CLIMATE | WORKING PAPERS
Public financing of climate and other investments into the future
by Tom Krebs, Janek Steitz & Patrick Graichen
PUBLISHED1. NOVEMBER 2021
Germany needs to increase green public investment at the federal level by 30 billion Euros per year to reach its climate goals. This paper discusses how to finance the additional investments without violating the constitutional debt brake. Three financing instruments are available to the German government. The first instrument is a debt-financed capital injection for public sector companies. The second instrument consists of a direct subsidy for green private investments combined with tax breaks for green private investments. The third instrument is the use of the exemption rule of the debt brake in 2022 to provide financing of investment in the subsequent years. The paper argues that the German government can finance all its green investment needs without violating the constitutional debt brake if it makes full use of the three instruments.