Green Recovery: Germany unveils plans for €40bn climate spending surge

The German government has unveiled plans for a massive €130bn stimulus package that features at least €40bn climate-related spending.

In a move that will set a bar that other government's mulling green recovery packages are likely to be measured against, Chancellor Angela Merkel's government yesterday published sweeping plans to boost electric vehicle sales, improve building energy efficiency, enhance public transport networks, develop hydrogen infrastructure, and shift the cost of renewables subsidies onto general taxation.

The focus on green measures comes alongside plans to reduce VAT from 19 per cent to 16 per cent for six months starting in July 1, increase loans for small businesses, and increase investment in R&D and digital infrastructure.  

"The size of the package will amount to €130 billion for the years 2020/2021, €120bn of which will be spent by the federal government," Merkel said. "So we have an economic stimulus package, a package for the future."

Green groups welcomed the package, praising Merkel's decision to resist calls from the influential German auto industry for the government to introduce a scrappage scheme that would provide grants for new petrol and diesel cars.

Instead, the government moved to double the subsidy for electric vehicles to €6,000.

Speaking to reporters at a press conference following two days of marathon talks Merkel said the "profound upheaval" caused by the coronavirus pandemic and escalating climate risks means the government "couldn't just introduce a traditional stimulus package… It also had to be one with an eye to the future, so that is what we especially emphasised."

Alongside the increased EV grants, the programme also includes a €50bn "future package" to fund R&D, green transport programmes, hydrogen infrastructure, and building energy efficiency upgrades.

Specifically, the plan promises €7bn for new hydrogen projects, €2bn for green auto innovations, €2.5bn for EV charging infrastructure, €2.5bn for public transport improvements, €1bn each for green aviation and shipping programmes, €2bn for green building upgrades, and €700m for improved forest management.

Meanwhile, in a bid to curb electricity prices for households and businesses the government announced it would cap the renewables levy on bills at 6.5ct/kWh in 2021 and 6ct/kWh in 2022.

The move comes as governments across Europe continue to work on their own green recovery packages.

Reports this week suggested British Chancellor Rishi Sunak is poised to put climate action at the heart of the UK's recovery plan, which is due to be released next month. However, campaigners remain concerned Ministers will 'low ball' their green spending commitments, with fears growing that the government will struggle to seize the opportunity to turbocharge the UK's decarbonisation efforts.

Meanwhile, campaigners are also concerned that despite the focus on climate-related spending, economic rescue and recovery packages could still be used to strengthen the balance sheet of carbon intensive companies.

For example, Greenpeace UK today criticised the Bank of England after it confirmed the identity of the recipients of its Covid Corporate Financing Facility (CCFF). The update reveals UK airlines have received £1.8bn in loans, while a number of oilfield and auto companies also received multi-million pound bailouts.

"Airlines have been given exactly what the Chancellor, the Prime Minister, economists, and the public said they should not be given - billions in cheap and easy loans to keep them polluting, without any commitments to reduce their emissions or even keep their workers on the payroll," said Fiona Nicholls, climate campaigner for Greenpeace UK. "Today we've learned that cruise lines, pesticides and car companies have received similar largesse. We should see a lot more public benefit from all this public money. 

"Green groups, politicians, businesses and the public are all calling for a green economic recovery to this crisis. Resuscitating the economy by investing in clean, green industries, energy, transport and homes could create hundreds of thousands of jobs and a fairer more resilient society. The government has made some bold claims about greening the recovery, but over the last two months they have missed endless opportunities to move Britain closer to the low carbon economy we need. The time and money we have left to fix this problem are not limitless, and yet the government is wasting both."

Separately, the European Central Bank (ECB) also faced criticism from green groups this afternoon after its Governing Council failed to explicitly integrate climate considerations into both its 'business as usual' monetary policy and its crisis response.

"The ECB, its President Christine Lagarde, and governors, like François Villeroy De Galhau, are simultaneously acknowledging climate urgency and refusing to act," said Paul Schreiber, campaigner at Reclaim Finance. "This stance is unbearable, we now know that the ECB is not neutral but financing climate change. If the ECB's President claims that by buying a few green bonds of the ECB contributes to the ecological transition, she cannot say that it does not contribute to climate chaos when it massively buys bonds linked to new fossil fuel projects."

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