Germany’s €177bn climate budget to focus on building retrofit

The German government has unveiled plans to spend €177.5bn of the federal budget on climate action and the transformation of the country’s economy between 2023 and 2026, with a focus on increasing the energy efficiency of buildings.

Germany’s €177bn climate budget to focus on building retrofit

Germany aims to reach climate neutrality by 2045.

The cabinet adopted its draft finance plan for the so-called ‘Climate and Transformation Fund’ on last week. The Fund is part of the federal budget and is now subject to parliamentary deliberations.

“The Fund is the most important financing instrument for economic modernisation and climate protection,” explained Finance Minister Christian Lindner.

The majority of funds will contribute to supporting “climate-friendly” building renovation (€56bn).

Space and water heating currently account for around 30% of Germany’s final energy consumption. The buildings sector also missed its 2020 and 2021 CO2 emissions targets.

Much of the funding will go towards renovating the buildings in the bottom 25% of energy performance – a plan that Brussels is currently working to make mandatory through the Energy Performance of Buildings Directive. The fund also cements a switch in priorities, away from supporting the construction of new homes to renovating existing ones.

One euro spent on renovation is ten times more efficient than if it was spent on a new home, a senior official said.

Another €35.5bn is earmarked for subsidising the renewable levy to lower electricity prices and a further €20bn will go towards decarbonising industry and implementing Germany’s hydrogen strategy.

“We fully finance the subsidisation of renewable energies from the Climate and Transformation Fund,” Lindner explained.

Germany has abolished the renewables levy consumers used to pay with their power bills to help finance the expansion of wind and solar power. Instead, the support will now be covered through the federal budget, as part of the measures put in place to alleviate the strain of electricity prices.

The plan also includes support programmes for sectors like transport (e.g. e-mobility charging infrastructure). Support for energy and resource efficiency will be relatively slim, at €3.4bn.

Key leading factors

The fund is fed, among other things, by the proceeds of the European and national carbon pricing, the German economy and climate action ministry said. Germany subjects gasoline and heating oil to a flat price that will be set to €55 per tonne of emitted carbon as of 2025.

“This ensures that the state’s climate protection revenues flow directly into the most pioneering investments possible for effective climate protection measures,” the ministry added.

A recent analysis by consultancy Prognos for public development bank KfW said that the German government will have to invest almost half a trillion euros to reach its 2045 climate-neutral target.

Meanwhile, the total investments – including by private households and businesses – necessary to make Germany climate neutral add up to around five trillion euros, according to a report conducted by consultancies Prognos, Nextra Consulting and NKI for KfW in late 2021.

Nikolaus J Kurmayer, (with support from Julian Wettengel)

This article first appeared on, an edie content partner

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