December 19, 2020

The return of the Climate Chancellor?

Angela Merkel has long been known as the Climate Chancellor for her leading role in the fight against climate change. But in recent years German climate leadership was sorely lacking. Whether in the domestic discussion on a coal phase-out, European discussions on higher climate ambition or indeed car CO2 standards, Germany had its foot on the break. Even though Merkel has grudgingly lent her support to the EU Green Deal, the country’s response to the crisis was to prove a climate leadership litmus test, not just for Germany but also for Merkel who is about to step down. Will she be remembered as the Auto Chancellor or the Climate Chancellor?

The first major step was for Germany to acknowledge that stimulus, not austerity, was the right answer to the Covid-19 induced economic crisis. In a move that surprised even the most seasoned observers, Merkel helped seal a truly historic EU budget deal. The second question was how to spend the money. Would Germany try to preserve its successful existing model, or make a bold move towards a greener economy?

Unsurprisingly the German automotive lobby (VDA) was one of the first to knock on Merkel’s door. Carmakers called for a purchase subsidy for diesel and petrol cars, a so-called Kaufprämie, which, according to the auto-industry association the VDA, would relaunch the automotive sector and protect jobs.

NGOs, think tanks and academics fiercely opposed this, arguing that they should only go to zero-emission vehicles, if at all. In the end the German government decided there would be no Kaufprämie except for emissions-free cars and plug-in hybrid models (PHEVs). This was a landmark moment for the country’s climate policy and a massive blow to the national car lobby. It showed that through Dieselgate, it had lost credibility and prestige, even in the Chancellery.

As a result of Kaufprämien and the binding car CO2 targets for 2020, e-mobility in Germany is growing at an unprecedented pace. This year 11% of new cars were electric.

The German automotive industry itself is going through an unprecedented transformation. Volkswagen, the world’s largest carmaker, now appears to be going all-in on electrification and broke ranks with its car industry brethren in the discussion about hydrogen and synthetic fuels for road transport. In the midst of all this Tesla has started building the Gigafactory in Berlin, planning to produce half a million EVs per year. The lion’s share of the announced battery factories in Europe, will be built in Germany, creating a whole new value chain of battery cell manufacturing, recycling and IT. Increasingly, Germany looks like it will be one of the world’s electric car powerhouses. Increasingly e-mobility is no longer seen as a threat but as a necessity and an opportunity to boost Standort Germany and protect jobs.

In other good news, Germany finalised its plan to phase out coal from its power system and launched the world’s most ambitious hydrogen strategy. The hope is that a green hydrogen revolution will boost German producers of electrolysers but will also help decarbonise heavy industry, shipping and aviation. For the latter, Germany plans a binding blending target for e-kerosene made from hydrogen.

The revision of the car CO2 standards and the federal elections next year are two key opportunities, and tests, for the German government and carmakers alike. Will Angela Merkel say goodbye to German politics as the Auto Chancellor who once more ‘protected’ German industry, or will she be remembered as the Climate Chancellor who helped her country say goodbye not just to coal but combustion engines too?

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