Public financing requirements for climate investments in the period 2021-2030

by Tom Krebs & Janek Steitz




This study estimates the public financial requirements for climate investments that need to be realised in the period 2021-2030 in order to achieve the German government’s 2030 climate target. The analysis is based – where possible – on the technology pathway of the KN2045 scenario of Prognos et al (2021) and uses a bottom-up approach, based on existing study results, to determine the public financing needs for modernising the capital stock for the individual sectors and investment types. The financial needs for federal investments (e.g. Deutsche Bahn) amount to 90 billion euros and the financial needs for municipal climate investments (e.g. public transport) are estimated at 170 billion euros. The financial requirement for public climate investments by the federal, state and local governments thus amounts to a total of 260 billion euros (26 billion euros annually). In addition, there is a public financial requirement for the promotion of private investments (e.g. energetic refurbishment) of about 200 billion euros (20 billion euros annually), if the current values (partly decreasing) of current subsidy programmes are used as subsidy rates. The public financial requirement for all three components of climate investments (federal investments, municipal investments, promotion of private investments) amounts to a total of about 460 billion euros (46 billion euros annually) in the period 2021-2030 and is thus greater than assumed in existing studies. The need corresponds to about 6.3 per cent of gross investment in the economy as a whole or 1.3 per cent of gross domestic product in 2019 and seems appropriate to the size of the challenge. From a federal perspective, the financial requirement for climate investments in the period 2021-2030 amounts to a total of 290 billion euros under the premise that the financing of federal investments and the promotion of private investments is essentially a federal task, while the financing of municipal investments is mainly a task of the Länder and municipalities. The federal government has already provided funding for climate investments in the period 2021-2025 with the Climate Protection Programme, the Economic Stimulus Programme and the Emergency Climate Protection Programme (the latter is only an announcement so far), which – together with relevant European funds – amount to around 80 billion euros.



During the high point of market orthodoxy, economists argued that the most 'efficient' way to combat climate change was to simply let markets determine the price of carbon emissions. Today, there is a growing consensus that prices need to be regulated and that a carbon price on its own might not be enough.