The latest economic data, which point to weak economic activity in the country, have not been particularly favourable for Chancellor Friedrich Merz, the defender of German industry's interests. Despite his hopes of reviving growth, which has been sluggish since the 2022 energy crisis, business confidence in the country remains low. Merz hopes to improve the mood among Germans, which has deteriorated to some extent because of high energy costs that undermine international competitiveness. Meetings with representatives of the steel and automotive industries are scheduled to take place in Germany in the coming weeks. At the end of September an analytical review was published in which Germany's leading economic research institutes noted that hopes of improved growth in 2026 rest mainly on a rise in German debt-financed spending. The researchers warn that the still unchanged need for deeper reforms in the country must not be forgotten. Subsidies for an “industrial electricity price” are intended to provide relief for energy-intensive companies, although the research institutes warn that subsidies for individual consumers are not the right solution. The European Commission approved the state aid scheme back at the end of June; the timetable for the government's further work on this matter is unclear.
Carbon management. It will all happen “very soon”
Friedrich Merz's government is continuing with Carbon Capture and Storage (CCS) measures and support for the Carbon Capture and Utilisation (CCU) process in order to speed up the energy transition. In August the coalition submitted the first bill to permit carbon storage and transport. The German parliament must now debate this draft before deciding on the scale at which the technology will be used to reduce the country's CO₂ emissions. Frank Wetzel, State Secretary at the Ministry for Economic Affairs, said that turning away from carbon management solutions is no longer an option in Germany: “The ‘not in my backyard' principle can no longer be the right policy,” he stressed at a conference in Berlin at the end of September. CCS/CCU could also become part of the next round of the “climate contract” support scheme for industrial transition. Germany's Ministry for Economic Affairs promised the next round “very soon”, but researchers and opposition politicians believe that the delay is already harming companies that want to step up decarbonisation.
The climate action programme and transport issues
All the ministries involved submitted their planned measures to the Environment Ministry by the end of September, and Germany's new Climate Action Programme is beginning to take shape. The ministry announced that it would now start reviewing the individual proposals before drawing up a coherent document to be discussed within the governing coalition. Environment Minister Carsten Schneider promised to publish the full programme by the end of this year. Germany has a legal obligation to submit a programme of measures across all sectors to ensure that the country's 2030 and 2040 emissions reduction targets are met, which will not happen if current policy remains unchanged. Several environmental campaign groups called on the government to tackle the problems that have arisen in connection with high transport emissions. Although electric car sales in Germany are rising, obstacles to building a more comprehensive and more attractive public transport system as an alternative to private cars continue to hold back a broader transformation of the sector.
No plans, and no plants either. The gas reserve problem…
Both lawyers and energy sector experts warn that efforts to build new gas power plants as a backup for an energy system that relies increasingly on renewables may face even greater delays. Plant and grid operators are eagerly awaiting the auctions, which they regard as a precondition for Germany being able to keep to its coal phase-out schedule. The new government plans to double capacity to 20 gigawatts and to ease the requirements for plants to be hydrogen-ready. That, however, makes the planned auction date at the end of 2025 ever less likely, said Anna von Bremen, head of energy innovation at the law firm Osborne Clarke, pointing to the approvals not yet granted by the European Commission. The auctions could take place no earlier than the end of 2026, she said. Christoph Müller, chief executive of grid operator Amprion, said it would be difficult to find enough equipment and staff to build the power plants. So far, however, the government's 2025 timetable has remained unchanged.
September
Monitoring report
In mid-September the long-awaited special monitoring report on the speed, effectiveness and cost of Germany's energy transition was finally published. The report was commissioned by German Economics Minister Katherina Reiche, who called it a “reality check” for the energy system. The report concluded that Germany's electricity demand will see a “sharp” increase in the coming years, the scale of which will depend on policy choices and economic growth. The authors concluded that far more renewable energy, grid, storage and hydrogen capacity will be needed to ensure a clean, secure and affordable energy system. The renewable energy industry noted that the report underlined that there is no need for any substantial change of course in the energy transition. The Ministry for Economic Affairs, for its part, concluded that it would cut subsidies for renewable energy “to the absolutely necessary level”, lower sustainability requirements for hydrogen and reduce the targets for offshore wind deployment in order to bring down costs. The German Engineering Federation (VDMA) was sceptical, noting that “neither the report nor the measures proposed by the ministry offers a clear concept for the future”.
The special fund and the budget. There are differences...
The agreement on a 500 billion euro special fund for infrastructure and climate neutrality, and the reform of Germany's constitutional so-called “debt brake” rules, were a major success for the government at the start of the coalition talks. Six months later parliament passed the relevant law , but the Green Party, which had supported the reform, was as ever critical of the way it was being implemented. “This is not what we agreed on,” said Green Party leader Felix Banaszak, claiming that Chancellor Merz and Finance Minister Lars Klingbeil had failed to ensure that the fund was used only for new investment over and above the country's core budget. The Green Party leader accused the two of misusing the record-sized debt package for “projects to their own liking”. This view was backed by several economic research institutes and by the government's financial watchdog, the Court of Audit. It was noted that the package lacks credible control mechanisms and clear objectives.
Ten years after “Dieselgate” – carmakers are still avoiding a full switch to electric vehicle production
In September 2015 the news wires were dominated by so-called Dieselgate – the emissions cheating scandal that shook Germany's main industry. According to Peter Mock of the International Council on Clean Transportation (ICCT), even ten years later VW, BMW and Mercedes are still wavering between short-term profit targets and the pursuit of a long-term strategy. Mock played a significant part in uncovering the scandal in 2015. German carmakers are putting their own electric vehicle sales at risk by continuing to lobby against the EU initiative to phase out combustion engines in 2035. The carmakers themselves marked the tenth anniversary of “Dieselgate” at the IAA Mobility show in Munich, presenting new electric models that could be decisive in halting their decline in global markets. Environmental campaigners once again voiced doubts about any genuine turnaround in the car industry's attitude.
Germany's rail reform is also running late
Long gone are the days when the German rail company Deutsche Bahn was regarded as a byword for German punctuality and reliability. Both of those qualities have deteriorated considerably in recent years, prompting the national Court of Audit to conclude in July that Deutsche Bahn lacks a credible strategy for getting out of its “permanent crisis”, despite “ever-increasing financial resources”. Transport Minister Patrick Schnieder sought to counter that verdict by proposing a grand “restart” of the entire rail system, which plays a major role in the country's plans to cut transport carbon emissions. The new Deutsche Bahn strategy envisages investing around 100 billion euro in rail modernisation by 2029 and upgrading all the main routes by 2036. Schnieder was more down-to-earth about the prospect of rapid improvement in this area, rejecting the current target of reaching 70% train punctuality by 2026 and saying that it was “not achievable”. The Transport Ministry believes German rail will need until 2029 to reach that figure.