Germany’s Budget Chaos Leaves Green-Energy Projects in Limbo

(Bloomberg) -- Germany’s climate and transformation fund faces a shortfall of as much as €10 billion ($10.8 billion) next year, according to people familiar with the matter, casting doubt on the nation’s goal for curbing greenhouse gas emissions.

The gap in the off-budget fund threatens key solar and hydrogen projects, the people said, asking not to be identified as the information is private. 

“It is currently not possible to provide conclusive information on this, as it depends on various parameters and estimates that need to be updated,” according to Germany’s finance ministry, commenting on the size of the funding gap.

Chancellor Olaf Scholz’s coalition was forced to overhaul its finances after a top court last year ruled that it was unconstitutional to transfer more than €60 billion earmarked to tackle the Covid-19 pandemic into the climate fund. While the 2024 budget has finally passed, that only came after the government readopted a debt brake, raising concerns about the funding available to achieve Germany’s target of slashing carbon emissions by 65% by 2030.

“The core problem remains that Germany should actually be investing massively this decade to accelerate the climate transformation, secure cheaper energy and transform our industry from a world based on cheap Russian gas,” said Jens Burchardt, a Berlin-based partner with Boston Consulting Group and the founder of the firm’s Center for Climate and Sustainability. “However, there currently seems to be a lack of political consensus in favor of this.”

Economy and Climate Minister Robert Habeck has promised subsidies to support the decarbonization of key industries, but the fund’s resources — projected to total €49 billion this year — are limited. He has already pledged about €16 billion from the fund to help chip-makers Intel Corp., Infineon Technologies AG and Taiwan’s TSMC set up production sites in the country.

“Initial preparations for drawing up the 2025 budget are underway and the internal government process will start soon,” the Economy Ministry said in a statement.

Still, on average, only 56% of the available money is drawn down from the climate fund each year, offering the potential for some room to maneuver.

Amid those uncertainties, financing for key projects has yet to be resolved.

For example, the government wants to build around 40 to 50 new hydrogen and gas-power plants to plug an energy deficit as it phases out coal. The bill for investment and operational subsidies could be €20 billion to €40 billion in years to come, according to the people familiar, but not even €8 billion has been set aside in this year’s budget.

Habeck is also looking to help ailing solar manufacturers — squeezed by Chinese imports — with specific local or environmental criteria in tenders. Support for bolstering production capacity could add up to €1 billion, Handelsblatt reported on Friday. The coalition wants to decide on a national solar package before Feb. 21.

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