(Bloomberg) -- High energy costs and an uncertain transition to cleaner fuels have been a key driver behind Germany’s exodus of industrial giants in recent years. The ruling coalition’s sudden dissolution and looming snap election will only compound the problem.
The government led by Social Democrats, Greens and Liberal Democrats — forged in the early days of the energy crisis — once found unlikely common ground in its response to soaring gas and power costs and defense spending. But Chancellor Olaf Scholz said the burden posed by high energy prices was among key areas that led to the coalition’s falling apart, with hawkish finance minister Christian Lindner opposing relief for grid fees and pushing to delay the country’s climate goals.
Germany shouldn’t have to choose between spending on its energy transition, defense or welfare, Scholz argued in a late-night address after he dismissed Lindner Wednesday. The nation is already falling behind its climate obligations for sectors like transport and buildings and could miss its 2030 targets if it doesn’t implement policy measures fast enough.
What’s not clear is whether a new government will share Scholz’s view. The conservative CDU/CSU alliance under Friedrich Merz is currently leading in opinion polls with more than 30% of the vote and would be in prime position to win an early ballot — but differs in key aspects of its energy policy.
A snap vote “raises the possibility of a new government that may scale back Germany’s climate ambitions, including the goal of 80% power sector decarbonization by 2030 and full decarbonization by 2035 — a target we already consider challenging,” said Tancrede Fulop, an analyst at Morningstar.
It also weakens Germany’s position in international climate negotiations. Scholz has canceled his trip to Baku for the COP29 climate conference next week, according to a person familiar with the matter.
What’s next for Germany’s short-term energy goals?
While Scholz’s hope is to push key bills across the finish line in the coming weeks before calling for a vote of confidence in January and an election in March, opposition lawmakers say the confidence vote should happen no later than next week. Andreas Rimkus, a hydrogen expert for the ruling SPD party, said faster elections would mean “nothing more will progress on energy and climate until we have a new government in place”.
The short-term disruptions could thwart efforts to launch tenders for new hydrogen-ready gas power plants early next year, which have already been delayed by months-long negotiations and spending hurdles. They’re seen as a crucial building block of the nation’s energy infrastructure as it expands intermittent renewables, and industry representatives have warned that reaching Germany’s 2030 emissions goals won’t be possible without building backup power generation.
However, there is broad cross-party consensus on the gas-fired power plant strategy, making it an area in which new alliances could be formed in parliament. The same applies to the planned update of the electricity market design.
“It’s important that the laws and budgetary resources already in process for the continuity of energy measures are passed by December,” said Simone Peter, president of the German Renewable Energy Federation. “We cannot afford stagnation and deadlock, even in a political crisis.”
What will a new government mean for longer term goals?
Parties across Germany’s political spectrum view high energy costs as an important issue, but differ in how to deal with them. Merz’s CDU/CSU alliance just presented its own energy proposals, acknowledging that big investments are needed, but not elaborating on how this should be done while respecting the nation’s restrictive debt brake.
Its paper pushed for a greater role for carbon, capture and storage solutions, which would allow more continued fossil fuel use, but also states more should be done to support the expansion of hydrogen, geothermal and bioenergy.
It also said the country should explore reactivating some of the nuclear reactors it shut down last year — a proposal that is unlikely to gain political traction unless the party joins forces with right-wing Alternative for Germany — and said no further coal plants should be switched off until new gas generators are built.
Opposition lawmakers also want to roll back a controversial heating law that prohibits the installation of gas boilers in new buildings. How much traction these proposals gain will depend on the exact constellation of a new government, which may still include members of the existing one.
“The one-sided focus of the traffic light coalition on solar and wind energy wasn’t necessary to continue to establish renewable electricity on the market, nor did it lead to sustainable success,” the CDU/CSU alliance said in its paper.
Carsten König, head of Germany’s solar industry association, said he “expects all serious parties to make a clear commitment during the election campaign to continue the expansion of solar energy as a system-relevant, cheap and popular energy generation technology.”
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