Possible cuts to climate fund in Germany's 2027 budget raise industry and NGO concerns

Austerity plans by Germany’s government could affect the country’s Climate and Transformation Fund (CTF), raising concerns in industry and civil society that support programmes might be cut. Finance minister Lars Klingbeil from the Social Democrats (SPD) plans to shift 2.7 billion euros in revenue from carbon pricing from the Fund – a key vehicle for many of the country’s energy transition and emission reduction measures – into the core budget, newspaper Frankfurter Allgemeine Zeitung reported. 

Klingbeil is expected to present details on the CTF budget planning on 22 July, reported Tagesspiegel Background. 

EU member states are required to use all collected revenues from the ETS – or an equivalent financial value – to support climate action and energy transformation. The CTF will also be topped up with money from Germany’s 500 billion euro-special fund for infrastructure and climate neutrality over the next decade, but revenues from the CO2 price remain its main source of funding. The fund is used to finance support for heating modernisation, electric vehicles and other climate-friendly technologies. 

Klingbeil's plans were criticised by a wide range of stakeholders. Sepp Müller, deputy parliamentary group leader of chancellor Friedrich Merz's CDU, which is in a coalition with Klingbeil's SPD, told the newspaper that his party intends to uphold the CTF as an instrument of climate, and to ensure that carbon pricing earnings are returned to citizens. “Public acceptance of a market-based approach depends on this,” Müller argued. 

The Association of Local Utilities (VKU) said the finance ministry’s plans would be “an absolute disappointment.” Despite taking on record debt, the government was failing to set adequate conditions for infrastructure modernisation. “The government has opened up signficiant financial room to manoeuvre with 200 billion euros in additional debt, but it is not using it due to insufficient financial consolidation efforts,” which amounts to a “missed chance” for more investments into the future, said VKU head Ingbert Liebing. Redirecting funds from the CTF to the core budget ultimately would mean misappropriation, including the CTF’s share financed through the 500 billion euro-special fund.

Sabine Nallinger, head of the foundation KlimaWirtschaft, said shifting money from the climate fund to the core budget would “set a dangerous precedent” that turns earmarked climate funds into “bargaining chips” while also damaging acceptance of emissions trading. “If savings need to be made, cuts should be made to climate-damaging subsidies first,” Nallinger said. Germany is now facing several important milestones in scaling up energy transition technologies, requiring a reliable support regime to ensure a smooth transition, she added. 

Steel industry lobby group Wirtschaftsvereinigung Stahl called the possible shift of funds away from the CTF a “warning shot” that could signal wavering transformation support to the industry. “The opposite is necessary,” said the group’s managing director, Kerstin Maria Rippel. Industry pays for emissions allowances with the expectation that these funds will be channelled into support for a climate-friendly transformation. If this were no longer the case, the budget reshuffling would undermine other industrial support schemes, such as the industry power price, she argued.