The break-up of Chancellor Scholz's could lead to months of uncertainty for energy transition projects. (Photo: UNclimatechange)
The early end of Olaf Scholz’s coalition government follows a three-year term marked by crises and a deep internal dispute over funding for future climate and energy policies. Despite its noisy demise, the chancellor’s three-party alliance has made significant progress in key policy areas, such as renewables expansion.
But the many funding questions and policy loose ends left behind by the coalition’s collapse will not make the job easier for a new government after the election in February 2025. It faces economic woes, security challenges and mounting costs that could challenge the acceptance of climate policies.
The collapse of chancellor Olaf Scholz’s government in early November suddenly broke the coalition that entered office roughly three years earlier with the commitment to put Germany's policy in line with the targets of the Paris Climate Agreement. The sacking of finance minister Christian Lindner by the chancellor, which cut the three-party alliance’s reign short by more than half a year, will now be followed by snap elections on 23 February. It also left the country with a raft of unfinished policy business.
The break-up of the so-called ‘traffic light coalition’ of Scholz’s Social Democrats (SPD), the Green Party and Lindner’s Free Democrats (FDP) hit the country amidst poor economic forecasts, the looming threat of a recession, and factory closures and mass layoffs in key industries.
It also came against the backdrop of intensifying security challenges related to Russia’s invasion of Ukraine and deep uncertainty over an incoming Trump government and its potentially disruptive stance on trade, defence, and diplomatic conventions anticipated in many European capitals. All of these challenges also require resolute responses in energy and climate policy – but questions over funding ultimately led to the coalition’s early end.
“The coalition’s break-up is threatening much-needed progress in several areas,” Brigitte Knopf, head of think tank Zukunft KlimaSozial, told Clean Energy Wire. Knopf, who also co-chairs the government’s Council of Experts on Climate Change, said that the snap election might exact months of uncertainty and possible U-turns in important policy areas. “It is likely that we are facing a difficult period until about mid-2025, so there will be about half a year of standstill in policymaking,” Knopf warned, arguing that this could take a toll on acceptance of the energy transition and significant planning insecurity for companies preparing decarbonisation investments.
The crises that handicapped coalition’s climate ambitions from the outset
Economic conditions were far from ideal when the so-called ‘traffic-light-coalition’ (named after the parties’ respective colours) entered office at the end of 2021, as the European energy crisis began to surface in the wake of an ebbing coronavirus pandemic. Despite these odds, the newly formed coalition managed to agree a government programme to champion climate action, including a commitment to put the country on an emissions reduction path compatible with limiting global warming to 1.5 degrees Celsius. It also included a pledge to establish Germany as “social-ecological market economy” through massive investments in future industries and the rapid buildout of renewables.
Less than three months into its term, the Russian invasion of Ukraine then shattered the traffic-light-coalition’s priorities, forcing it into damage control and a strategic pivoting in energy policy. Encapsulated by Scholz’s announcement of a ‘Zeitenwende’ (turning of the times) in Germany’s stance towards Russia, the country’s most important energy trading partner fell away and had to be replaced with alternative import sources, with fossil gas at the centre.
Green minister Robert Habeck’s economy ministry was in the spotlight during the energy crisis, and he oversaw a wide array of crisis response measures, including new gas storage regulations, the fast-tracked construction of liquefied natural gas (LNG) import infrastructure, a temporary re-activation of coal-fired power plants, a three-month delay of the nuclear phase-out as well as several energy price support schemes for households and businesses.
The government’s immediate crisis response was widely seen as a success. “The coalition’s early end must not overshadow the fact that this government has made many important decisions that will accelerate the energy transition and make our energy supply more secure,” Kerstin Andreae, head of the German Association of Energy and Water Industries (BDEW) told Clean Energy Wire.
The country managed to avoid supply disruptions and pulled off a complete shift in its energy supply while installing a range of protective measures to avoid social hardship and company bankruptcies. “Together with the energy industry, the government has made sure that Germany proceeded safely through the energy crisis and that supply security was always guaranteed,” she argued.
Coalition leaves mixed legacy in sectoral transition progress
At the same time, Germany’s emissions dropped about ten percent in 2023 and the country for the first time was deemed to be largely on track to reaching its national target to reduce total greenhouse gas emissions by 65 percent by 2030. Aided by a boost in popularity for renewable energy sources amid the fossil fuel crisis triggered by Russia’s war, Habeck’s ministry also pushed for the sharp uptake in the expansion of renewable electricity: from about 41 percent of electricity consumption in 2021 to more than half in 2023, bringing the government’s 80 percent target for 2030 into reach. At the same time, coal power use dropped to the lowest level in decades.
Does that mean the outgoing coalition has been a boon for climate action after all? “That depends on which sector you look at,” said think tank head Knopf. While there has been visible progress regarding the electricity system, “in the buildings or transport sector, too little is happening still,” she added.
In the transport sector, the introduction of the ‘Germany ticket’ for using local public transport across the country at a flat rate was among the most visible achievements. But the popular scheme was hampered by funding disputes since its introduction and its continuation beyond 2025 is uncertain, while the extent of its impact in reducing emissions has so far been ambiguous. Likewise, plans to massively increase investments in railroad infrastructure have also been thrown into turmoil by the debt brake fallout. In the roll-out of electric vehicles, the government’s target of 15 million EVs on the road by 2030 is projected to fall short by six million cars at current rates — while the roll out of charging infrastructure is also not on track.
In the heating sector, an initial boost to heat pump sales subsided in 2024, pushing the coalition’s goal of six million units installed by 2030 further out of reach. From 2024 onwards, the coalition aimed to have about 500,000 heat pumps installed annually. According to heating system industry association BDH, however, only about 200,000 units will be sold by the end of the year.
Moreover, the emissions drop was also at least to some extent caused by economic stagnation and a substantial decrease in industrial output. While Germany’s industrial blight is not solely the fault of the government, the coalition still had to deal with a constant stream of bad economic news throughout its term. Despite a multitude of initiatives to revive industrial production and investor optimism, captured well by two industry summits infamously held in parallel by Lindner and Scholz on the eve of the government collapse, the coalition leaves behind an economy fearful for the survival of core industries and many citizens who are anxious about their jobs and purchasing power.
On climate policy, however, the government made good on promises to better integrate it as a cross-sectoral task for the government, including in security and foreign policy. Likewise, a national water strategy and a strengthened role for natural climate protection complemented the more holistic approach promised to combat global warming and cope with its effects.
However, Scholz’s key climate diplomacy project, the “climate club” initiative for deepened cooperation on sustainability policies in trade and production, did not figure prominently in government policy after the scheme was adopted at the G7 meeting hosted by Germany in 2022.
Debt brake ruling over climate and transformation funds broke government’s back
The largest blow to the coalition government’s ambitions came in November 2023. A lawsuit filed by the main opposition party, the Christian Democrats (CDU), with Germany’s highest court resulted in the judges prohibiting the government from reallocating billions of unused funds, originally earmarked for the country’s pandemic response, for use in its Climate and Transformation fund (KTF). The ‘debt brake’ ruling pulled the plug on many of the government’s projects, leaving it scrambling to reshuffle funds to at least finance the most important energy and climate policy measures, opening the stage for endless dispute over funding that would ultimately prove fatal to the government’s survival.
In the 2025 Climate Change Performance Index published by NGO Germanwatch, the country fell two spots, ranking 16th and thus well behind neighbouring European countries. While the authors assumed that Germany will “at least get near to” achieving its 2030 climate targets, they noted that the ongoing rows over funding key climate and energy policy measures make the long-term outlook gloomier and ultimately could “lead to a larger emissions gap.”
Ottmar Edenhofer, head economist at the Potsdam Institute for Climate Impact Research (PIK) told newspaper Tagesspiegel that the coalition’s track record had been a “disappointment,” given the high hopes the three-party-government had raised when entering office. The government failed to compensate the loss of its financial clout by working towards a more structural and European approach that creates incentives to shift investments, he argued.
- This article was originally published on Clean Energy Wire under the Creative Commons BY NC ND licence. Read the original article.
