Germany boosts its climate fund with €60bn injection

Germany’s new government passed a supplementary budget to supercharge its climate and transformation fund with a debt-financed injection of €60bn to allow more investments in the shift towards a green economy.

The supplementary budget, passed unanimously by Chancellor Olaf Scholz’s cabinet, will channel €60bn of unused debt in 2021’s federal budget into the government’s climate and transformation fund for future spending.

The budget manoeuvre was agreed in November by the centre-left Social Democrats (SPD), pro-spending Greens and fiscally more cautious Free Democrats (FDP) in their coalition deal, allowing the parties to make the most of a temporary, pandemic-related suspension of borrowing limits in the constitution.

The budget compromise helps Germany’s new finance minister and FDP leader Christian Lindner to eye a return to the debt brake rule from 2023 and still enable more public investments needed to reduce carbon emissions in Europe’s largest economy.

“The €60bn for future investments are a booster for the economy,” Lindner said. The step will help the government to cope with the economic consequences of the coronavirus pandemic and enable a powerful leap into a carbon-neutral and more digital future, he added.

The coalition wants to deploy the funds to make critical public investments in climate protection measures – from charging points for electric vehicles to better insulating homes – and the digitalisation of the economy. The debt-financed injection of €60bn will increase the fund’s volume to €76.2bn at the start of 2022, Lindner said.

In addition, the government will channel up to €18bn of additional tax revenue, mainly stemming from eco taxes and the CO2 emission trading scheme, into the climate and transformation fund in the course of next year, bringing its fiscal reserve for investments close to €95bn.