in the weeks ahead

• New policies take effect – The start of the year will see the introduction of new subsidies to lower electricity costs for industry and a scheme to support the purchase of electric cars. The industry electricity price is a core element of chancellor Friedrich Merz’s plan to halt the decline of industry and return Germany to economic growth, but it ran into delays as EU approval is required under state aid rules. The government said it would take effect from 1 January – retroactively, if necessary. Prospective electric car buyers can look forward to new support payments, as the government agreed to spend three billion euros to support adoption among low- and middle-income groups. The government aims to launch the programme as soon as possible in 2026, but it also needs EU state aid approval.  Two years ago, an abrupt stop to purchase support due to financing difficulties led to a sudden drop of electric vehicle sales, which lag well behind now abandoned plans to bring their total number on the country’s roads to 15 million by 2030. At present, there are around 2 million EVs in Germany.

• Heating conundrum – The government is set to present a reform of Germany’s so-called heating law - the legislation that stipulates the gradual phase out of oil and gas boilers - in February. Its introduction by Germany’s last coalition government under Olaf Scholz was mired in controversy, pushing Friedrich Merz’s government to pledge to “abolish” it in its coalition agreement. After months of speculation, the government opted against scrapping it in favour of reform, promising to make it “more technology-open, flexible and simpler”.  It remains unclear, however, whether the requirement for new heating systems to operate with at least 65 percent renewables will remain in place. Climate advocates say profound changes to the existing law would imperil emission reduction targets.

• Awaiting Climate Action Programme - The coalition has postponed many key energy and climate decisions since taking office in the spring, as it prioritised short-term industry competitiveness over climate action. But the government must present a Climate Action Programme detailing steps to reach its 2030 and 2040 emissions reduction targets in different economic sectors by March, with transport and heating being the main laggards. Discussions about the way forward will intensify at the start of the year, as will press leaks of drafts and proposals. Environmental NGOs called for a “clear cross-sector finance strategy” in the programme, while researchers urge a greater focus on the social aspects of climate policies. A comprehensive reform of the country's Renewable Energy Act (EEG), which would include a proposal on future expansion volumes for renewables, will form part of the programme, and is also expected in early 2026.

• Raw material independence – The government has promised an “action plan” to address strategic dependencies on critical raw materials by the end of the year. But the strategy, which will likely include materials such as lithium and copper that are needed for electric cars or wind turbines, has failed to materialise. The plan is meant to include measures such as strengthening domestic mining and the circular economy. An industry alliance warned that raw materials could become Europe’s “Achilles heel”.

• Five state elections cast their shadow – A string of upcoming state elections is set to cast a growing shadow on energy and climate policy discussions from the start of the year. Economic powerhouse Baden-Wurttemberg is going to the polls on 8 March, followed by western state Rhineland-Palatinate on 22 March. But the September votes in the country’s east draw most of the attention because the right-wing extremist Alternative for Germany (AfD) is currently leading the polls in two of the three states.

The latest from Germany – last month in recap

• Emissions reduction at a snail’s pace – Germany’s energy-related CO2 emissions are likely to have fallen by as little as one percent in 2025, according to energy market research group AG Energiebilanzen (AGEB). Subdued production in energy-intensive industries, particularly in the chemical sector, had only a limited impact on energy demand, while falling consumer prices for motor fuels, heating oil and natural gas pushed up consumption. Renewable energy sources covered nearly 56 percent of Germany’s gross electricity consumption in 2025 - a tiny rise of 0.7 percentage points compared to the previous year, according to preliminary figures by energy industry group BDEW and research institute ZSW.

• Wanted: Gas and oil phaseout strategies - Germany’s chief energy transition advisors urged clear phase-out strategies for oil and gas to avoid high costs and supply risks as their use declines on the country’s path to climate neutrality by 2045. In their 2025 energy transition monitoring report, the researchers said the coal exit is proceeding as planned for now, but warned that Germany must build sufficient backup capacity to ensure continued progress and prevent the expansion of costly coal power reserves.

• Call for a fairer transition - Climate policies that do not account for the income of residents risk increasing social divisions, as CO2 prices place a particular burden on poorer households while the wealthy cause twice the emissions, a German government report warned. Germany's rising CO₂ prices lead to higher heating and transport costs, which account for a larger proportion of poorer households’ budgets. Lower income residents often lack the financial resources for climate-friendly investments to lower those costs, such as building renovations or electric cars.

Sören’s picks – Top reads

• I am thoroughly enjoying Karen Hao's Empire of AI. The book not only traces the meteoric rise of OpenAI and its culture of secrecy, but also analyses the environmental consequences of the mind-boggling race among US technology giants to increase computing power with a flood of new data centres across the globe. It's a fascinating and sobering read.

• In a shameless act of self-promotion, I will also recommend our team’s end-of-year coverage. Firstly, there is an in-depth preview to German energy and climate policy next year, which has plenty of details on all the most relevant sectors. We are also in the midst of publishing an extensive series of interviews with sector specialists on what lies ahead in 2026. Additionally, my colleague Julian wrote a curtain raiser to EU policy next year. To round it off (and in case you missed it), last week’s Dispatch was a special edition summarising what lies ahead for energy and climate in the EU, Poland, France, Italy, Croatia, and Germany. You can find all of the above in our brand-new 2026 Preview Dossier.