On 09 April 2025, Germany's new governing coalition – formed between the Christian Democrat Union and Christian Social Union (CDU/CSU alliance) and Social Democrats (SPD) – presented its coalition agreement under the title "Responsibility for Germany" (Verantwortung für Deutschland). The agreement sets the political direction for the legislative period ahead, with implications on energy, industrial transformation, and climate neutrality.

The agreement follows a snap federal election and weeks of coalition talks, during which both parties signalled early consensus on lowering electricity prices, securing dispatchable capacity, expanding renewable energy, and reaffirming the 2045 climate neutrality goal. While it was clear from the outset that energy and climate policy would not be a dealbreaker during negotiations, several contentious issues – such as the role of carbon capture and storage (CCS), the future of the Building Energy Act (Gebäudeenergiegesetz), reserve power plants, and nuclear energy – had to be resolved in the final stretch by the 19 lead negotiators selected from both parties.

Despite the coalition partners' differences in policy emphasis, the agreed framework now reflects a pragmatic convergence, combining a technology-neutral, market-oriented approach to energy issues with a reaffirmation of Germany’s national and EU-level climate targets. While many details still remain vague at this stage, the coalition agreement offers early signals on the priorities shaping Germany’s future energy and climate policy.

The following sections outline the key energy and climate provisions of the new coalition agreement:

Climate Policy – Targets, Competencies and International Scope

The coalition reaffirms Germany’s legally binding target of achieving climate neutrality by 2045 and endorses the EU’s proposed interim target of a 90% emissions reduction by 2040. The agreement also introduces more flexibility in how these targets may be achieved:

  • Emissions reductions are to take place primarily within Germany.
  • Up to three percentage points of the 2040 climate target may be met in the future through CO₂ reductions or the crediting of negative emissions by international climate projects outside the EU. This approach, though presented as cost-effective and aligned with Article 6 of the Paris Agreement, contradicts current EU law, which requires that emissions be reduced within the EU. An amendment to the relevant EU regulation would therefore be necessary.
  • Negative emissions – such as those from natural sinks or direct air capture – may also be counted.

Institutionally, the agreement reverses a key governance change of the previous government. Climate policy will return to the Federal Environment Ministry (SPD), while energy policy will remain under the Ministry for Economic Affairs (CDU/CSU), ending the integrated climate-energy structure of the previous Federal Ministry for Economic Affairs and Climate Action (BMWK) under Robert Habeck.

The new government also plans to repeal the existing Supply Chain Due Diligence Act (Lieferkettensorgfaltspflichtengesetz) and replace it with a new law on international corporate responsibility aligned with the EU’s Corporate Sustainability Due Diligence Directive (CSDDD) and the recent Omnibus proposal to cut red tape.

The coal phase-out date of 2038 remains unchanged.

Investment and Financing Framework

A central feature of the new coalition framework is the creation of a EUR 500 billion Special Infrastructure Investment Fund (Sondervermögen), which has been already passed by the outgoing parliament in March 2025 and will operate off-budget and outside the constitutional debt brake (see our article here). This fund is set to channel EUR 100 billion into Germany’s Climate and Transformation Fund (KTF) to finance renewable energy projects, hydrogen infrastructure, industrial decarbonisation, and district heating. Another EUR 100 billion will be allocated to federal states and municipalities to strengthen regional infrastructure, while the remaining funds will target strategic sectors such as digitalisation, mobility, education, and civil protection.

In addition, the coalition will establish a new "Germany Fund" (Deutschlandfonds) as an umbrella investment vehicle that combines public guarantees with private capital to close existing financing gaps in growth and innovation capital – particularly for SMEs and scale-ups. The federal government will provide at least EUR 10 billion in equity and guarantees, aiming to leverage over EUR 100 billion in private capital. The fund will operate under a professional governance structure and invest primarily in Germany. It may also serve as a blueprint for similar state-level funds in the future.

Energy Prices and Market Design

Addressing high electricity prices is highlighted as a key priority in the agreement. The average power price in 2024 was 41.2 ct/kWh for households and 20.5 ct/kWh for non-households, underscoring the urgency of cost relief. The coalition aims to reduce prices by at least 5 cents/kWh through a series of measures, including:

  • Reduction of the electricity tax to the EU minimum.
  • Abolition of the gas storage levy.
  • Long-term capping of electricity grid fees.

A new "industrial electricity price" will be introduced for energy-intensive sectors, though financing details remain unclear. Existing electricity price compensation schemes will be made permanent and expanded to include new sectors such as data centres.

These measures will be co-financed from the newly established special infrastructure fund of which EUR 150 billion is earmarked for use during the current legislative term until early 2029.

Security of Supply, Power Plant Strategy and Capacity Mechanism

To ensure supply security, the coalition intends to incentivise the construction of up to 20 GW of new dispatchable capacity – likely gas-fired – through a technology-neutral tender process, subject to EU state aid approval. Projects should be located at existing sites and reflect regional needs. It is unclear whether H₂-readiness will be required.

The agreement signals openness to introducing a market-based capacity mechanism to support a "system-oriented mix of technologies, including bioenergy, CHP plants and storage but falls short of making a firm commitment.

In a move likely to prompt further debate, reserve power plants will be permitted to return to the market temporarily during periods of price volatility to help moderate prices – a shift from their traditional role of covering supply gaps.

CC(U)S, Nuclear and Fusion Energy

The agreement marks a breakthrough for carbon capture and storage (CCS) policy in Germany. CCS will now be allowed not only in industrial facilities but also in gas-fired power plants – a key demand from the CDU/CSU. The SPD had long resisted this, causing delays under the previous government.

Now, a legislative package will enable the full CCS/CCU value chain, including CO₂ capture, use, transport, and storage. Storage may take place offshore in the North Sea or onshore via federal state opt-ins. The new government also plans to ratify the London Protocol and negotiate bilateral storage agreements with neighbouring countries. Direct air capture (DAC) is acknowledged as a future option for generating negative emissions.

Nuclear energy is notably absent from the agreement – the term is not mentioned once. Despite earlier CDU demands, there will be no reactivation of shut-down nuclear plants or pursuit of small modular reactors. However, the government commits to advancing fusion research, with the ambition of hosting the world’s first commercial fusion reactor, governed under a bespoke legal framework outside traditional nuclear law. No reference is made to the handling of existing nuclear waste or final storage.

Renewables, Storage, Hydrogen and Grid Infrastructure

The coalition pledges a "determined expansion" of all renewable energy sources – including solar, wind, hydro, geothermal, and bioenergy – with a stronger focus on system and grid compatibility. Key measures include:

  • A cap on land lease payments for EEG-subsidised projects.
  • Continued application of the 2% land target for onshore wind until 2027, with re-evaluation in 2032.
  • Support for emerging technologies such as airborne wind energy and wastewater heat recovery.
  • Improving community involvement in wind siting procedures.

Storage infrastructure is recognised as being of "overriding public interest," with a plan to extend existing planning law privileges beyond hydrogen to include broader storage technologies. Tax and levy burdens on storage will be reduced. Bidirectional EV charging and workplace charging infrastructure will be supported.

The ramp-up of Germany’s hydrogen economy remains a central pillar:

  • A technology-neutral approach will allow all hydrogen "colours."
  • Electrolyser deployment will occur at both large and decentralised scales.
  • The national hydrogen core network will continue to be developed to connect industrial hubs and integrate with European networks and ports.
  • An investment fund will channel both public guarantees and private capital into hydrogen infrastructure.

For grid expansion, new high-voltage transmission lines are to be built as overhead lines "where possible" – a concession to CDU preferences over the SPD’s support for underground cabling. A comprehensive monitoring report on electricity demand, supply security, grid status, digitalisation, and hydrogen ramp-up will be published by summer 2025.

Buildings, Heating and Energy Efficiency

The revised Building Energy Act (commonly referred to as the “Heating Act”) will be replaced by a new law described as "technology-neutral, more flexible and simpler." It will focus on CO₂ savings as the central metric. The current 65% renewable requirement for new heating systems is expected to be removed.

The coalition also plans to accelerate district heating expansion, backed by approximately EUR 10 billion annually from the Climate and Transformation Fund (KTF). The legal framework (AVBFernwärmeV and Wärmelieferverordnung) will be reformed to enhance consumer protections and price transparency through new provisions on oversight and mediation.

The coalition supports modular and serial construction to accelerate housing delivery. A new end-of-waste regulation will increase the use of recycled building materials, complemented by an action plan for biobased and low-emission materials. Simpler, climate-friendly building will be incentivised through state-owned KfW programmes.

Industrial Policy and Transition

The government will continue to support industrial decarbonisation through climate protection contracts, provided companies commit to retaining jobs in Germany.

The steel sector is designated as strategically important and will receive support via CCS, recycling, and green lead markets such as low-carbon steel quotas. Existing steel and automotive facilities may be adapted to support national defence production.

Critical raw material extraction projects within the EU will be supported. A national raw materials fund will be created.

On carbon pricing:

  • The government supports ETS2 for buildings and transport, due to launch in 2027, and aims to avoid price shocks via instruments like price corridors.
  • Agriculture will not be included in ETS2.
  • The EU’s Carbon Border Adjustment Mechanism (CBAM) is endorsed, with simplification measures on the agenda.
  • No direct "climate bonus" will be offered to households; instead, revenue from emissions trading will be redistributed via targeted grid fee rebates and subsidies.

Mobility and Transport Policy

A major overhaul of transport policy is not anticipated. There is no mention of a combustion engine phase-out, a speed limit, or mandates on e-fuels. However, a few mobility-related measures are included:

  • No EV purchase premium, but "social leasing" for lower-income households using EU Climate Social Fund resources.
  • Tax incentives for EV company cars (up to EUR 100,000), and Kfz tax exemption for EVs until 2035.
  • Toll exemptions for zero-emission trucks beyond 2026.
  • Increase in commuter tax allowance to 38 cents/km from 2026.
  • Support will also extend to plug-in hybrids and range-extender vehicles.

Germany will eliminate aviation Production-to-Liquid quotas that exceed EU requirements and ensure that European airlines are not disadvantaged by SAF quotas.

What's Next?

The coalition agreement sets the political course for Germany until early 2029 and clears the path for CDU leader Friedrich Merz to be sworn in as Chancellor in May 2025. With the broad outlines of the policy agenda now agreed, the coming months will be critical for translating the proposals into concrete legislation. Early initiatives are likely to focus on rolling out reduced electricity prices and an industrial electricity price, revising the Building Energy Act, and finalising the legal framework for CC(U)S.

The creation of major public investment vehicles – including the EUR 500 billion Special Infrastructure Investment Fund and the newly announced Germany Fund – will also begin to take shape. Together, these instruments will underpin much of the coalition’s energy, climate, and industrial policy implementation.

For energy companies and industrial actors, the agreement sends an early signal: Germany will continue to pursue its climate and energy goals while introducing new market instruments and incentives. Businesses in energy-intensive sectors can expect relief on electricity costs, access to tailored support instruments, and a push for infrastructure that enables low-carbon production. However, significant uncertainties still remain around the design, timing and scope of many proposed instruments – particularly with regard to the role of reserve power plants, capacity tenders, and the successor framework to the Building Energy Act.

As implementation unfolds, the coalition will be under pressure to demonstrate effective coordination between ministries, maintain regulatory certainty for investors, and deliver on the promise of a pragmatic yet ambitious energy and climate strategy.