From a country that set-out, at a pace unmatched by others, to transform its energy sector by phasing out nuclear power by 2022 and replacing it with renewables – the so-called ‘Energiewende’ (the word even made it into the English language) – observers would have expected it to come out a clear ‘winner’ amongst industrialised nations in the quest to bring down GHG emissions. While we’ve outlined that it hasn’t been quite as smooth a journey as many would have anticipated, Germany’s long history in environmental protection now stands the country in good stead for turning decarbonisation into a positive business case.
Opportunity 1: Risk awareness and granular data support green decision-making
(Green) Knowledge is (green) power. And no one could argue that German authorities aren’t unstintingly gathering data about climate change and other environmental issues to not only inform their policy making but also help businesses and private households to stay up to speed with green developments. In addition, they can make use of similar EU data.
We’ve picked a few examples of how the German authorities are using data: In April last year, the German Environment Agency published a comprehensive research report that drilled down to specific aspects of climate change and their impact on the German economy. The report concluded that for regions outside the EU, the three climate change impact chains included in the model analysis (‘change in labour productivity’, ‘change in agricultural yields’ and ‘rise in sea level’) will result in major welfare and GDP losses, especially in China, India, South and Southeast Asia, the Middle East and Africa. The purchasing power of countries in those regions would decrease considerably over time compared to the reference development without climate change, leading to substantial indirect negative consequences for Germany as a trading partner. The report recommended that German businesses should aim for a targeted regional combination of trade and climate policy measures, which should include:
- a strategic strengthening of German trade relations with world regions with low transfer effects for transnational climate risks (for example EU, Turkey, North America),
- a broader diversification of the value chains of enterprises in order to be less dependent on individual (vulnerable) countries,
- strategic support for adaptation measures in world regions that trigger particularly strong negative transnational trade effects in climate change (China, India, Southeast Asia). 
The risk assessments and the proposals are now guiding German foreign climate policy as well as the climate work of a number of industry organisations.
The “Umweltmonitor” from the German Environment Agency, extensively covered in the German media every year, is one example of annual detailed measurements being taken across the country to get an in-depth picture of the state of the environment. The reporting tool, which uses the traffic light system to indicate the severity of issues, focuses on ten key areas, which include climate, water, air (pollution), energy and transport. For 2020, the pollution of domestic rivers, the state of ecosystems and (a rising) temperature fell into yellow/red categories while air quality was awarded a green light.
Another example is the biannual representative study on ‘Environmental awareness’ from the Federal Ministry for the Environment, Nature Conservation and Nuclear Safety (BMU) and the German Environment Agency. Every two years since 1996, data on environmental attitudes and conduct of two cohorts of 2,000 citizens are collected and placed in the context of societal developments. The study maps three central dimensions of environmental awareness: emotions regarding the environment, environmental cognition and conduct with regard to the environment. The results of this survey have formed and are forming an important basis for the development of environmental policies and communication in Germany and are also providing businesses with a unique (and cost-free) opportunity to gain great insight into the green expectations of their customers.
Opportunity 2: Putting money where its mouth is – and an historic court ruling
In September 2019, with public pressure growing and Germany turning into an epicentre for the ‘Friday for Futures’ protests in Europe, the German coalition government agreed on a €54billion climate programme aimed at helping the country hit its 2030 emissions reduction goal. While domestic environment organisations were quick to condemn the programme as ‘toothless’ and the budget to be well below what is required to fund a minimum of measures, critics still acknowledged that the announcement signalled the country had woken up to the fact that tackling climate change must be its first priority and that it was willing to put money where its mouth is. A comparison: the underlying budget for the UK’s Ten Point Plan for a Green Industrial Revolution totals £12billion – less than a quarter of Germany’s €54billion.
The climate programme, which became law in 2019 as the “Climate Protection Act” obliges the country to cut greenhouse gas emissions by 55% by 2030, compared to 1990 levels. A key component to achieve this is the launch of a national emissions trading system this year to price CO2 emissions caused by the building sector and by traffic and transport. Companies selling heating fuel (heating oil, gas, or coal) and fuel for vehicles are obliged to buy one certificate for every tonne of CO2 emitted by the products they sell. Starting with a fixed price of €10 per tonne of CO2 in 2021 the price will increase to €35 per tonne of CO2 in 2025. After 2025, the market will set the price, within a fixed band. Germany’s and the EU’s climate targets will determine the quantity of issued certificates. Other key measures, apart from funding for research into low-carbon technologies and incentives for the industrial sector to increase its energy efficiency, include:
- A reduction of the production capacity of the country’s coal-fired power plants to 30GW by 2022 and 17GW by 2030, with coal power phased out by 2038 at the latest and renewable energy sources to generate 65% of Germany’s power mix by 2030.
- Continuation of the existing premium scheme for buying electric, hybrid, and fuel cell vehicles in order to achieve the country’s target to have 7-10 million electric vehicles registered by 2030.
- A total of 1 million car charging stations to be available across the country by 2030, with petrol stations required to provide charging stations on their customer parking areas.
- Financial support of €1billion per year (until 2024; increasing to €2billion per year as of 2025) for local public transport, encouraging bus fleet operators to switch to electric, hydrogen- and biogas-powered technology.
- A reduced tax on rail tickets (VAT on train tickets will drop from 19% to 7%), and increased charges on air travel.
In summer 2020, Angela Merkel presented the government’s €130billion post-pandemic recovery budget, of which €40billion has been allocated for additional green investments, in particular research in hydrogen, electric vehicle subsidies and a fund to help bring power costs down, which have risen steeply in recent years due to the fact that German consumers have borne the cost of decarbonising the system through green levy surcharges.
However, just when the government might have thought that it had clearly shown its ambition to revive its aim to become an ‘environmental champion’, Germany’s highest court ruled in April this year that key parts of the country’s climate legislation from 2019 are insufficient and hence the Climate Protection Act is partly unconstitutional. The landmark ruling came after ‘Fridays for Future’ and other climate activists, supported by Germanwatch and Greenpeace, had sued the German government in early 2020 over what they said was its insufficient action to tackle climate change.
As a result, the Constitutional Court demanded the government to introduce details on GHG reduction targets for the period after 2030 by the end of 2022. This resulted in new laws being drawn up to lift the 2030 reduction target to 65% and bring forward the net-carbon neutral date to 2045. To achieve these more ambitious milestones, the German government approved an ‘Immediate Action Programme’, worth 8 billion Euros, in June this year. The programme focuses on supporting the decarbonisation of the industrial sector, green hydrogen, energy-focused building refurbishments, climate-friendly mobility, as well as sustainable forestry and agriculture.
Opportunity 3: A collective belief creates an important economic sector around the circular economy
For a country whose private households assess that waste separation for the purpose of recycling is one of the most important contributions they can make to environmental protection, it is somewhat logical to rank first out of all EU member states in two circular economy indicators, namely the recycling rate of municipal waste and POLITICO’s Circular Economy Index.
From recycling leader, the country has also developed into an expert-nation for the circular economy concept: public circular economy initiatives are plentiful and well-coordinated at national level. The German national resource efficiency programme ProgRess, for example, outlines strategies for industry sectors and private consumers about how to foster resource conservation along the entire value chain, including improving the circular economy through better design, more sustainable and resource-efficient production and consumption and product after-use and waste management. In 2019, a new Packaging Act came into force with increased recycling targets, incentives for reuse and design for recycling, and mandatory registration with the central packaging registry.
The national ambition has paid off: With a Gross Value Added (GVA) in 2017 of around €28.1billion (a 31% increase from 2010) and total revenues of €84.1billion (18% up from 2010) the closed-loop sector is an important economic factor in Germany: Around 10,700 enterprises belong to the “classical” market segments “waste collection, transport and street cleaning” and “waste treatment and utilization”, while almost 1,300 companies offer “technology for waste management” and another 3,300 companies ensure the cycle of collected and recycled materials from waste management in the “wholesale of waste materials” segment. With around 310,000 employees, the closed-loop economy is one of the most important employers in the German environmental economy.
Furthermore, the country’s closed-loop economy has become an important player in global trade with plant, machinery and secondary raw materials: demand for modern technologies to build-up domestic disposal structures from countries around the world is soaring while equally an increasing volume of secondary raw materials are required to manufacture products. In 2018, Germany exported waste management technologies worth €5.1billion, and the country is very well positioned to take an even larger share of the closed-loop world market in the next few years.
Opportunity 4: German automobile industry – the country’s pride – goes fully electric
Amidst stricter EU emission standards – cars must achieve a 37.5% drop and vans a 31% decrease in CO2 emissions by 2030 compared to 2021 – the German automobile industry seems determined (after what looked like a hesitant start) to defend its global market dominance: currently offering 57 electric models between them, German car manufacturers have managed to grow their market share of electric cars in some major markets to a slightly higher proportion than their share of passenger cars overall: in the US, German electric cars made up 10% of the market (compared to a 8% market share of German cars overall) last year, in Canada 11% (10% overall market share) and in Japan 6% (5% overall).
As early as 2011, Munich-headquartered BMW announced its new sub-brand, ‘BMW I’, to market its fully electric and hybrid vehicles. Porsche introduced its full-electric model ‘Taycan’ in 2019 with Audi following suit in the same year with its ‘e-tron’ range, built in the world’s first carbon-neutral factory in neighbouring Belgium, and Mercedes launching its fully electric ‘EQC’ in the first half of this year. Commenting on these new purebred electric models the New York Times wrote: “German engineering is confronting Silicon Valley audacity head on …”, referring to Tesla’s decision to build a gigafactory in Berlin.
Last year’s figures (2020) give reason for German carmakers to remain optimistic despite pioneer Tesla’s success: the automobile manufacturers managed to double their global production of battery-electric and plug-in hybrid vehicles, producing 866,000 pure electric and plug-in hybrid cars. This meant that more than a quarter of all electric passenger cars produced worldwide came off the assembly lines of German manufacturers in 2020. The government’s plans to make one million car charging stations available across the country by 2030 and national incentives to stimulate demand for zero-emission cars should further help German car makers to increase sales, and so should the growing appetite for electric vehicles in the EU, where sales more than trebled in 2020 within a year to 10.5% now.
To complete our green picture of Germany, our third and last article about the country will analyse its Green Finance market.