After the German Federal Constitutional Court declared parts of the 2019 German Climate Change Act unconstitutional in March 2021, the Federal Cabinet swiftly approved an amendment on 12 May 2021, which is supposed to meet the court's concerns and paves the way for a new era in German climate action.

Background: German Climate Change Act 2019

The German Climate Change Act came into force on 18 December 2019. This was the first German federal act to include binding climate change targets. The act aims to meet national climate protection targets and comply with European objectives. It implements the commitment under the Paris Agreement, which in turn builds on the UN Framework Convention on Climate Change (UNFCCC). The aim is to limit the increase in the global average temperature to well below 2 degrees Celsius and, if possible, to 1.5 degrees Celsius compared with pre-industrial levels to mitigate the effects of global climate change as far as possible.

At its core is the definition of the climate change target for 2030, with greenhouse gas emissions to be reduced by at least 55 % compared with 1990. The new act also lays down a "commitment" to greenhouse gas neutrality by 2050. The German Climate Change Act sets annual emission targets in the form of maximum emission levels for the individual sectors of energy, industry, buildings, transport, agriculture and waste management. It specifies cuts in emissions in those sectors to be achieved by 2030. Each relevant federal ministry is responsible for overseeing compliance.

No targets have been set beyond 2030. Instead, the German federal government will set annually decreasing emission levels in 2025 for further periods after 2030. Germany's federal parliament, the Bundestag, must consent to this.

German Climate Change Act widely criticised

Opposition parties in the Bundestag levelled scathing criticism at the Climate Change Act as part of the broader Climate Action Programme, which came as no surprise after controversial debates in the run-up to its adoption. Essentially, the opposition argued that the Climate Action Programme would fail to achieve either the self-imposed climate targets or those of the Paris Agreement. Following publication of the Climate Action Programme, the German think tank Agora Energiewende calculated that the measures taken by the German government were only sufficient to achieve one-third of the emissions savings needed.

Trade associations' reaction was also largely critical, arguing that the Climate Change Act was inconsistent with the transition to renewable energy and that the 65 % target for the expansion of renewables was hardly achievable. They also argued that the fundamental role of renewables in preventing climate change was not being supported by effective measures.

Court declares parts of the act unconstitutional

With its decision of 24 March 2021, described in some quarters as historic, the German Federal Constitutional Court ruled that the provisions of the German Climate Change Act are incompatible with fundamental rights insofar as they lack sufficient requirements for further emission reductions from 2031 onwards. The court held that the act irreversibly postpones high emission reduction burdens to periods after 2030. The duty to reduce greenhouse gas emissions also followed from the German constitution. The constitutional climate change target set out in Article 20a German Basic Law is specified to the effect that the increase in the average global temperature should be limited to well below 2 degrees Celsius and, if possible, to 1.5 degrees Celsius compared with pre-industrial levels. To meet either target, the reductions required after 2030 are increasingly urgent and need to be achieved within a shorter time frame. From a practical standpoint, every freedom might potentially be affected by these future emission reduction obligations, given that almost all areas of human life entail the emission of greenhouse gases and will thus be threatened by drastic restrictions after 2030. One generation could not be granted the right to "consume large parts of the CO2 budget, if this would at the same time leave a radical reduction burden to the following generations and expose their lives to comprehensive losses of freedom." The legislator was therefore obliged to take precautionary steps to alleviate such a high burden. The legal requirements to continue the downward trend in greenhouse gas emissions from 2031 onwards were not sufficient to achieve the timely transition to climate neutrality that was required thereafter. The German legislator was required to make more detailed provisions to the draft law by 31 December 2022 for the update of the reduction targets for greenhouse gas emissions for those periods after 2030.

Cabinet adopts amendment to German Climate Change Act

The enthusiastic reception of the German Federal Constitutional Court's decision was also shared by the governing coalition that had passed the act, despite parts of it having been deemed unconstitutional. No less astonishing was the German government's prompt compliance with the court's demands to amend the act, rather than waiting until late 2022. As early as 12 May 2021, the Federal Cabinet adopted the amended Climate Change Act, which is intended to implement the requirements set out by the Federal Constitutional Court. The surprising pace of the governing coalition can be explained by the upcoming federal elections in September 2021 and the popularity of climate change among broad sections of the electorate. It is anticipated that the Bundestag will approve the amendment in June 2021.

At the heart of the amended Climate Change Act is Germany's aim of achieving climate neutrality by 2045 and the specification of binding targets on the way there for the 2020s and 2030s. Until now, the goal was greenhouse gas neutrality by 2050. The interim target for 2030 has been raised from the current level of 55% to 65% greenhouse gas reductions compared with 1990 levels. However, this change was necessary anyway in order to implement the tightened European climate change targets for Germany. A new interim 88% reduction target will also apply for 2040.

The planned amendment to the Climate Change Act continues the system of annualised permissible emission levels for individual sectors for the 2020s and in some cases lowers them significantly. The energy sector and industry will bear the lion's share of the additional reduction by 2030. The energy sector will be allowed to emit only 108 instead of 175 million tonnes of CO2 in 2030, with industry allowed 118 instead of 140 million tonnes of CO2. The reduction in the energy industry's CO2 budgets compared with the previously planned emissions volume is thus just under 40%; and the reduction for industry is about 16 %. The increase in target cuts for other sectors is much less drastic. The act also provides for specific annual targets for cuts until 2040. However, a decision on the specific share of the individual sectors will only be made once the course has been set at the European level in 2024. The reduction targets until 2045 will be set by law in 2034. As an incentive, the German federal government has announced an immediate programme with an additional volume of up to EUR 8 billion.

German Climate Change Act 2021 to usher in fundamental change

The amendment of the German Climate Change Act will significantly raise the bar for reduction targets, specifically for the energy sector and for industry in particular. It is no exaggeration to describe the effects as fundamental. However – and this is already the subject of widespread criticism prior to the amendment being passed – these are still only targets. Concrete implementation steps are still lacking. For those targets to become more than mere policy, but actually result in functioning climate action, comprehensive and timely measures are needed in all sectors affected by the act. Experience with the energy transition to date does not necessarily inspire confidence that German policymakers will succeed in drawing up a coherent overall package that is adequate to achieve targets, while at the same time balancing the interaction between measures, instruments and concerns of society as a whole. But that is no less than what is needed to master the Herculean task that follows from the targets set out in the German Climate Change Act 2021.

Energy industry faces profound upheaval

The energy industry has a central role to play in the implementation of climate action targets. The German coal compromise with its coal phase-out by 2038 will probably not survive the Climate Change Act 2021. For example, established German climate institutes have recently proposed bringing forward the coal phase-out to 2030. Renewables would then have to generate around 70% of gross electricity consumption.

Renewables must therefore be rapidly expanded, much faster than at current trends. This applies in particular to offshore and onshore wind power as well as photovoltaics. The same old obstacles need to be overcome: not enough land has been redesignated, approval procedures are too complex and lengthy. The greater the share of renewables, the more serious such administrative and legislative failures become. For example, an accelerating act including procedural simplifications would be desirable not only for infrastructure projects, but also for renewable energy plants. Further facilitation is also required to expand the network (still proceeding slowly) without which the transformation of the energy industry cannot succeed.

New times are also dawning for gas-fired power plants. Experts anticipate that because of the reduction target, only combined cycle power plants will be used for the most part, with decentralised combined heat and power plants facing problems. In view of feed-in fluctuations common with renewable energy sources, such reduction targets also raise the question of whether gas-fired power plants can continue to assume the back-up function to the same extent during the transition – especially considering that long approval procedures and uncertain economic viability are also real obstacles. Increasing flexibility of both supply and demand will become more and more important. Storage technologies, sector coupling and demand side management will have a greater role to play.

Industrial sector faces major challenges

The international competitiveness of industry will be severely affected by the more ambitious reduction targets, so countermeasures will be essential. This is particularly true of the need to mitigate the impact of a significantly higher CO2 price. Here, subsidies for investments in new technologies will be the first thing to consider. At the same time, however, such support measures must be time-limited to avoid creating a long-term dependence on subsidies.

According to current estimates, the decarbonisation of the chemical industry alone will require as much green electricity as is produced today. Converting production processes to hydrogen, which needs to happen in the steel industry for example, is also far from a foregone conclusion. Even assuming that 10% of demand for green hydrogen can be met in Germany, there is still a huge gap that will have to be filled by imports. Moreover, the production of green hydrogen is still in its infancy. Achieving the reduction targets by 2030 will not be possible without blue hydrogen. The issue of CO2 capture and storage will therefore also need to be addressed in Germany if demand cannot be met with imported blue hydrogen alone.

Although the sectors of transport, buildings and agriculture were not examined in detail here, it is safe to note in summary that the implications of the required emission reduction described above have in principle been identified in Germany, but have yet to be solved. The German Climate Change Act 2021 adds a new quality to the challenges posed by the significantly more demanding climate targets. Energy and climate policy must be pushed even higher up the political agenda.