Dispatch from Germany | July '25
*** Our weekly Dispatches provide an overview of the most relevant recent and upcoming developments for the shift to climate neutrality in selected European countries, from policy and diplomacy to society and industry. For a bird's-eye view of the country's climate-friendly transition, read the respective 'Guide to'. ***
Stories to watch in the weeks ahead
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Slowing the rollout of renewables? – Germany’s energy industry is eagerly awaiting the economy ministry’s “reality check” on the risks and costs of the transition to renewable energies. The report is set to have a major impact on the course of the energy transition – according to the coalition treaty, it will form the basis for future energy policy. A fresh forecast of future electricity demand and an assessment of grid expansion are set to be central to the report, which is planned to be published in September following parliament’s summer recess.
Climate policy advocates and the renewables industry fear that the monitoring could result in a significant slowdown in the rollout of renewables, given that economy minister Katherina Reiche recently told an industry conference that renewable targets were “completely exaggerated.” Further fanning these concerns is that Reiche commissioned the report from the EWI institute, which has been accused of having close ties to the fossil fuel industry. NGO Environmental Action Germany (DUH) said the process was designed to serve as a pretext to slow renewables.
Climate action proponents have argued that slowing the rollout of renewables due to lower electricity consumption or lagging grid expansion misses the point, because the real problem lies in the government’s failure to switch to climate-friendly technologies such as heat pumps and electric cars. The government’s approval of a joint gas extraction project with the Netherlands in an ecologically sensitive region of the North Sea also caused alarm among advocates of ambitious climate policies. -
One-sided electricity price relief – Government plans to cut the price of electricity for companies, but not households, were met with an outcry from consumer organisations and small businesses, who are also set to miss out on lower prices. The parties forming the coalition government – chancellor Friedrich Merz’s conservative CDU/CSU alliance and the Social Democrats (SPD) – had pledged to cut power taxes for both households and companies by at least five cents per kilowatt hour, leading to accusations of a broken promise. The power cost reduction "for all," as the parties announced it in their coalition agreement, was meant as a replacement for the so-called 'climate bonus', a compensation scheme for rising carbon prices that the CDU/CSU and SPD scrapped from their coalition treaty. Many of the coalition's lawmakers also expressed dismay at the decision and called for a reversal, but the coalition stuck to its guns. German household power prices are among the highest in the world. Following new EU rules allowing electricity subsidies for energy-intensive companies, the government has also been readying a corresponding programme to support industrial companies that commit to decarbonisation.
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Growing concerns about the next phase of carbon trading – The planned introduction of Europe’s new carbon trading system for building and transport – ETS 2 – in 2027 has already cast a long shadow across the EU. Germany joined around a dozen other EU member states to call on the European Commission to change its current plans to avoid sharp price jumps that could risk “significant negative social impacts”. Social welfare and environmental organisations argued yet again that the system must be designed more fairly to avoid hitting low-income groups particularly hard; they called for a significant top-up of the EU’s Social Climate Fund. The German government denied a report that Germany is at risk of losing payments worth billions of euros from the fund because it missed a deadline for submitting plans on how it would spend the money. The government’s coalition treaty promised mechanisms to shield consumers from jumps in carbon pricing due to the ETS2 – a proposal expected to rely on EU funds.
Germany’s buildings and construction minister Verena Hubertz told CLEW that Germany is well positioned to smoothly transition to the ETS 2, given that it is one of few European countries that already has a national price for emissions from the heating and transport sectors. Fittingly, Germany’s environment minister Carsten Schneider recently singled out the “social question” as a key battleground for climate policy – so watch this space.
Last month in recap
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Finally a budget! – The government finally adopted a new draft budget for 2025, which had been delayed due to the previous government’s collapse, and a spending plan for the years leading up to 2029. A doubling of defence spending by 2029 is at the centre of the government’s plans. However, they included various measures to lower energy costs, such as reducing electricity tax for industry (see above) and paying a larger share of grid expansion costs to cut power bills for households and companies. Investments in the national railway service Deutsche Bahn alone will add up to more than 100 billion euros by 2029. The Greens and clean energy think tank Agora Energiewende lambasted the government’s plan to subsidise the gas price.
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Green steel and hydrogen setbacks – Germany’s ambitions to decarbonise steelmaking and use green hydrogen on a large scale saw yet more setbacks. The world’s second largest steelmaker, ArcelorMittal, dropped plans to convert two plants in the country to climate-friendly methods of production, citing high energy costs, and turned down 1.3 billion euros of subsidies. Finance minister Lars Klingbeil called for a “steel summit” with companies, unions, and state governments. To make matters worse, energy firm LEAG postponed plans to build one of Europe’s largest green energy and hydrogen plants indefinitely. The implementation of other projects for decarbonising steel by Salzgitter, Thyssenkrupp, and SHS, with a total cost of about 5.6 billion euros, has already started. Salzgitter urged the government to continue its support for the hydrogen transition despite the setbacks.
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Phasing out the combustion engine phaseout? – Germany’s most important car industry association VDA called for a de facto reversal of the EU’s 2035 ban on the sale of new cars powered by a combustion engine. The lobby group said that emissions from new cars should not have to fall to zero by 2035 but instead only be reduced by 90 percent. Shortly after the announcement, a survey revealed that German car industry suppliers said Chinese competitors enjoyed an “uncatchable lead” in key electric car technologies. Chancellor Friedrich Merz’s conservative alliance pushed to reverse the ban prior to the election. In a surprising twist to the never-ending saga on the future of combustion engines in the EU, Germany’s largest arms manufacturer Rheinmetall partnered with a synthetic fuels producer to scale up e-fuel production, calling the technology “indispensable for modern defence readiness.”
Sören's picks – Highlights from upcoming events and top reads
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In an act of self-promotion you will hopefully forgive me for, I want to recommend two in-house productions. First of all, I suggest you attend our webinar on the state of Germany’s energy transition on Wednesday 9 July, which is open to all. CLEW journalists will give participants their first assessments on the direction of the new government’s climate policy.
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Next, I want to promote our new package on frontier climate technologies. Putting the dossier together has shifted my perspective: while carbon capture and storage (CCS) might be much further away than I previously thought, fusion energy could be closer. I was also surprised to learn about Europe’s, and in particular Germany’s leading role in the development of fusion technology and the growing confidence among private investors.
