At the end of April, the European Union agreed on a new climate goal by which greenhouse gas emissions are to be reduced in comparison with their levels in 1990. The reduction to be achieved by 2030 has been increased to at least 55%, from the previous target of 40%. The new target and the promise to become "climate-neutral" by 2050 was approved by the EU Parliament with the EU Climate Law on 24 June 2021 and by the European Council on 28 June 2021. The climate goals will be binding once the EU Climate Law becomes effective. In the coming months, the EU intends to work out specific legal regulations for the climate protection at a European level as part of the EU Green Deal. On 14 July 2021, many legislative proposals of the EU Commission will be announced.
With its so-called “Climate Decision” of 24 March 2021, the Federal Constitutional Court in Germany declared the Federal Climate Change Act (Klimaschutzgesetz, KSG) being in force at that time partly unconstitutional. The German parliament passed the amendment of the Climate Change Act (KSG 2021) on 24 June 2021. This article shortly summarises the current status of the Climate Change Act’s amendments and the discussion around climate protection.
1. The Climate Change Act before the amendment
The Climate Change Act came into force at the end of 2019. The Act determined that the greenhouse gas emissions were to be reduced in comparison with their levels in 1990 by 55%. Currently, a reduction of about 40% compared to the levels in 1990 was achieved. With the Climate Change Act, the long-term goal of greenhouse gas neutrality by 2050 was pursued. To achieve this goal, the Climate Change Act stipulated how much greenhouse gas emissions could be emitted annually in sectors like energy, industry, buildings and transport among others. However, the Climate Change Act did not provide specific measures to reach the climate goals.
The Federal Constitutional Court’s climate decision ties in with Art. 20a of the German Basic Law (constitution) according to which the state, being mindful of its responsibility towards future generations, shall protect the natural foundations of life. According to the Federal Constitutional Court, this protection mandate includes the need to treat the natural foundations of life carefully and leave them for posterity in such a condition that future generations are able to preserve them without necessarily living in radical austerity. The Federal Constitutional Court held that the Climate Change Act (specifically Section 3 paragraph 1, sentence 2 and Section 4 paragraph 1, sentence 3 in connection with Annex 2) was inconsistent with the basic law as it lacked a provision on the reduction goals for the period after 2031 that satisfied constitutional requirements.
2. Amendments to the climate regulations by the amendment of the Climate Protection Act
Shortly after the Federal Constitutional Court’s announcement of the climate decision, the revision of the Climate Change Act was taken up and new targets discussed. On 12 May 2021, the German government decided on a draft law on the amendment of the Federal Climate Change Act and another “Climate Pact Germany”. This decision was intended to anticipate stricter European stipulations.
The amendment of the Federal Climate Change Act passed the German legislative bodies by 24 June 2021. After its promulgation in the Federal Law Gazette it will enter into force.
2.1 The most essential amendments in the Climate Change Act
|Climate Change Act (KSG) 2019 (previous status)||Amended Climate Change Act (KSG 2021)|
|Germany committed to observing greenhouse gas neutrality by 2050 as its “long-term goal” (Section 1 KSG).||By no later than 2045, net greenhouse gas neutrality is to be achieved; after 2050, negative greenhouse gas emissions (Section 3, paragraph 2 KSG 2021).|
|Greenhouse gas emissions shall be gradually reduced in comparison with their levels in 1990. The reduction to be achieved by 2030 shall be at least 55%. (Section 3 KSG).||Greenhouse gas emissions shall be gradually reduced in comparison with their levels in 1990. The reduction to be achieved by 2030 shall be at least 65%, and at least 88% by 2040. (Section 3, paragraph 1 KSG 2021).|
|In order to achieve the climate goals, annual reduction targets for the respective sectors (energy, industry, transport, buildings, agriculture, waste and other) until 2030 are set (Section 4 in connection with Annex 2 to the KSG).||
The permissible annual emission amounts until 2030 will be tightened for the individual sectors (Annex 2 to the KSG 2021). This primarily affects the energy sector for which an additional emission reduction of 38% is intended. Instead of the annual emission amount equivalent to 175 m tonnes of carbon dioxide (CO2) previously planned for 2030, it will now be 108 m tonnes.
For the years 2031-2040, cross-sectoral reduction targets are defined (Annex 3 to the KSG 2021). No later than 2032, the reduction targets for the years 2041-2045 will be specified.
Unlike a preliminary draft of the amended KSG 2021, the wording ultimately implemented in the KSG 2021 does not provide for specific, indicative reduction targets for the individual sectors for the years 2035 and 2040. According to the KSG 2021, it will not be decided until 2024 how the reduction targets are to be distributed among the sectors for the years 2031 to 2040. A decision for the years 2041 to 2045 is only to be made in 2034.
Since the first specific proposals to bring about the EU Green Deal were to be announced by the EU Commission after the KSG 2021 was passed, an evaluation of the KSG 2021 will be conducted in 2022 in order to incorporate EU requirements.
2.2 Climate Emergency Programme 2022
On 23 June 2021, the German government set the course to reach the new targets with a "Climate Emergency Programme 2022". The programme provides eight billion euros, more than half of which will go to the building sector. Among other things,
- in the building sector refurbishment projects (energy-efficiency improvements or climate-friendly new constructions) will be supported through additional subsidies. Heating systems that run exclusively on fossil fuels will no longer be subsidised from 2023 onwards;
- there is to be an investment package for additional investments for climate-friendly production (phasing out coal energy, switching to green hydrogen). The scope of climate protection agreements which are based on the Carbon Contracts for Difference principle shall be extended (higher operating costs for low- or zero-greenhouse gas processes will be compensated for);
- the development and expansion of the hydrogen economy and infrastructure is to be accelerated through investments. The same goes for the expansion of efficient heat grids;
- there are to be investments for a climate-friendly mobility (for example, expansion of cycle path networks, shifting heavy goods transport to the water, upgrading and making rail operations more digital, building new fast-charging points in neighbourhoods). The initiative for climate-friendly mobility via a vehicle tax, which differentiates according to CO2 emissions, will be further developed;
- a future reform of the levies, charges and taxes in the energy system was announced, which will also include the reduction of the Renewable Energies Act (EEG) levy; and
• A review climate-damaging subsidies and a cut-back thereof was announced.
Some initiatives previously planned, are ultimately not to form part of the programme:
- There are no current plans to strengthen the integration of renewables in the buildings sector. There will not be an obligation to install photovoltaic or solar thermal systems in new buildings. The energy standard for new constructions will not be raised. However, a comprehensive amendment of the Building Energy Act (Gebäudeenergiegesetz) is planned for the beginning of 2022.
- It was considered to transfer half of the burden from the national Fuel Emissions Trading Act (that is, the so-called CO2 price) to landlords in future, and no longer solely rest it up-on the tenants in order to improve the CO2 price effect as it is landlords who decide on energy refurbishments and the type of heating. In the end, this proposal did not prevail.
3. Core issues currently discussed
Specific measures to reach the climate protection goals set have been decided upon as part of the emergency programme 2022.
The ambitious reduction targets, especially for the energy sector, require an accelerated increase of renewable energies. For this, the wind sector demands better access to suitable sites, faster permit procedures and greater political support. The sector also sees a need for improvement with a view to the installation of new photovoltaic plants, and insists on an increase in the expansion targets in the Renewable Energies Act 2021 (EEG 2021) in order to accelerate expansion. The adopted emergency programme 2022 announces adjustments to the expansion paths for renewable energies for the next legislative period. They will implement the EU resolution adopted by then.
A faster fossil-fuel phase-out is also in discussion. This phase-out may be accelerated by the increase of CO2 prices in the European emissions trade in any event. The emergency programme 2022 does not, however, set out any provision in relation to a faster fossil-fuel phase out. A substantial increase of the national CO2 prices, higher than the increase already provided by law, is also advocated for. The emergency programme 2022 does not set out any precise information in this regard. It only mentions that if the national CO2 price were to increase, according social compensation and effective carbon leakage protection would be required. Furthermore, the German government intends to advocate a moderate minimum price and the extension of the EU ETS to the heating and transport sectors in relation to the upcoming amendment of the EU emissions trading scheme (ETS) .
One thing at least is sure: addressing climate change and the importance of climate protection will be one of the core issues in the parliamentary elections.
4. What needs to be done specifically?
The Climate Change Act does not stipulate specific obligations for individual market participants. Such obligations and need for action result from other legal provisions. In this respect, market participants should learn about the changing regulatory framework and plan possible implementation measures for climate protection.
Note: The current post is an update of the post written on 19 May 2021.