Germany spends €66bln on climate-damaging subsidies – report

Despite growing risks that Germany will miss its official climate targets and increasingly tight budgets, the country fails to reduce subsidies that support emission-intensive activities, according to a report by think tank Green Budget Germany (FÖS). The 45 climate-damaging subsidies identified in the transport, energy, industry and agriculture sectors added up to around 66 billion euros in 2024, equivalent to more than 1,600 euros per household and almost unchanged from 2018 levels, said the report, which was commissioned by the Bertelsmann Stiftung, a foundation.

Germany spends almost half of its climate-damaging subsidies in the transport sector, which stands out for lagging particularly far behind emission-reduction targets, with tax reductions for diesel, kerosene and company cars among the costliest items. 

Environmental organisations and the country’s environment agency UBA have called for reforms to reduce these payments for years, to little effect. If anything, record fuel and gas prices linked to the Iran war have reignited calls for new energy price subsidies. Calculations for the total sum of damaging subsidies vary, depending on definitions. The FÖS report laments that many of the largest climate-damaging subsidies do not appear at all in the German government’s subsidy report due to an overly narrow reporting framework, which excludes many tax breaks and other state benefits.

"Anyone who complains about billion-euro gaps in the budget cannot at the same time leave billion-euro climate-damaging subsidies untouched,” said Carolin Schenuit, FÖS's managing director. “The government is thereby failing not only its climate targets, but also its own subsidy policy principles. The question is no longer whether reforms are possible, but why they continue to be absent.” 

The report stresses that Germany has not made any progress over decades in reducing the total amount of harmful subsidies. While the country axed individual payments, it added others. 

So far this year, the government introduced new environmentally harmful subsidies worth 11 billion euros, including a higher commuter allowance, industry electricity price support and petrol and diesel fuel rebates, according to FÖS calculations published in late June.

“Billions in cuts are planned in the health and social care sectors as part of budgetary consolidation. At the same time, the enormous stock of climate-damaging subsidies remains untouched and is even being expanded,” said co-author Matthias Runkel, who is head of transport policy at FÖS.

The authors argue that climate-damaging subsidies can be cut without overburdening consumers and companies, by combining environmental policy incentives with social equity and economic modernisation. They recommend reinvesting freed-up funds in climate-friendly infrastructure, the industry transition, or relief for low-income households. The report sets out ten concrete reform options for the subsidies it considers most relevant.