German Election 2021

European Climate Law – Will Merkel be the “Climate Chancellor” again?

It’s all about the targets and protecting industries

With the Paris Climate Protection Agreement, the EU committed itself to climate neutrality by 2050. The European Commission led by Ursula von der Leyen advanced this ambition by beginning the implementation of the so-called “European Green Deal”. One of the main building blocks is the EU Climate Law, which is meant to embed the commitment into European law and set a new target for 2030. Currently, the target is set at 40 percent reduction of emissions compared to 1990 levels. This target is supposed to be raised now to find a new emissions reduction path. German Chancellor Merkel recently proposed a possible range of 50 to 55 percent by 2030 compared to 1990 levels during the Petersberg Climate Dialogue, a series of annual international conferences at ministerial level to prepare the UN climate conferences. The EU Parliament followed suit last week demanding a 60 percent reduction target and in her State of the Union Address on Wednesday, Ursula von der Leyen announced the Commission’s plan to set the target at 55 percent. The main actors have thus put their cards on the table and negotiations can begin.

When talking about the EU Climate Law we need to also mention the Carbon Border Adjustment Tax. As part of the European Green Deal, the EU Commission wants to introduce a mechanism to reduce the risk of carbon leakage in protecting the European industry and economy on the way to climate neutrality by 2050. While the implementation is not set in stone, the Member States initiated a first round of consultations to evaluate the feasibility and work out a plan to move forward. The plans imply a high risk of trade disputes as the carbon border adjustment tax is commonly referred to as “climate tariffs.” Especially, trade relations between America and Germany could prove to become difficult, particularly if President Trump were to be re-elected in November. EU President Ursula von der Leyen is aware of this. In her words, the Commission “will of course work with stakeholders – in Europe and beyond – to design a mechanism in a very inclusive and transparent way.” On the other hand, an adjustment mechanism is essential to maintain a competitive edge for European industry and reduce emissions within and beyond the European borders. If the EU is unable to follow through on this mechanism, it will likely mean continued handouts to heavily polluting industries or a displacement of such industries to other countries with less climate regulation.


A compromise that pleases nobody

Before the entire European Parliament (EP) votes on the Climate Law in October and an agreement between Parliament and Council is reached, the bill is currently being debated in the EP’s Environment Committee. There is considerable resistance to Merkel’s proposed range from many sides for multiple reasons. On the one hand, Member States like Poland, Hungary and Romania, whose energy supply and economy are still heavily dependent on fossil fuels, do not like to be convinced of the ambitious EU climate targets. Further, the economic consequences of COVID-19 could lead to growing resistance from those member states, not to mention that the Just Transition Fund, the programme meant to support economically weak Member States in their decarbonization, was cut significantly from 40 to 10 billion Euros in the EU recovery fund deal. They doubt that 55 percent or even 50 percent by 2030 are feasible targets and will likely not agree to raised targets without proper financial support.

On the other hand, resistance comes from many climate activists and experts, who are increasingly worried the agreed measures are not ambitious enough. This view is shared by many Liberal and Green MEPs who would like to see a reduction target even above the proposed 55 percent. They consider that the EU not only needs targets for 2030 and 2050 but that short-term action is very important. On occasion of the German EU Presidency from July to December this year, a new study by the German Institute for Economic Research (DIW) investigated under which circumstances the goals of the European Green Deal could be achieved and at what costs. They concluded that the world still has a CO2 budget of 340 gigatons to limit the increase in global warming to 1.5 degrees compared to the pre-industrial era. In their estimation, there is a probability of 20 percent that the budget will be exhausted in one of the years between 2020 and 2024 already. If the targets are not increased, the total CO2 budget will almost certainly be used up in under eight years. According to DIW, the European Green Deal will only achieve its targets if energy production can be completely converted to renewable energies by 2040.


Return of the climate chancellor?

Remember the images of Angela Merkel flying over Greenland’s glaciers in 2007 and proclaiming the move forward on stopping global warming? The contrast between then and now is rather stark. In Germany, Merkel has completely relinquished her image as the ‘Climate Chancellor’, one of the reasons that the Greens have seen an intense surge since the last election in 2017. Merkel spent much of her political capital in energy and climate policy on Germany’s nuclear exit in 2011 – notably against her party’s wishes. Since then, parts of the conservative CDU have been sabotaging the energy transformation and Merkel has been unable to assert herself over key decision-makers in her party to influence climate policy in a meaningful way. While Germany’s emission reduction target for 2020 will most likely be reached it is only due to the severe COVID-19 restrictions that forced industry almost to a standstill.

The problems in Germany are plentiful: Burdensome regional planning procedures and regulations, local resistance, and lawsuits have bogged down the renewable energy expansion with political promises of support largely unfulfilled. The proposed expansion path to the recently announced 65 percent renewable share in 2030 target is calculated too low, and at the current expansion rate completely unrealistic. The coal exit law took two years to take effect but allows for some coal power plants to operate up until 2038 with enormous compensation for operators. A national hydrogen strategy that was agreed in principle in 2019 is only now beginning to be implemented. The German government, in particular the Federal Ministry of Economic Affairs and Energy, has been unable to resolve some key political conflicts. While setting the targets has been relatively easy and uncontroversial, implementing the actual steps has been excruciatingly slow and painful, in some instances without proper time for discourse or consideration and last-minute decisions on important policies, such as the removal of the solar cap. Angela Merkel, once hailed as the ‘Climate Chancellor’, has been mostly absent from these discussions and only stepped in last September to force through a broad climate agreement with rough, unspecified measures between the governing parties.

To many it thus seemed bizarre that she emphasised the urgency of climate action once again during her speech at the beginning of the German EU Presidency given her rather meek record so far. With the words: “A global solution to climate change is only possible if Europe takes a pioneering role in climate protection”, Merkel declared concluding the negotiations for an EU Climate Law to make the EU climate-neutral by 2050 a central goal of the German EU Presidency. Of course, the EU Presidency is the last highlight of her long tenure which will come to an end next year and Merkel will undoubtedly want to forge a compromise on climate targets within her proposed range. The German EU Presidency still will not be able to live up to the high expectations of primarily the young and vocal generation calling for a groundbreaking “Climate Presidency”. But it is not just the younger generation that will likely be left disappointed as climate policy is becoming more important for voters across the board. For almost a third of all voters during municipal elections in Germany’s most populous state of North-Rhine Westphalia last weekend, climate and environmental policy was the decisive issue. Unfortunately, compromise and ambition typically do not go together. At the end of the presidency, Merkel will likely be able to claim some success for being instrumental in forging the way forward through compromise. However, this will hardly qualify her as the “climate chancellor” again because, conveniently for Merkel, the hard implementation work will only come after the compromise.


The views expressed herein are those of the author(s) and not necessarily the views of FTI Consulting, Inc., its management, its subsidiaries, its affiliates, or its other professionals.

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