Germany’s Climate And Energy Policy After The Election – Policy Making in the Backdrop of Security and Economic Challenges

After the election two weeks ago, Friedrich Merz, a conservative and former corporate lawyer for Blackrock, is likely to become the next chancellor of Germany. The campaign was dominated by the economy and migration, while the climate crisis played an insignificant role. According to a recent poll, Germans consider the economic situation and migration as most pressing issues, with 43 % and 42 % ranking them as top concerns, respectively. Germany has long been a key advocate for climate action. But according to Simon Franzmann, Professor for Democratic Studies in Göttingen, parties emphasize growth and the promise of wealth as key topics, while climate targets move back on the political agenda. Will Germany still be able to decarbonize its economy in this political setting? And will it still lead on climate policy after turning against its incumbent center-left coalition?

Merz Wins, The Center Loses, Right And Left-Wing Parties Gain Votes

The center-right Christian Democratic Union (CDU), and Christian Social Union (CSU), hereafter Union, won the largest share of votes, 28.5%, while Chancellor Scholz’s Social Democrats (SPD) saw their support plummet to 16% – the party’s weakest result since 1887. The Greens and Liberals also suffered defeats, both part of the so-called traffic light coalition that governed with Scholz’s SPD until it collapsed in November 2024. The Greens lost three percentage points compared to the last election, while the Liberals failed to reach the 5% threshold required to enter parliament. Robert Habeck, green candidate and Minister of the Economy and Climate Action, announced he will not assume any key  position within the green party. After moving back to the opposition, and suffering an election defeat, the Greens have to reorganize themselves. They are likely to play the role of an opposition party advocating for stricter targets and implementation, instead of shaping climate policy in government.

Although Friedrich Merz clearly won the election, his results fell short of expectations, as some pre-election polls had placed the Union at 32%. Meanwhile, the far-right extremist party Alternative for Germany (AFD) achieved its best result since its establishment in 2013, winning 21% of the vote. The AFD, who is suspected by German domestic intelligence to be anti-constitutional, is known for denying climate change and fueling anti-immigrant sentiments. The leftist parties also gained support, a surge of political extremist factions on both sides. What is Merz’s attitude to climate and energy policy in this delicate political environment?

Merz Ambiguous Views On Climate And Energy

On the one hand, Merz stands behind Germany’s legally binding pledge to reach net-zero emissions in 2045. He also firmly sticks to the European Green New Deal. On the other hand, Merz labeled wind turbines as a “transition technology”, expressing the hope that “we will dismantle them by one day, because they are ugly and do not fit into the scenery”, while also criticizing green steel and hydrogen. Meanwhile, the CSU called green steel a “misguided path”, perhaps a campaign maneuver to attract anti-green voters from AFD. Both Merz and the CSU stepped back from their statements after facing harsh opposition from steel industry: Steffan Rauber, CEO of Germany’s fourth largest steel producer, AG der Dillinger Hütte, stated that “we are implementing our decarbonization project as planned, 100 percent, with everything that comes with it”. Regardless of Merz ambiguous views, the Union parties seek decarbonization, deregulation, and emphasize a market-based approach to climate policy – the party program highlights carbon pricing as a “key instrument”, plus supplementary measures to reach net-zero. A dismantling of climate policy à la Trump cannot be expected with CDU and CSU. 

Climate Policy In A Grand Coalition

Merz is likely to become the next chancellor, as his party secured the largest share of votes. However, he relies on the support of SPD to gain a majority in parliament, whose views are comparatively more moderate. He has to seek a grand coalition between Union and SPD to come to power. Merz has stated that he aims to reach a coalition agreement by mid-April. This agreement ultimately decides the future path of Germany’s climate and energy policy. What are Union’s and SPD’s approaches to decarbonize the economy? What are points of contention? The following paragraphs outline the most important policies in the areas of energy, industry, transport, and buildings. A comprehensive list of the proposed measures can be found in the table below.

Energy. Both parties agree to uphold Germany’s renewable energy targets and continue expanding renewable capacity and grid infrastructure. They also support the coal phaseout. However, the Union insists that coal plants should only be decommissioned once sufficient gas backup capacity is in place. The party also advocates for a “pragmatic” power plant strategy, where “pragmatic” seemingly serves as a euphemism for prioritizing green-hydrogen-ready gas plants.

In general, the Union presents itself as “technologically open”, a phrase that appears frequently in its party program. Unlike SPD, CDU and CSU call for an expert review of what they call the “option nuclear”, to check whether the German nuclear phaseout can be reversed, and phased-out plants recommissioned. The Union also aims intensifying research for small modular reactors. The stance on nuclear energy is a key point of divergence between the SPD and Union. 

Germany’s major energy companies do not consider reversing the nuclear phaseout a viable solution: Jörg Michels, Nuclear Chief of EnBW, told a local newspaper that “the recommissioning of our five plants is practically irreversible”, while Leonard Birnbaum, CEO of EON, said he “has absolutely no desire” to support Merz’s nuclear plans. Since the industry leans toward the nuclear phaseout, SPD could make concessions to Merz, and agree to an expert review, hoping that it will support the decommissioning of nuclear plants. The Union’s “option nuclear” could become SPD’s bargaining chip to advance other positions, for example to ease Merz’s strict stance on migration.

Industry. Apart from energy, the industrial transition plays a key role to reach net-zero emissions, as the industry is the second largest emitter in Germany. The chemical, car and steel industry are also drivers of the German economy. The Russian invasion into Ukraine led to large military investments, which requires a secure supply of steel. It is therefore crucial for Germany to find ways to decarbonize key industries, including steel, while maintaining high competitiveness, and prevent deindustrialization.

To reduce costs for companies, Union and SPD promise to cut down grid fees, a significant cost factor of electricity fees. The SPD seeks to continue the Electricity Price Compensation for large industrial consumers, introduced by Scholz’s cabinet to prevent carbon leakage, and enlarge its scope to more companies. In addition to that, the Union proposes deregulation, as well as to increase research and development spending to 3.5% of GDP until 2030. CDU and CSU want to abolish the German Supply Chain Law, that requires large companies to monitor sustainability and working conditions along their supply chains. The Union also aims to “put a stop on burdens” form EU taxonomy and the EU Corporate Sustainable Reporting Directive. In their most purest form, these deregulation measures would significantly ease sustainability reporting. The Union’s idea of reporting relies solely on appeals to responsibility with little oversight. However, the actual scope of deregulation will be decided in coalition negotiations, as SPD disagrees with extensive deregulation. Union and SPD perhaps agree to soften the German Supply Chain Law, while sticking to EU regulations, which are more difficult to change.

Another open point between the two coalition partners is the scope of government spending for industrial decarbonization projects. Scholz’s traffic light coalition introduced carbon contracts for difference (CCFD), under which 15 companies received funding. It also agreed on a €2 billion grant for Germany’s first direct reduction plant (DRP) for carbon neutral steel, build by thyssenkrupp, Germany’s largest steel producer. The funding for CCFDs and the steel project was halted, due to the traffic light coalition’s collapse in November last year. It is unclear whether a grand coalition of SPD, CDU and CSU will continue support the aforementioned funding schemes. While SPD favors to maintain funding, the Union does not explicitly mention how to allocate government grants to companies. Instead, it states in its program to support the EU project line “Important Project of Common European Interest” (IPCEI) and related funding instruments. Thyssenkrupp steel’s DRP falls within this line, whereas CCFD funding is not part of it.

There has been calls from the industry to quickly clarify future funding, as well as to build out the H2-grid: Dennis Grimm, CEO of  thyssenkrupp steel, stated that “we will complete our first direct reduction plant … Green steel is the business model of the future. But here, too, there are obstacles on the way ahead, above all the faltering ramp-up of the European hydrogen infrastructure and the, as yet, hardly existent supply of sufficient affordable hydrogen. Here, too, politicians must take action in order to achieve the ambitious targets”. The traffic light coalition laid the fundament for a 900 km long H2-grid. The Union aims to extent the grid, and connect “every major economic hub” to it.

Transport. The transport sector is no exception when it comes to deregulation. The Union seeks to reverse the 2035 EU ban on combustion engine cars and relax EU car fleet CO2 limits. Its program emphasizes individual mobility and, again, “technological openness”. CDU and CSU advocate for e-fuels rather than electric vehicles despite its relatively low technological readiness, and prioritize car infrastructure over rail. The Union also rejects what they refer to “anti-car attitudes”, and a “ban of cars in city centers”.

The SPD, in contrast, focuses on fully electrifying the car fleet without mentioning e-fuels. It supports maintaining the ban on combustion engine cars, and aims to “prioritize public transport in urban centers where possible”. The parties’ differing views on transport policy are also evident in their stance on highway speed limits. The SPD supports a 130 km/h limit, while the Union firmly opposes it, despite its potential to quickly reduce emissions. According to a recent study, a limit of 100 km/h on highways, and 80 km/h on country motorways, could lower total emissions by 1.7%.

Buildings. When it comes to buildings, CDU, CSU and SPD also have differing views. The Union aims to repeal the Building Energy Law, which was introduced by Angela Merkel’s fifth cabinet in 2020 and amended by Scholz coalition in 2023. Under this amendment, new buildings must use at least 65% renewable energy for heating, either through heat pumps, or connection to local district heating systems, and other renewable sources. Additionally, cities with more than 100,000 inhabitants must develop district heating plans by mid-2026, cities with less than 100,000 inhabitants by mid-2028. The law also mandates a ban on fossil fuel boilers by 2045. According to a news report, the Federal Heating Pump Association is alarmed that changes to the Building Energy Law “could lead to irritation among consumers, businesses, and industry, and trigger reluctance in the heating market”. The SPD supports maintaining the law but wants to shift its focus from heat pumps to district heating. This shift comes after heat pumps were heavily criticized by German media, right leaning parties, and miscommunications by the green-led Ministry for the Economy and Climate Action when introducing the law. Since then, heat pumps have a bad reputation, despite their huge potential – the Association of German Engineers describes them as an “environmentally friendly, viable, and sustainable alternative” to oil and gas boilers.

As in other sectors, Merz’s Union promotes “technological openness”, endorsing any heating system vaguely classified as “low-emission heating”. Similar to its approach in the car industry, the Union advocates for e-fuels, and green heating oil, planning to introduce “pioneer markets” for green oil. Additionally, CDU and CSU agree on current plans to expand the European Emission Trading System to transport and buildings, while implementing a social compensation mechanism for low-income households. The party also proposes exempting energy-efficient renovations from the inheritance tax to incentivize building upgrades.

The Right Direction, The Wrong Speed, The Missing Strategy

The Union and SPD agree on the fundamental target to reach net-zero in 2045, and to intensify the buildout of renewable energies. A grand coalition is unlikely pivot away from Germany’s key climate policies – it is heading into the right direction toward a green economy. On the other hand, proposed measures are insufficient to meet the net-zero target in time. The Council of Experts on Climate Change highlighted in a press statement, that extensive carbon pricing alone is not sufficient to reach net-zero.

Although Germany achieved its 2023 intermediary goal of 720 million tons of CO2eq, as recorded in the Climate Change Act, it missed its targets in the transport and building sectors. The Council of Experts on Climate Change notes that “in both the buildings and transport sectors, the reduction of emissions is insufficient, which is primarily due to the slow transition to a non-fossil capital stock”. The Union’s retraction of the ban of combustion engine cars, and reversal of the Building Energy Law, would de facto make decarbonization in these sectors even slower. The former would allow combustion engines cars to operate for a longer period of time, while the later disincentivizes heating pumps, and energy-efficient heating.

The Council of Experts on Climate Change sees efforts to build a carbon-neutral capital stock, in particularly in the energy sector. However, it also observes that “higher energy prices and economic and structural declines in demand were primarily responsible for emissions reduction” in the industry sector. It is therefore crucial for the new government to develop an industrial decarbonization strategy. Peter Leibinger, President of the Federation of German Industries, pointed out that “the companies expect the future federal government to quickly reduce bureaucracy and present a bold strategic plan for more investments and the further development of Germany as a business location, rather than piecemeal measures to alleviate symptoms”.

Germany definitely has the potential to reach its climate goals, while maintaining its international role as a climate advocator. However, the new government needs to make more commitments for the industry, transport and building sector. Apart from this, it has to address three crucial points to secure that Germany will reach its own targets and European obligations: 

Pragmatic Policy Making. The election campaign is over. Labeling wind energy as a “transition technology” did not attract voters to change from AFD to the Union. Merz’s approach seemingly was to overtake the wording of the far-right to weaken them. Regardless of the topic – migration, climate change, Germany’s faltering economy – this strategy failed. Instead of attracting voters, the opposite was the case. CDU and CSU lost over 1 million votes to AFD. The new government should focus on practical policy making, instead of superficial populist solutions, such as arbitrarily overruling or reversing current legislation. The Union stands behind Germany’s 2045 net-zero targets. In order to reach this goal, it cannot solely rely on deregulation and extensive carbon pricing. After all, if CDU and CSU do not find ways to support the transition in transport, and building, consumer prices will surge, because these sectors will be part of the European Emission Trading System (ETS II). Heating emissions, for instance, will be charged from 2027 onwards. Private households have to pay more for high-emission heating. With no plan to decarbonize buildings, Merz is likely to meet the opposition of houseowners. He will be held responsible that households has to pay a high carbon price for heating. Merz also supports European emission reduction targets, including the EU Effort Sharing Regulation, under which member states have to pay fines in case they do not reach their targets. In case Merz does not ramp up climate action to meet European targets in transport, building and industry, Germany has to pay a high price for it. Merz cannot alter EU Effort Sharing as easy as German legislation, and thus has no other choice but to stick to European emission reduction targets.

Budget Reforms. The new government has to urgently decide on how to fund climate change measures. There are several proposals that need to be discussed quickly, such as reforming the German debt quotas, and taking up extraordinary debt (Sondervermögen). Extensive reform would require a 2/3 majority in parliament. The far-right AFD and Left Party (Die Linke) combine more than 1/3 of seats in the newly elected parliament – they can effectively block any reform, which was not the case prior to the election. This means that Merz has to push for reform before the formation of the new parliament in mid-March. Reforms for public finance are also a pressing issue, because Europe has to heavily invest in its security, as U.S. military support under Trump’s Second Administration is largely at stake.

Grand Strategy. A grand coalition has to deliver a grand strategy on climate and security, coordinated with Germany’s European partners. The geopolitical setting in Europe has changed significantly, after U.S. Vice Pres. Vance called for U.S. troop withdrawal, and denounced European leaders by saying that Europe’s threat comes “from within”, instead from Russia or China. The US is not a reliable partner for Europe anymore, which can also be seen by the outrageous scolding of Ukraine’s Pres. Zelensky at the White House last Friday – it marks a historic shift of US foreign policy for Europe. Merz has the important task to coordinate European security and climate change in the backdrop of a completely different security setting, a faltering German economy, and resurgence of the far-right. It is crucial to find a coherent security strategy that integrates climate, as both cannot be played out against each other. A recent study, co-published by the German Ministry of Defense, emphasized the connections between national security and climate change – both have to be thought together.

The challenges for the new government are enormous. The Spiegel, one of Germany’s leading magazines, called Merz the “most important man of Europe”. Even though Merz would move into office with no experience in government, he would have to solve European security, climate change, pressing economic issues, and migration. This is only possible with a pragmatic approach, while keeping an eye on finance, and developing a grand strategy – this would protect the German democracy from extremists like the AFD, and the climate, the basis for any economic activity of our future generations.

Climate Policy of Union and SPD 

	Union (CDU/CSU)	SPD
Targets and Key Strategy	Net-zero 2045, stick to EU Green New Deal EU ETS* as key instrument, widen the scope of carbon price to other sectors (primarily building and transport)	Net-zero 2045, stick to EU Green New Deal More regulatory, instead market-based instruments; ETCS* for private households and SME only as “complementary measure”
Energy	Resume RE** buildout as planned Build a H2 network, that connects all major economic hubs of Germany Allow more gird above ground to speed up gird expansion; more energy storage; intensify efforts for European cross-country gird Energy markets: support and extend EU energy union; create a single bidding zone in Germany; create a “technologically open” capacity market Conduct an expert review for “option nuclear” to check whether recommissioning of phased out plants is possible; conduct research on SMRs*** Stick to coal phaseout 2038, and only allow decommissioning of coal plants once a sufficient gas back-up capacity is installed; seek a “pragmatic” power plant strategy	Resume RE** buildout as planned (program does not mention fossil energy future) Establish H2 reserve, and seek strategic partnerships for H2 procurement Support decentralized energy in form of balcony PV, and citizen energy partnerships Stick to nuclear phaseout Stick to coal phaseout 2038
Industry	Deregulation, cost reduction, and research: Introduce quota for green steel Introduce high-tech research agenda for future technologies; increase research on (direct) carbon capture and storage; increase R&D spending to 3.5% of GDP by 2030 (2024 = 3.08%) Abolish German Supply Chain Law and “put a stop on burden” form EU taxonomy and the EU Corporate Sustainable Reporting Support circular economy and secondary extraction of resources through recycling in Germany Support EU “Important Project of Common European Interest”, EU “Chips Act”, and related funding instruments Grid fees: “we do not support additional grid fee burdens for large industrial consumers”	Continuation of current policy mix: Create lead markets for green steel, e.g. fixed share of green steel for railway and gird buildout Support circular economy Grid fees: reduced grid fees for energy intensive companies; more sectors shall profit from Electricity Price Compensation
Transport	Focus on individual transport and technology openness: Reverse 2035 EU ban for combustion engine cars Reform EU car fleet CO2 limits, reject fines for German carmakers Technology-open car fleet: support charging station buildout; bet on e-fuels as future car fuel Car-friendly policy: reject “anti-car attitudes”; reject ban of cars in city centers; reject speed limit on highways; increase commuter allowance Rail: increase separation of Deutsche Bahn into privately-operated transport and state-controlled infrastructure segment	Focus on electrification of car fleet and public transport: Stick to 2035 EU ban for combustion engine car Reject fines for German carmakers Electrification of car fleet: support charging station buildout; temporary tax relief for EV**** purchases (for cars made in Germany); reform corporate car depreciations; extend vehicle tax exemption for EV**** until 2035 Combination of car and public transport: “prioritize public transport in urban centers, where possible”; keep German Ticket with monthly price of €49 for public transport with rebates for low-income groups; mobility pass for 17 year-olds with €500 for car license, public transport tickets, and bicycle purchase; support regional bicycle infrastructure; speed limit of 130 km/h on highways Air and shipping: support air traffic tax on EU level; create national port strategy
Argiculture	Reverse fossil tax for diesel fuel used for farming Prohibit tax on bio- and synthetic fuels Reduce “bureaucracy for farmer” and ease EU taxonomy Reject “forced” conversation of agricultural land into nature land	Subsidies should benefit climate-friendly farming more than conventional farming  Stick to current regulatory mix and taxes
Buildings	Reverse Building Energy Law Focus on technology independent “low-emission heating”, and introduce quotas for “green heating oil” as well as green oil “pioneer markets” Extend CO2 pricing to heating, and design social compensation mechanism Keep existing energy efficiency standard E55 for new buildings Incentive energy efficient renovations by exempting them form the inheritance tax	Stick to Building Energy Law: heating systems in new buildings have to operate with at least 65% RE (i.e. district heating or heating pumps); cities with more that 100,000 inhabitants have to draft district heating plan until mid-2026; ban of fossil boilers 2045; shift focus from heating pumps to district heating and amend law accordingly Introduce price watch for heating costs Introduce heat pump leasing for low-incomes
Trade, Security and International Partnerships	Create national security council and security strategy (climate not explicitly mentioned) Support raw material and energy partnerships Take “global responsibility” through technology-open knowledge transfer Prohibit foreign takeovers of security relevant technologies (including energy gird) by “systemic rivals”	Resume climate advocacy in Climate Club, operating under G7/G20 framework; support energy partnerships through Climate Club (e.g. Just Transition Partnerships) Urge for de-risking and resource strategy on EU level Stick to EU Carbon Border Adjustment Mechanism, add an export bonus
Adaption	Adaption measures should follow cross-sectoral track Create mandatory insurance for natural hazards	Create communal support program for climate adaption
Finance and Equality	Stick to debt limit Create climate bonus for citizens and lower electricity fees “for all” financed through CO2-pricing revenues	Reform debt limit Support global billionaire tax Create €100 billion investment fund to mobilize private and public capital for electricity and heating grid, H2 infrastructure, EV-charging stations Made-in-Germany tax bonus: 10% tax relief for investments in “future technologies” within Germany Create climate money for citizens (finance scheme not clarified) Stabilize grid fees for households, then strive for 3 ct/kwh cap
Sources: Party programs of CDU/CSU, SPD, and Clean Energy Wire. * European Union Emission Trading System  ** renewable energy *** small-modular reactors **** electric vehicles