German government passes €212bn climate fund

The German government passed the budget for its flagship climate and transformation fund (KTF) on Wednesday (9 August) to accelerate the green transition by providing €212 billion to various projects in building renovation, decarbonisation and the industry between 2024 and 2027.

The dedicated fund, which is excluded from the usually-strict German spending rules, has become one of the government’s primary tools to finance its major projects. For the year 2024 alone, the government has earmarked €57.6 billion for various projects – over €20 billion more than in 2023.

“With the KTF Economic Plan, we are promoting innovation in Germany as a business location. We are laying the foundations so that decarbonisation and digitalisation can give rise to opportunities for the future,” finance minister Christian Lindner said in a statement. 

The fund particularly aims to finance the energy-efficient renovation of buildings, the decarbonisation of industry and the expansion of renewable energies, electromobility and charging infrastructure.

Originally created in 2010 by the Merkel-led government, the fund has risen in importance ever since the new government took office in 2021. To finance the projects envisioned in the coalition agreement, the government transferred €60 billion of COVID-19 funds to the KTF in 2021.

In addition to that, the government is financing the climate fund with revenues from the national and the EU emission trading system. The finance ministry expects €19 billion in 2024 from this source of income alone.

Accelerating the green transition

The largest chunk of the fresh money will be dedicated to renovation, with €27 billion earmarked for the exchange of existing oil and gas heating systems for climate-friendly alternatives such as heat pumps. 

The government plans for every heating system installed after 2024 to be at least 65% fuelled by renewable energy – a de facto ban on fossil boilers running on natural gas. The plan brought the government to the brink of a coalition crisis, as the liberal Free Democratic Party (FDP) heavily opposed an earlier draft of the law.

With the €27 billion, the government is planning on easing the financial burden on households to switch to climate-friendly alternatives. 

“As Federal Minister of Finance, it is important to me that we avoid excessive burdens. We provide targeted support for the conversion to new technologies and prevent economic structural breaks from occurring,” Lindner said.

The fund is also aiming to bring the Deutsche Bahn back on track with an earmarked investment of €12.5 billion in the coming years to renovate and expand its railway network. Deutsche Bahn has been plagued by delays for years, with around one-third of all trains being delayed.

Additionally, in 2024 the government is also planning on spending €4.7 billion for the expansion of the charging infrastructure for e-vehicles, and €3.8 billion for the development of the hydrogen industry.

The government also plans on further increasing its funding of semiconductor projects and will spend around €4 billion for semiconductor production. 

The German government has been recently investing heavily in the semiconductor industry. Yesterday, TSMC announced to invest €10 billion in Germany in return for €5 billion in subsidies and in June the German government stroke a deal with Intel over a €30 billion investment in return for €10 billion in state aid.

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