Chancellor Merz at his first visit of the European Commission in Brussels. Photo: European Commission
Many activists and industry representatives agree that the government coalition of Germany's new chancellor, Friedrich Merz, has reached the 100-day mark in office with a subpar record on advancing the country's energy transition.
The coalition's resolute debut included lowering energy prices and reforming Germany's debt brake to enable funding for infrastructure and climate neutrality projects. However, the efforts have been overshadowed by announcements that some observers fear could slow or even undermine decarbonization aims. Merz's government is under pressure to present compelling plans for climate action and industry greening following the summer break, prior to a number of state election campaigns next year.
Hopes were running high in Germany and among its allies in early May 2025 as months of political uncertainty ended after the collapse of the previous government and the new coalition of chancellor Friedrich Merz’s conservative CDU/CSU alliance and the Social Democrats (SPD) entered the halls of power. One hundred days later, expectations for the new coalition to quickly restore planning security for companies and avoid noisy internal disputes for many observers have been dashed – including in climate and energy policy, where these were not high to begin with.
Merz’s arrival as chancellor delivered a new sense of resolve to Europe’s largest economy on the international stage at a time when global changes in trade and security, and a surge in right-wing populism at home and across Europe, have challenged Germany’s post-war economic model. At the same time, key parts of Germany’s energy transition required swift action after being left in limbo due to the early demise of the previous government coalition under chancellor Olaf Scholz.
The coalition set out on a platform of economic recovery, lower energy prices, and swift decision-making. Three months in, gaffes in political management and communication by Merz’s administration have contributed to a perception of the new government struggling to deliver on promises made during the election campaign. Many conservative voters resented the governing parties’ opening move of easing the country’s constitutional limit on new government borrowing to afford it greater leeway in tackling challenges ranging from security to climate. The so-called “debt brake” played a decisive role in capsizing Scholz’s government after Merz’s CDU successfully defended the cap in court.
Moreover, a decision to exclude households and small businesses from a reduction in electricity tax stunned those who expected lower energy prices across the board to continue to be a government priority after the election. It also revealed that despite the record-breaking new debt and relaxed debt limit rules Merz’s coalition has agreed on, financial constraints continue to be a restricting factor for the new coalition too. The draft budget planned until 2029 still has a gap of more than 170 billion euros that the government must fill, either by increasing its earnings or cutting expenditures.
Loud quarrels among the coalition partners over picking new judges for Germany’s constitutional court then suggested the highly unpopular coalition infighting of the Scholz era might also continue under Merz. A survey by broadcaster RTL released on the eve of the traditional 100-day grace period backed this impression, with Merz’s CDU/CSU alliance dropping to the lowest approval level since the election and ceding the first rank to the far-right party Alternative for Germany (AfD).
Activists and economists warn against neglecting green industry's potential
On energy and climate, the chancellor openly questioned whether Germany could reach its target of achieving climate neutrality by 2045, and criticised EU considerations to mandate car-rental firms to only buy EVs from 2030. His conservatives have repeatedly called for a reversal of the agreed EU ban on new combustion engine cars from 2035. At the same time, his administration decided to finance price cuts for fossil gas through the country’s Climate and Transformation Fund (KTF).
“At a time of radically altered geopolitical, ecological, and technological background conditions, the government increasingly bets on ‘old’ industrial strengths in the spirit of the 1990s,” Christoph Bals, chief policy officer at climate NGO Germanwatch, told Clean Energy Wire. The competitiveness of low-carbon technologies should take centre stage in the government’s quest for economic revival, Bals argued. This, for example, would include economic policies that focus on the technological advantages and growth markets unleashed by the energy transition.
However, policies put in place by the previous government – such as boosting green steel production – have run into difficulties in the interim. The Germanwatch policy officer said strengthening green lead markets for heavy industry would be a step desired by industry and promised in the coalition agreement, but the government so far had shown little interest in backing them. Turning away from these approaches “would be costly, damage the climate, and undermine competitiveness,” Bals warned.
The NGO leader’s criticism of a lacking growth strategy was mirrored in a survey by research institute ifo: the massive increase in borrowing would not be sufficiently accompanied by decisive reforms and instead help fund costly projects such as a ‘mothers’ pension,’ the surveyed economists said. About half of respondents expected the measures taken to at least trigger short-term growth effects, while only about a third said these will be sustained in the medium run. Forty-two percent of those surveyed gave the government bad marks for its initial performance, while only 25 percent viewed it positively.
Economy and energy minister Katherina Reiche (CDU) compounded uncertainty over the future course of the energy transition by announcing a “reality check” for the expansion of renewables and grid infrastructure. According to the coalition agreement, the monitoring report, expected after the summer, will form the basis of future energy policy in the country. Activists fear it could end up halting the momentum in solar and wind power buildout achieved under the previous government.
NGO Friends of the Earth Germany (DUH) warned the report could amount to “grade A clientelism” for fossil companies, as gas infrastructure would likely be pushed while solar power support would likely be cut. Germanwatch’s Bals stressed that it would be “dangerous” to base the report on unrealistic forecasts of future power demand that could lead to the reduced expansion of renewables. This especially concerns the transport and heating sector, where important policy packages that could determine the roll-out of electric vehicles, heat pumps, and other technologies are eagerly awaited – and where lower assumptions would translate into lower clean energy demand.
“We’re still not expanding fast enough,” said wind power industry group BWE, pointing at the continuously underachieved expansion rates for wind and solar power despite recent upticks. Energy supplier Vattenfall and Germany’s central bank, the Bundesbank, also weighed in and urged the government to stay the course on shifting to renewables to maximise the country’s international competitiveness and to cut costs.
Economy ministry's energy transition monitoring must not change goal posts - energy industry
The Federation of German Association of Energy and Water Industries (BDEW) made a more lenient evaluation of the government’s first serve in energy policy, crediting it with taking “important intermediary steps” and earnest efforts to curb bureaucracy in the sector. With a view to the upcoming monitoring report, BDEW head Kerstin Andreae commented that a synchronisation of added generation capacity and grid transmission expansion is desirable. However, she added that “there is no doubt regarding the general and substantial long-term need for more renewable energy in Germany.” The report should therefore merely rank priorities and not change the goal posts, Andreae said. The industry group stressed that getting the long-overdue auctions for gas-fired power plants that serve as a backup for renewables remains a key step in this respect that the government has yet to take.
Due to the lack of concrete policy proposals, there is currently little evidence that the government will in fact downgrade climate action objectives. As stakeholders await the results of Reiche’s monitoring report and other policy decisions after the summer break, it therefore remains unclear whether Merz’s government wavering on decarbonization is mostly an attempt to woo conservative voter groups. Five state elections are looming in 2026, meaning the coalition parties will be busy campaigning for a good part of the next year for the regional votes that could have a strong effect on the country’s balance of powers between the federal government and the states.
For the Federation of German Industries (BDI), the government has adequately addressed concerns about industrial competitiveness that could help it to enter the upcoming election cycle with better economic figures. The focus on investments in the budget drafts was testament to its will for carrying out reforms, said BDI president Peter Leibinger. At the same time, reduced costs for gas storage and electricity grid fees and taxes would make prices more competitive, he added.
“This creates a real opportunity for an economic upswing next year,” he said. Despite an “investment booster” that expands write-offs and reduces corporate taxes, growth forecasts so far do not indicate a decisive upturn in the country’s economic fortunes.
Leibinger said investor security and a sustained high support level for transport, buildings, and other areas through the 500-billion-euro special fund for infrastructure and climate neutrality would be key to achieving a turnaround.
Regarding Germany’s role in the EU’s planned new and “highly ambitious” 2040 climate target of reducing emissions by 90 percent, the industry group supported the government’s efforts to introduce more flexibility in emission reductions. This includes the “credible” offsetting of emissions outside the EU, as well as carbon removal investments within the bloc.
The government has put forward draft reforms to widely adopt carbon capture and storage (CCS) or utilisation (CCU) technologies, which can partly also be used in efforts to remove CO2 from the atmosphere and permanently store it underground.
Environment ministry stresses need for unity on climate targets
While industry welcomed the focus on flexibility to reach a 2040 target, the country’s Council of Experts on Climate Change warned that the climate policy elements of the coalition agreement poses the risk of missing national emission reduction targets. The council urged the government to present an adequate Climate Action Programme, which any new government is legally obliged to deliver within the first year. The programme is meant to put the country back on track to reaching mid- and long-term climate targets, and relevant ministries must present first draft proposals by the end of September.
Ensuring the government stays on track towards its climate targets thus falls on environment minister Carsten Schneider (SPD), who promised to deliver the new package of climate measures before the end of 2025.
Schneider, who reaffirmed Germany’s determination to reach climate neutrality by 2045 in reaction to Merz’s doubts, has repeatedly warned against the potential damage to social cohesion if the introduction of EU carbon pricing in transport and heating is not cushioned by support for citizens. The ETS 2 is currently set to take full effect at the beginning of 2027.
Schneider stressed that the government should rally behind a climate action programme that enjoys “full political support” to ensure the coalition enters the 2026 state election year on solid footing.
Author: Benjamin Wehrmann, Julian Wettengel
This article was originally published on Clean Energy Wire under the Creative Commons BY NC ND licence. Read the original article.
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