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German lawmakers hasten deadline for climate neutrality to 2045

29 June 2021 IHS Markit Energy Expert

The German parliament amended its Climate Action Law to speed up efforts to reach carbon neutrality by 2045, instead of 2050.

The amendment, which was spurred by a court decision in April, was passed by the Bundestag, the lower house, on 27 June by a vote of 352 to 290 (with 10 abstentions). The Bundesrat, the upper house, did not challenge the vote, allowing it to pass.

The amendment to the law also raises the binding interim target for reducing GHG emissions by 2030 to 65% compared with a 1990 baseline, from 55% previously, and sets an 88% target for 2040, allowing the country to bring forward its existing 2050 carbon neutrality deadline by five years. These targets would surpass the target for the EU of a 55% reduction by 2030 and a 2050 climate neutrality target that became official this week.

In the April ruling, the Constitutional Court of Germany found in favor of five youths living on German islands that are at risk of becoming uninhabitable due to a rise in sea levels who argued the government lacks a plan for emissions reductions after 2031. The court said this violated Article 20a of Germany's constitution, the Basic Law, and ordered an update to the climate law by 31 December 2022.

"Following the federal constitutional court's ruling, the federal government decided not to wait on implementing the EU agreements, but instead anticipated them, with a view to updating [the regulation] at a later stage if needed," the Environment Ministry commented after the parliament's vote. "This has the advantage of no time being lost in the fight against climate change."

What is new in the legislation are targets for the preservation and cultivation of natural sinks, such as forests and marshlands, to offset residual GHG emissions deemed unavoidable, for instance, from farming or certain industrial processes.

The aim is to achieve "negative" GHG emissions by 2050 by embedding more GHGs in natural sinks than are being emitted through energy use and other activities.

The revised law further stipulates that the government's annual climate report must assess the status and development of EU carbon pricing and its compatibility with Germany's carbon pricing and climate targets, beginning with the 2024 report.

But some environmentally progressive political parties opposed the plan as insufficient. They criticized it for not banning coal-fired power and for leaving in place tax breaks for fossil fuels.

Already under German law, carbon emissions from fossil fuels in the mobility and heating sector are subject to a separate system, under which distributors are obliged to buy national emissions certificates at an initially fixed price, of €25/mt (approximately $30) CO2-equivalent at present, rising to €55/mt CO2-e in 2025, with some exemptions allowed to prevent carbon leakage. But the new plan doesn't raise those rates—another source of dismay for environmental groups.

"For four years, in a mixture of timidity and overexertion, they have fallen far short of this country's possibilities," Anton Hofreiter, a member of the Green Party in the Bundestag, said in a statement.

To stimulate investments in climate measures, the government's draft budget for 2022 pledges an extra €8 billion (approximately $9.5 billion) in spending. This comes on top of the more than €80 billion ($95 billion) already earmarked for climate protection (€54 billion over four years) and the economic stimulus program (€26.2 billion for the energy and climate fund known as EKF), the Finance Ministry said.

The cabinet agreed to allocate the bulk of these extra funds to include some areas that, to date, have not received as much decarbonization attention: the building sector (€5.5 billion); industrial processes (€860 million); farming, energy, and other categories (€580 million). In addition, transportation will receive a supplemental €1.07 billion.

Of the approximately 320 million mt of CO2-e emissions from stationary installations subject to the EU's Emissions Trading System, almost two-thirds stemmed from energy facilities and a third from industrial plants, according to the German Emissions Trading Authority, which compiles countrywide figures.

The 114 million mt CO2-e of emissions recorded in the industrial sector came mostly from iron and steel manufacturing (28%), refineries (20%), cement (18%), and chemical (15%) plants.

Based on reporting by Inge Erhard, OPIS, and Kevin Adler, IHS Markit.

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