Scholz's government cuts climate fund by 45 bln euros by 2027 in response to debt brake ruling - Clean Energy Wire

Scholz’s government cuts climate fund by 45 bln euros by 2027 in response to debt brake ruling | Clean Energy Wire

Scholz’s government cuts climate fund by 45 bln euros by 2027 in response to debt brake ruling

The German coalition government has agreed on a budget for 2024 that takes account of a momentous court ruling a month earlier, which declared 60 billion euros earmarked for climate and transformation projects as being booked unlawfully. Chancellor Olaf Scholz said the agreement means that Germany will stick to its key target of delivering a climate neutral transformation of the economy but added that “we will have to use significantly less money to meet our goals.” Scholz said the coalition parties had agreed on priorities in the budget as well as on spending cuts and revenue increases to meet budgeting rules, adding that this had been “unpleasant but necessary.” The country’s main financial instrument for climate action projects, the Climate and Transformation Fund (CTF), will be endowed with some 12 billion euros less in 2024 and with 45 billion euros less until 2027, the chancellor said. However, he argued that the fund would still have “a very high total volume” of 160 billion euros, meaning that central transformation projects will be covered.

The German government's announced cut to the CTF coincided with a deal reached on the final day of the UN climate conference COP28 in Dubai, which Germany and other EU governments welcomed for heralding "the end of the fossil fuel era."

The agreement made in the night on Wednesday (13 December) between Scholz’s Social Democrats ( SPD), the Green Party of economy minister Robert Habeck and the pro-business Free Democrats ( FDP) of finance minister Christian Lindner followed upon weeks of intense negotiations about how to reshuffle the government’s budget. The coalition’s negotiators faced the challenge of prioritising the most important expenses in the overall budget without having to pull the plug on key climate action measures promised during the past years. Scholz said that agreeing on the 2024 budget had been made possible through a combination of reducing climate-damaging subsidies, cuts to support programmes and reduced spending in different government departments. However, besides its determination to stick to its climate action and industry transformation ambitions, Germany would also continue to deliver necessary financial assistance to Ukraine in its defence against Russia’s invasion and will not enforce cuts that pose a danger to social cohesion, the chancellor added.

"Central parts" of climate and transformation policies will not be eroded by budget reshuffling, econ min says

The constitutional court’s ruling on 15 November prohibited the government from borrowing more money than allowed under the country’s so-called debt brake by rededicating funds left over from the country’s coronavirus response programmes from 2021. This dealt a heavy blow to the financial planning of Scholz’s coalition and triggered a noisy debate about the necessary consequences, including cuts to social security programmes, tax increases, stopping unnecessary or environmentally damaging subsidies across the board, and also suspending or reforming the debt brake rule itself. While the ruling on the 60 billion euros planned for the CTF affected financial planning over several years, the government faced the immediate challenge of deciding on a budget for the next year only. The treasury had determined the gap in funding for 2024 to be 17 billion euros.

Economy minister Habeck said the coalition had agreed on a “major reshuffling” and saving of funds in the CTF, resulting in a migration of some of the planned projects into other financing schemes, for example those dealing with the country’s national railway modernisation. Habeck stressed that “central parts” of the government’s climate and transformation agenda would be safeguarded within the CTF framework. These include supporting the buildup of a hydrogen infrastructure, sustainable industry transformation, lower power prices through the abolished renewables levy and a transition in the heating sector. However, he added that spending cuts will include an earlier end to Germany’s electric vehicle support as well as to some funding earmarked for solar PV expansion -- a decision that “hurts me personally.”

Also, finance minister Lindner insisted that the CTF would continue to have “an enormous volume” for climate action funding despite the cut of tens of billions of euros over the next years. The government hopes that its investments in key climate and transformation projects will be leveraged by subsequent private investments, thereby significantly topping up public funding commitments. Lindner said the government had agreed on abolishing the country’s electricity tax, worth about 3 billion euros, by doing away with environmentally harmful subsidies. At the same time, he said the government planned to increase the revenues into the CTF by raising the price of carbon emissions in transport and buildings to 45 euros per tonne of CO2-equivalents in 2024, instead of the planned increase to 40 euros and up from the current 30 euros. He added that the government did not decide on lowering the standards in social security and support programmes, but would aim to increase efforts that these deliver “on target.”

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