Q&A: What does the German coalition government break-up mean for climate and energy?
Content
- Why did the coalition government break up?
- What are the immediate consequences of the finance minister鈥檚 sacking?
- What are the consequences of having no federal budget agreement?
- What climate and energy plans are now up in the air?
- How will parties position themselves on climate and energy for the next election?
- What are the break-up鈥檚 effects in the EU and globally?
Why did the coalition government break up?
Days of intense negotiations in Germany鈥檚 three-party coalition over the country鈥檚 budget for 2025 culminated in chancellor Olaf Scholz firing finance minister Christian Lindner on the evening of 6 November. The news came almost exactly one year after a seminal ruling by Germany鈥檚 highest court on聽the country鈥檚 so-called "debt brake", which declared billions of euros聽鈥� initially borrowed for pandemic relief but reallocated for climate and energy policy 鈥� unlawful. This led to continuous battles within the coalition聽over how to finance its most important government projects.
In a statement immediately following the sacking, Scholz from the Social Democrats (SPD) said his treasurer, from the pro-business Free Democrats (FDP),听had shown 鈥渘o willingness鈥� to reach an agreement聽on the budget, even after Scholz and Green Party economy minister Robert Habeck presented various budget proposals to Lindner. 鈥淪uch egotistic behaviour is incomprehensible,鈥� the chancellor said, adding that Lindner had previously 鈥渂locked laws on unrelated grounds鈥� and constantly put the interests of his party above those of the country.
At a time of when the country faces great challenges from聽economic stagnation,听urgently needed energy and climate investments,听Russia鈥檚 war on Ukraine聽and the election of聽a new government in the U.S., Scholz said that he could no longer tolerate his lack of trust in Lindner and that he asked German president Frank-Walter Steinmeier to formally dismiss Lindner from his position. Green economy minister Habeck agreed in a separate statement with Scholz that Lindner鈥檚 behaviour was no longer tenable for the coalition. He said the finance minister鈥檚 sacking was 鈥渁s logical as it was unnecessary鈥� at a time when Europe鈥檚 largest economy requires a functioning government to weather global challenges.
Lindner, in his own statement, said he had rejected a demand by Scholz to suspend the country鈥檚 constitutional ceiling on new debt for 2025 to allow additional investments in economic recovery, the energy system and security, including military support for Ukraine. He also argued that the chancellor had constantly 鈥渄ownplayed鈥� Germany鈥檚 economic difficulties in the past months. In the week leading to the break-up, a聽leaked position paper signed by Lindner put the FDP leader starkly at odds with its two political partners by demanding a raft of substantial policy measures that contradicted both their coalition obligations and聽a draft budget聽agreed in summer, including over climate and energy policy issues.
What are the immediate consequences of the finance minister鈥檚 sacking?
In in the week after the break-up, chancellor Scholz confirmed that he would initiate a vote of confidence on 16 December. With most of FDP鈥檚 members of parliament having defected from the government ranks, Scholz will likely lose the motion. This step, last used by a German chancellor in 2005, is formally required before the chancellor can ask president Steinmeier to dissolve parliament and call a new election, which is not set to take place on 23 February 2025.
In the interim period until a snap election is held, the remainder of the coalition will stay in office and seek to find agreements with the largest opposition group, the conservative alliance of the Christian Democrat Union (CDU) and the Christian Social Union (CSU), to carry out the most important government duties.
Chancellor Scholz said he would seek to implement several urgent policy decisions this year by forging majorities on technical questions in parliament. Economy minister Habeck urged policymakers from all parties not to treat energy policy as a bargaining chip in the election, a call mirrored by the energy industry and also by the energy ministers of Germany's 16 states.
Important outstanding energy and climate policy measures include the Power Plant Security Act for new backup power plants, the Energy Industry Act to introduce new guidelines for trading energy and support measures for Germany鈥檚 industry amid its transformation to climate neutral production. The latter includes lowering electricity prices, for which the government already in 2023 agreed state support of more than five billion euros to relieve customers from high grid fees. The debt brake ruling confounded the plan鈥檚 implementation in 2024. The chancellor further said urgent measures were also required in the automotive industry, for example through new support schemes for electric vehicles.
CDU leader Friedrich Merz singalled his readiness to cooperate with Scholz but put pressure on the chancellor to quickly pave the way for new elections, which Scholz initially planned to hold about one month later. Merz argued that Germany must not lose time in finding a new leadership while Scholz had argued the election requires sufficient time to prepare. In the period after an election is held but no new government has been formed yet, the typical role of a caretaker government falls on incumbent ministers and the chancellor.
While the FDP withdrew three of its four ministers from the government cabinet after Scholz's sacking of Lindner, transport minister Volker Wissing on the next day 聽he had accepted an offer by Scholz to remain in office and instead announced that he would leave the FDP. Scholz on Thursday (7 November) also聽聽finance minister Lindner with J枚rg Kukies, his own SPD state secretary in the chancellery and a former investment banker. The remaining two vacant FDP ministries are temporarily integrated in the portfolio of other cabinet members.
Until parliament is dissolved, the current government remains in place. However, as Germany鈥檚 first minority government at the national level, it faces great difficulties in parliament when making any long-term decisions on new laws or the budget given that a voting majority is no longer guaranteed. Apart from the CDU/CSU and the FDP, the minority government could rely on votes by members of the Left Party, the nationalist-left Sahra Wagenknecht Alliance (BSW) or the far-right Alternative for Germany (AfD).
What are the consequences of having no federal budget agreement?
The finance minister鈥檚 departure means that a decision on the 2025 budget before the start of the new year is very unlikely. Likewise, the adoption of an also appears improbable. The latter is needed as state revenues are lower than expected and expenditures, for example on renewables support, are higher. A decision was聽initially planned for mid-November, as a new budget legally must be adopted before the beginning of each budget year to allow the parliament鈥檚 cross-party budget committee to scrutinise the spending plans for each ministry. This is then followed by a vote in parliament, usually decided by the government鈥檚 majority.
罢丑别听draft 2025 budget聽agreed during the summer is聽聽euros. The coalition parties were still debating a budgetary hole of less than ten billion euros before the FDP leader鈥檚 sacking. However, the budget talks were complicated by the debt brake ruling, which in 2023 forced the government to reshuffle about 60 billion euros earmarked for the country鈥檚 Climate and Transformation Fund (CTF). For the 2024 budget, this meant that the spending plan had to be redrawn at the last minute and adopted retroactively, which happened in February of the same year.
However, finding a solution could take significantly longer this time. Even if a minority government continues after the FDP鈥檚 removal, there will be no formally agreed spending plan for the election year 2025. The country could end up running with a provisional budget for months on end, starting from 1 January. This means that government spending would be mostly limited to services for which there is a legal claim by recipients. Without a fixed budget for the new year and under provisional spending, no new commitments can be made, and existing programmes cannot be expanded. Support programmes that lack a clear legal claim to funding, including from the CTF, would have to be stopped.
In early 2024, the fact that the government had to postpone adoption of the budget to the new year meant that many programmes financed through the Climate and Transformation Fund聽had to be temporarily stopped. Applications to the CTF were opened again in late January, after it became clear how much money would have to be cut and where.
Provisional and reduced spending would take effect until the minority government obtains majority backing in parliament or until a new government is sworn in and decides a budget, which might take as long as mid-2025. This would mean months of uncertainty for Germany鈥檚 industry, which聽hopes to secure billions in support funding聽in the 2025 budget for their contribution to help the country reach greenhouse gas neutrality. If the government fails to agree a budget on time, state support during next year聽could hang in the balance聽for many companies.
The government聽. This includes the financing of administrations, social security payments, or existing support programmes and construction projects with an agreed spending plan.
What climate and energy plans are now up in the air?
There are many plans, strategies and draft laws at different stages of the agreement process that are now hanging in the balance. It is unclear whether majorities will be found in parliament to pass them, although the opposition CDU/CSU has signalled readiness to cooperate on some issues. Open climate and energy plans include:
- 罢丑别听Power Plant Security Act, which聽included tenders for H2-ready gas power plants聽and the聽introduction of a capacity market. This act is set to ensure that a sufficient number of gas-fired power plants are built in the coming years to guarantee supply security in the future at times of little wind or sunshine. The tenders are also seen聽as key for an earlier coal phase-out, as the government had planned to hold the first round of auctions for public support at the beginning of 2025. This is now highly unlikely as there is no budget agreement for the coming year. Plans聽had already been delayed聽due to the budget crisis towards the end of 2023.
- 础听electricity market reform, which is tightly linked to the point above, and included points on future renewables support, flexible electricity use, local pricing signals, and generation capacities which can be made available whenever needed. The aim of the reform is to ensure the market is cost-effective, to incentivise sufficient investments in new capacity, to coordinate supply and demand with local grid development, and to increase system flexibility.
- 罢丑别听carbon management strategy, which is meant to create the framework for using technologies to capture, store, transport and use CO2 (CCS/CCU), and has yet to be decided by parliament. Passing the strategy would require support from the opposition, which the CDU/CSU alliance has shown. The delay could have considerable consequences for EU-funded CCS projects that are already underway, SWP researcher Felix Schenuit聽聽on LinkedIn.
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The second round of auctions for climate contracts is also on ice. The subsidy scheme would reimburse industrial companies for the extra costs associated with climate-friendly methods of production, and had received strong interest. The second round of auctions for the so-called carbon contracts for difference (CCfDs) was to focus on technologies to capture and store or use carbon dioxide from industrial processes (for which there is no parliamentary agreement either). It was originally likely to take place towards the end of 2024. The auction, however, depended on the federal budget negotiations in parliament.
- 础苍听aid package for the automotive industry, which was part of talks for the 2025 budget.聽Other ideas听迟辞听boost electric vehicle sales听补苍诲听support the country's ailing car industry聽included a petrol price surcharge and a scrappage premium for old combustion engine cars. Additionally, funds earmarked for investments in the country's railways (18 billion euros according to a ) now face an uncertain future.
- 罢丑别听climate adaptation strategy, the draft of which had just finished consultations with stakeholders and was set to be adopted in cabinet by December. The strategy, which was drafted with input from all ministries, for the first time聽.
- A "biomass package", which was set to be discussed in November and was intended to creating a framework for sustainable, resource-efficient and climate-friendly biomass production and use.
- 础听, which had already reached the parliamentary agreement stage. It included provisions on overriding public interest (which make the licensing of projects easier), as well as changes in mining law, water law and nature conservation law.
How will parties position themselves on climate and energy for the next election?
The parties have yet to present election programmes for the 2025 federal election, initially scheduled to take place in autumn. Most had planned to do so only around late spring (see here for their positions ahead of the last election聽in 2021). This process is now going to be sped up significantly.
聽show the conservative CDU/CSU alliance, Angela Merkel鈥檚 former party, comfortably in the lead at around 35 percent, so that it could lead the next coalition government. Current CDU leader Merz therefore stands a good chance of leading the next government coalition.
It was under Merkele's Conservatives' leadership that Germany introduced its聽landmark climate law聽and the target to become greenhouse gas neutral by 2045. However, after moving into opposition in 2021, the Conservatives have opposed several climate policy measures, such as the聽phase out of combustion engine cars听辞谤听strict rules to phase out fossil fuel heating. In聽a recent position paper, conservative lawmakers also called for an expert assessment of whether recently decommissioned nuclear power plants could be reactivated 鈥� although chancellor candidate Friedrich Merz聽.
The Social Democrats (SPD) have generally been in favour of more ambitious climate policy. Chancellor Scholz聽聽that he intends to invest heavily into both security 鈥� for example support to Ukraine 鈥� and social cohesion, social security and jobs. Scholz said an either - or "is poison" when it comes to "investing enough in our security, in good jobs, a modern economy and a functioning infrastructure."
The Green Party has always been in favour of ambitious climate, energy transition and nature protection policy. It has called for an earlier coal phase-out than agreed in Germany (2038 at the latest) and policy in line with the 1.5掳C temperature rise limit of the Paris Climate Agreement.
In the position paper that played a part in breaking up the coalition, FDP leader Lindner put into question some key German climate policies. These included measures for emission reductions, such as targets for climate-friendly heating, should be delayed and more ambitious national climate targets be abandoned and replaced by joint European targets and regulation. The finance minister also called for the abolition of EU-wide rules, such as the EU taxonomy on sustainable investment criteria , the EU Corporate Sustainability Due Diligence Directive, and vehicle fleet emissions limits.
The AfD 鈥� with almost no chance of entering a coalition, because all other parties have ruled out cooperation 鈥� is the only major party to reject the science on human-made climate change, going against overwhelming empirical evidence. In its 2024聽, it said that the "claim of a threat through human-made climate change" is "CO2 hysterics", an "eco-socialist project" which reduces prosperity and takes away freedom. It wants to "abolish all climate laws at the national and European level, as well as stop the聽鈥�.
New to the political scene and with a good chance to enter parliament after the next election is the nationalist-leftwing, anti-immigrant and pro-Russia Sahra Wagenknecht Alliance (BSW), which mostly consist of former members of the Left Party. Wagenknecht's breakaway alliance has criticised much of the government鈥檚 climate policy and has called for completely resuming energy trading with Russia.
What are the break-up鈥檚 effects in the EU and globally?
Government members and political observers聽had warned聽that Germany must avoid a high-stakes gamble around the time of the U.S. election, as a re-election of Donald Trump would herald in years of uncertainty at the global scale.
Trump鈥檚 win聽was announced when Berlin woke up on 6 November, and the German coalition broke apart when the country was heading to bed. The government thus failed to project stability in a challenging geopolitical situation and in the face of economic woes. Chancellor Scholz is now a 鈥溾�� leader.
However, the government remains in power and continues its work at the European and global level.
Economy minister Robert Habeck聽聽that the government still had power and authority internationally. 鈥淲e are fully capable of acting on foreign policy, in the EU Councils and in international forums such as the G7 and G20,鈥� he said. That would include among EU member state leaders for the next European Commission later this year.
European Parliament president Roberta Metsola and on all actors to 鈥渁ct with responsibility.鈥� She added that 鈥淓urope is not strong without a strong Germany鈥� and the developments were 鈥渧ery important for us.鈥�
The ministries responsible for international climate policy 鈥� the foreign office and in addition the ministries for economy and climate, the environment, and development 鈥� are all led by politicians from the Green Party or the Social Democrats. Whether ministers will travel to the UN climate change conference in Baku, Azerbaijan next week remains to be seen. However, the negotiation team is likely to remain unaffected by the coalition break-up, and Germany is part of the joint EU delegation.
