Executive summary
Germany responded swiftly to the global energy crisis and its energy transition is underway. The German economy has weathered the global energy crisis much better than expected at the outset of the crisis. Germany is quickly cutting its dependence on Russian energy and managed to broaden the supply base of its energy. Germany has a legally binding goal to phase out coal by 2038. In the context of Germany’s nuclear exit, renewables need to grow even faster, if the country does not intend to increase its reliance on fossil fuels.
Germany needs to address the triple crisis of energy, climate and biodiversity in an integrated way. In practice, the federal government faces several trade-offs. With a view to avoiding severe energy shortages, the federal government temporarily postponed the phase-out of several coal plants. Fuel price support may have been necessary but also impacts progress on climate goals. These are temporary setbacks in Germany’s energy transition, but the long-term impact can be moderate if these emergency measures remain time-bound. Energy savings and energy efficiency need to remain the top priority.
Energy policy reforms are expected to boost renewables. The Easter Package 2022 lays out ambitious targets and makes significant changes to the country’s regulatory framework, including measures to introduce higher auction volumes and accelerate permitting procedures. The 2023 Renewable Energy Sources Act sets a new legally binding target to increase the share of renewable energy sources to 80% of electricity consumption by 2030 (previously at 65%). Bottlenecks such as grid expansion and skilled labour shortage need to be addressed.
Germany has ambitious climate targets with the aim to reach climate neutrality by 2045 and achieve negative emissions after 2050. National targets are enshrined in the Federal Climate Change Act, which was approved in 2019 and amended in 2021. Some Länder such as the state of Baden Württemberg, have set more ambitious subnational targets. Germany is still among the ten largest greenhouse gas (GHG) emitters in the world. In 2020, the country managed to reduce its emissions by 40% compared to 1990 levels, one of the largest percentage emission reductions since 1990 in the OECD area. However, emission reductions related to the COVID-19 pandemic proved to be only temporary and have quickly been reversed.
Bold action is needed to promote green mobility within an integrated strategy. Many opportunities such as broader use of speed limits, tolls for passenger and light duty vehicles, as well as congestion charges in urban areas have not been taken; others, such as, increased parking fees, are slowly materialising. The share of electric vehicles (EVs) is rapidly growing but remains modest in the total vehicle stock. Germany still has a way to go to reach the federal government’s goal of 15 million EVs and 1 million charging points by 2030. It needs to move from individual policy measures mainly focused on “making cars cleaner” to an integrated sustainable mobility strategy. The digital Deutschlandticket is an important step towards making train trips more financially competitive for citizens.
Germany has reduced several environmental pressures, despite an important industry base and dense population. It improved air quality, and is one of the best performing countries in environmentally sound waste management in Europe. However, the country made little progress to reduce the level of municipal waste and needs to strengthen waste prevention. It is working towards a more circular economy and more sustainable supply chains. Water quality remains a concern and water infrastructure needs to become more climate resilient. Sustainable farming is progressing, but nitrogen surpluses remain a challenge. Despite progress, ambition in the agricultural sector will need to be further raised to reverse the loss of species and improve the sector’s climate balance.
Taxes need to be better aligned with the polluter pays principle. Germany’s environmentally related tax revenue (ERTR) has declined over the past decades. The ratio of tax to gross domestic product (GDP) and the share of ERTR in total tax revenues are both far below the OECD Europe average. The ERTR downward trend is not driven by a decrease of environmental pressures, but mainly by the devaluation of ERTR. In line with good practice, Germany should consider introducing annual inflation adjustments. The level of transport-related taxes is far below the OECD average. Germany is one of the rare countries that does not tax vehicle purchase or registration. Federal government support often sets the wrong incentives at the expense of sustainable transport modes (e.g. company car privilege, commuter allowance). Little progress has been made on developing a fair and efficient road pricing system.
Close to 90% of Germany’s GHG emissions are priced, but carbon prices are low in non-road sectors. Introducing a common carbon price floor across sectors would improve the effectiveness of abatement decisions. Moreover, Germany would need to further reduce the number of exemptions and expand carbon pricing to sectors that are not yet covered. In 2021, the federal government introduced a national ETS, mainly targeting the transport and heating sectors.
Germany should improve policy coherence and phase out potentially environmentally harmful support. The amount of environmentally harmful subsidies has been growing during the past decade. Subsidies with negative effects on the environment were estimated at EUR 65 billion in 2018 compared to EUR 48 billion in 2008. As already highlighted in the 2012 Environmental Performance Review, many long-term subsidies (e.g. diesel discount) are no longer justified on economic or social grounds and should be phased out. Little progress has been made in phasing out potentially environmentally harmful support in agriculture. The federal government should follow through on its intention to systematically screen existing and proposed subsidies to identify economic, environmental and social inefficiencies.
Germany’s exposure to the impacts of climate change is growing. In the past two decades, the country experienced a considerable number of extreme weather events, notably floods, storms, droughts and heatwaves, all of which had a significant impact on livelihoods, the environment and the economy. Due to increasing climate change, these extreme events are on the rise in many regions of the country. The flood disaster of 2021 contributed to increasing citizen acceptance for stronger climate action and recalls the urgent need to prevent future loss and damage from these types of extreme climate events.
Extreme weather events cause significant loss and damage. The direct damage recorded from climate-related hazards per unit of GDP from 2005 to 2021 is among the highest in the OECD countries. Floods pose a particularly significant climate-related risk in Germany. Between 2000 and 2021, flash floods – floods and extreme precipitation – caused 230 fatalities and more than EUR 71 billion in total damages. Sea-level rise and storms pose a high risk for the 3.2 million people who live in areas at risk of coastal flooding. Germany is increasingly exposed to heat stress. Between 2018 and 2020, nearly 20 000 heat-related deaths, mainly of elderly people, were recorded.
Germany needs to expand coverage of localised climate risk assessments nationwide and prioritise adaptation investment in the most vulnerable areas to ensure that no one is left behind. Adaptation remains driven by voluntary action. Länder would need to play a more active role in supporting vulnerable local authorities. The use of comparable data and methods across levels of government would allow greater comparability at national level. To date, Germany has a broad range of different indicators, criteria and thresholds to analyse climate-related hazards and related risks.
The federal government is scaling up its engagement on climate change adaptation across all government levels. A new Federal Climate Adaptation Act, under preparation, is meant to guide the federal government and Länder in the development and implementation of a national adaptation strategy. The implementation capacity of subnational governments needs to be further strengthened. Germany is preparing concrete adaptation indicators and targets across different economic sectors, an exercise that will be relevant for other OECD countries. Adaptation funding needs are set to grow substantially, and lack of funding already constitutes a major barrier to building climate resilience.
Germany’s biodiversity has degraded over the past few decades. Despite efforts to protect biodiversity, the fundamental loss of biodiversity has not been reversed. Progress towards many national targets adopted under the Convention on Biological Diversity (CBD) has been insufficient. Key pressures include intensive farming and forestry, landscape dissection and urban sprawl, soil sealing and pollutants. About 30% of forest area is affected by high tree death rates and tree crown defoliation, a key indicator for tree vitality. Urban development has increased rates of soil sealing, leading to greater risk of flooding, higher vulnerability to heat stress, and significant biodiversity loss in urban areas.
The EUR 4 billion Federal Action Programme on Nature-based Solutions for Climate and Biodiversity (Aktionsprogramm Natürlicher Klimaschutz, ANK) could become a game changer. It is set to contribute significantly to Germany’s LULUCF targets while promoting biodiversity and ecosystem health, resilience to climate impacts and sustainable land management. The Länder could become key partners in delivering the ANK programme. For the programme to deliver short-term results (2023-26), stakeholders should rapidly agree on key priorities, eligibility criteria and delivery, funding and accountability mechanisms. The short timeframe and large scope of the ANK represent a major challenge. ANK funding needs to be aligned and co-ordinated across sectors and government levels.