Germany's defence spending spree could aid green industry shift – with right policies

By more than doubling its defence budget by 2030 and announcing the goal of building “the strongest conventional army in Europe”, Germany’s new government coalition has underpinned its ambition to shake off its reputation as a laggard in European security matters. The budget for Germany’s military, the Bundeswehr, will grow from about 62 billion euros in 2025 to more than 150 billion euros four years later. The change of course towards greatly expanded security spending raises a range of questions regarding the implications for energy and climate policy of Europe’s largest economy and its aim to reach climate neutrality by 2045.

Does the ramped-up manufacturing of tanks, artillery, and ammunition with thousands of tonnes of steel and other basic materials undermine emissions reduction efforts?

Having a look at the Bundeswehr’s official emissions data helps to outline the potential impact: The defence ministry gauged them at about 1.7 million tonnes of CO2 in 2022, roughly the equivalent of one large heavy industry plant. However, the ministry figure does not include emissions from defence industry production or from military missions abroad. An analysis by an alliance of European NGOs found emissions to be more likely around 10 million tonnes per year – a figure that could rise to 15 million tonnes and more by 2028, roughly equal to two percent of Germany’s 2024 emissions, depending on what additional defence funding is spent on.

Buildings and transport dominate military’s emissions

“It’s generally true that higher defence spending and a bigger military tend to come with higher emissions,” Ole Adolphsen, security and climate policy researcher at the German Institute for International Security Affairs (SWP), told Clean Energy Wire. However, he added that there is no direct link between increased military budgets and a rising greenhouse gas output. “More emissions are not necessarily locked in,” Adolphsen said.

Most of the military’s peacetime greenhouse gas sources do not differ from those of civilian emitters, the researcher explained. Important levers for reducing the Bundeswehr’s carbon footprint, therefore, mirror that of the country as a whole: more renewable power, energy-efficient retrofitting, more heat pumps and district heating, and a faster electrification of the conventional vehicle fleet.

Heating barracks and offices, for example, is the army’s single biggest source of CO2. These so-called stationary emissions in the Bundeswehr’s over 33,000 buildings are generally covered by plans to make federal authorities climate neutral by 2030 – even though this is likely to inflate the costs of the army’s envisaged overhaul. “Mobile emissions, on the other hand, concern everything that allows the army to move troops or equipment, meaning land-based vehicles, ships and, above all, aeroplanes,” Adolphsen said.

Russia’s war jolted military’s search for fossil fuel alternatives

Decarbonising dedicated military vehicles such as tanks or fighter jets is currently difficult. Low-carbon technologies such as hydrogen- or battery-powered vehicles face many technical and logistical challenges, such as the ‘Single Fuel Concept’ of military alliance NATO. But a new approach is forming in these niche categories as well, even if climate action is not the main driver, researcher Adolphsen said. “Russia’s war on Ukraine fully showed the risks of Europe’s fossil fuel dependence and the role that low-carbon technology can play for national security.”

Since 2015, European militaries have grouped together in the European Defence Agency’s Consultation Forum Sustainable Energy. Here, they exchange best practices on energy transition and emissions reduction together with national military and industry representatives with the aim of reaping the benefits of renewables, such as increased energy sovereignty. In its 2024 ‘Strategy on Defence and Climate Change’, the defence ministry underlines the need to reform its energy supply by phasing in “technologies that ensure the operational readiness of armed forces against the backdrop of climate change and the energy transition can, at the same time, increase sustainability and reduce dependency on increasingly scarce resources”.

Yet, the ambition to combine combat-readiness with sustainability still trails developments on the ground.

“Reducing emissions in the area of military mobility remains a challenge,” a defence ministry spokesperson told Clean Energy Wire. “It’s clear that climate protection must not impede the capabilities of our weapons systems,” the spokesperson argued.

An additional 100 billion euros directed at the military after Germany’s 2022 ‘Zeitenwende’ security policy pivot, therefore, were used with the focus on improving the Bundeswehr’s operational capabilities to fulfil duties within NATO, rather than overcoming the use of fossil fuels.

The priority remains the same going forward, said the spokesperson. "The overarching goal of the government is to increase the deterrence and defence capabilities of the Bundeswehr."

But could the development of low-carbon technologies ultimately see a push thanks to the military adopting and upscaling new technologies?

Julian Popov, former Bulgarian environment minister and now fellow at the Brussels think tank Strategic Perspectives, in early 2025 warned that Europe could ill-afford ambiguities in aligning military spending with climate action and adaptation to contain costs and reap co-benefits. The EU’s defence plans that include investment of up to 800 billion euros by 2030 would “serve as a major driver for European industry” in steel and aluminium production, satellite and drone technology, batteries, or green hydrogen as a basis for climate neutral synthetic fuels, Popov argued.

“Climate-neutral synthetic fuels will play a role in our planning for new weapons systems to be compatible with NATO’s single fuel requirements as well as with existing engines and vehicles,” the defence ministry spokesperson said. However, “this currently still runs into supply challenges on the market”, the spokesperson added.

The German government’s plans for the ramp-up of a green hydrogen economy have faced significant uncertainties in the past months, while private companies such as Rheinmetall are increasingly betting on the technology. Germany’s largest arms manufacturer in May said it eyes a fast shift away from fossil fuels to synthetic fuels made with renewables, calling the step "indispensable for modern defence readiness”.

Germany in particular is considered well-placed to benefit from the EU’s defence investment push, which require two thirds of the purchased goods to be sourced in Europe. Due to the country’s still vast industrial base, the German government’s decisions are particularly important when it comes to tapping into synergies between military spending and other policy areas such as climate action. Devoting defence funds to help launch green lead markets for steel and other sustainable materials would also make good on promises in the Merz government’s coalition treaty and chime with calls by business leaders to strengthen green procurement.

The coalition agreement promises the creation of "lead markets" for climate-friendly products, for example through "quotas for low-emission steel production, a green gas quota or public procurement requirements." A draft law to speed up procurement in general, adopted by the government in early August, would allow the government to set green requirements by way of a regulation, but the reform has yet to be debated by parliament. Asked about whether such a regulation would or could also apply to Bundeswehr procurement, a spokesperson from the economy ministry told CLEW that it was too early to tell. "The actual wording of the regulation – and thus also its scope – still needs to be discussed and debated."

A separate draft law to speed up military procurement, however, does not mention the option of introducing climate requirements, and the defence ministry has shown little interest. 

Asked about whether the government has plans to mandate the procurement of climate-friendly basic materials like green steel for example through quotas, the defence ministry spokesperson said: “Our goal must be to ensure that the operational readiness of our troops is not compromised.” Only then could the military fulfil its core mission of defending the country and its allies. “Climate action and sustainability measures can therefore only work where they are in line with the mission of the armed forces. Wherever possible, we combine our core mission with climate action.”

For Rainer Bernnat, expert for the transformation of the defence and security sector at consultancy PwC, efforts to expand synthetic fuel production for the military appear promising.

At the same time, he said it was unlikely that the defence spending boost will trigger a bonanza for Germany’s industry and facilitate green production procedures due to its relatively small size. Germany’s auto industry, for example, contributed nearly 500 billion euros per year to the country’s GDP, the defence industry observer said.

“If you now add up all investments in defence industry production expected under the growing budget, you may end up with a bandwidth between 20 and 30 billion euros per year – which is only five percent of the economic output of the automotive sector.” If all other industries are included, the share of course shrinks even more.

“This means that doubling or even tripling defence spending will not contribute substantially to Germany’s economic growth – nor its emissions.”

Germany's low R&D spending on security impedes transfer of technology breakthroughs to civilian industry sectors 

At the same time, the share of research and development (R&D) spending on security is much lower in Germany than in other Nato states, Bernnat cautioned. While the US, for example, devoted almost half (47%) of its R&D budget on defence in 2022, the share was over ten percent in France and only about five percent in Germany. “This makes the transfer of technology breakthroughs from defence innovations to civilian industry sectors more difficult.” Increased defence-related research could help to speed up development of climate neutral fuels and other technologies and reduce reliance on US equipment, he added.

“As long as equipment from the US continues to make up the bulk of new armament procurements, it will be difficult to derive sustained economic benefits from higher military spending,” Bernnat said. According to a 2025 report by the Kiel Institute for the World Economy (IfW), higher research spending in the military would also help to tap into benefits from the defence push for the wider economy. Greater research efforts in Europe into cutting-edge technologies could reduce the reliance on US-made weapons and technology, and turn the defence budget into a long-term supplement for economic growth, the researchers said.

While there is clear potential for a greater role for low-carbon technologies in the future defence and security architecture, for example for powering large data centres for drone warfare and cybersecurity, Germany first would have to clarify its military role in a re-armed Europe.

“The question of what scenario we are preparing for needs to be answered first before procurement decisions are made,” Bernnat said. The likely scenario of Germany as a military logistics hub would imply strengthening capabilities in logistics and transport. “This should primarily drive investment decisions.”