In order to achieve a reduction in greenhouse gas emissions of 65 percent compared to 1990 in 2030, almost 30 billion euros of federal funding will have to flow into climate protection each year – almost twice as much as previously estimated. Together with further financial requirements at the municipal level, this means that climate protection investments will need to be up to three times as high overall, as a study commissioned by Agora Energiewende and the Forum New Economy shows.
Berlin, September 07, 2021 – The German federal, state and local governments must provide noticeably more public funding for climate protection than previously planned in order to achieve the 2030 target of 65 percent greenhouse gas reduction compared to 1990. Public spending of around 80 billion euros is planned for the period from 2021 to 2025 as part of climate protection and economic stimulus programs and the emergency climate protection program. This corresponds to just over a third of the investment sum required for climate protection over the next five years, according to a joint analysis commissioned by Forum New Economy and Agora Energiewende. According to the study, the public financial requirement for modernization investments in this area over the next ten years (2021-2030) as a sum of federal and municipal investments amounts to around 46 billion euros per year, of which just under 30 billion euros per year is accounted for by the federal government. “Regardless of who provides the new government, a public investment offensive must be launched for the climate protection measures that are needed now, otherwise there is a risk of missing the climate targets,” says Dr. Patrick Graichen, director of Agora Energiewende. The calculation of the financing gap took into account planned expenditures until 2025 in federal and European programs, but not funds provided by municipalities, which are expected to account for only a fraction. In addition, a constant investment path over time was assumed. This results in a general government financing gap of up to 150 billion euros, assuming a need of 230 billion euros over the next five years.
The public investment requirements for climate protection of around 46 billion euros per year by 2030 calculated by the authors are thus significantly higher than previously assumed. Existing studies assume an overall economic investment requirement in this area of around 70 billion euros per year. However, a highly regarded study by the German Economic Institute (IW) and the Macroeconomic Policy Institute (IMK) estimates the public sector’s share of this at just 15 percent. Nevertheless, the annual financial requirement of around 46 billion euros quantified in this study corresponds to only around 6.3 percent of gross economic investment and 1.3 percent of gross domestic product in 2019. By way of comparison, the federal and state governments made 30 billion euros available this summer just to support the reconstruction of regions in western and southern Germany that were particularly hard hit by floods and heavy rain. “The famous Swabian housewife is now investing in climate protection instead of always having to clean up climate damage for a lot of money,” Graichen said.
The study’s total investment requirement of 460 billion euros breaks down as follows: Direct federal investments amount to around 90 billion euros, including 50 billion euros for investments in the expansion and digitization of the rail network. In addition, there is a public funding requirement to promote private investment, for example for energy-efficient building refurbishment, of around 200 billion euros, if the current values of ongoing subsidy programs are taken as the subsidy rates. Assuming that the promotion of private investments is essentially a federal task, the financial requirement for climate investments from a federal perspective thus amounts to around 290 billion euros. Added to this is the financial requirement for municipal climate investments of around 170 billion euros, the majority of which is for the expansion of local public transport (100 billion euros).
The public financing requirements for climate investments were determined using a bottom-up approach based on existing studies. The analysis is based on the technological transformation path KN2045 of the study “Climate Neutral Germany 2045” by Prognos, Öko-Institut and Wuppertal Institute. Since quantifying the requirements is associated with macroeconomic and political uncertainties, the results of this analysis are to be understood as approximate values.
The study “Public Financing Requirements for Climate Investments 2021-2030” has been published in cooperation with the Forum New Economy. Lead author is Prof. Tom Krebs from the University of Mannheim.
The 37-page publication is available for free download HERE.