Germany heads to the polls on 23 February, with its political parties divided over how to revive the country's struggling economy and shape climate policy in the face of continued concern over high energy costs.
How the next government's policies are shaped could significantly impact regional energy markets and Germany's role as a key player in the European economy over the next four years. But most parties appear in agreement over maintaining the outgoing government's stance on Russian gas.
Opinion polls suggest that support for the conservative CDU/CSU party has cooled in recent months, but it is still expected to be tasked with forming the next government. It is all but impossible for one party to win an absolute majority in the German parliament, so parties typically have to form a coalition. Support for the far-right AfD has grown in recent months, but the party still trails by some distance in second place. The CDU/CSU says it will not form a coalition with the AfD, so barring a dramatic surge in support for the latter in the final days of campaigning, a CDU-led coalition — possibly including the Social Democrats (SPD) and Greens — is likely to be in charge by the end of the month.
The AfD's stance on energy and climate change is largely at odds with most other parties, but the CDU/CSU, SPD and Greens have some common ground. They all acknowledge the Paris climate agreement and EU Green Deal and seek to adhere to emissions reduction mandates, and they all plan to extend the scope of the EU emissions trading system (ETS).
The three parties' manifestos chime on a need to reduce energy prices — which are widely seen as a key factor in the downturn in German industrial output — while transitioning to cleaner forms of transport and prioritising climate protection. But the parties diverge on how best to achieve these goals.
Many energy-intensive industries in Germany have struggled with high gas prices since Russia embarked on its full-scale invasion of Ukraine in 2022. The three parties all say they will bring down energy prices by adjusting taxes and subsidies, and increasing power generation. The parties aim to cut network fees and electricity taxes as much as possible within the EU, and the SPD and Greens plan to encourage the European Commission to compensate energy-intensive industries for high power prices.
The three all agree that further expanding renewable energy is the best way to reduce energy prices but, unlike the SPD and Greens, the CDU/CSU is unwilling to close coal-fired power plants until they are replaced, and it wants to assess whether it is technically and financially feasible to reactivate mothballed nuclear power plants. The AfD wants to expand coal-fired and nuclear generation and halt the expansion of solar and wind.
Gas goals
The CDU/CSU, SPD and Greens all support replacing fossil gas with hydrogen in power generation and manufacturing in the near future. How soon that can happen is up in the air. Industrial groups have cited hydrogen's high costs and constantly changing legal framework as barriers to its expansion, calling for the simplification of national and EU hydrogen legislation, the continuation of subsidies for domestic production, and more consumer incentives to substitute natural gas. But the CDU/CSU also wants to reverse the gas boiler ban introduced by the outgoing government, which mandated that new buildings install heating systems using at least 65pc renewable energy from January 2024. Instead, it proposes subsidising low-emission heating solutions — regardless of the technology on which they are based.
If implemented, this could check the decline in residential gas demand, although gas consumption is likely to become less attractive after the heating and road sectors are included in the EU ETS from 2027, pushing gas costs up. The CDU/CSU has made it clear that it intends to continue adhering to the Paris and EU climate agreements, but says this is conditional on the "competitiveness of the German economy" and "social load limits". The AfD not only seeks to end putting a price on CO2 emissions altogether, it also wants to undo the EU emission reduction mandates as a whole.
Crucially, none of the potential coalition partners plans to reverse course on Russian gas — unlike the AfD, which is calling for the lifting of all sanctions on Russia, including those on gas and oil imports into the EU. The AfD also intends to reopen the undamaged pipe B of the Nord Stream 2 pipeline to restart flows of Russian gas to Europe, and repair and reopen the Nord Stream 1 and 2 pipes that were damaged in September 2022.
Vorsprung durch technik?
On the question of the future of mobility in Germany, there is significant disagreement between the parties that might find themselves in a coalition government. While the SPD and Green party believe that e-mobility will be most relevant and want to maintain the ban on registering internal combustion engine (Ice) cars from 2035, the CDU and AfD advocate for "technology openness" and want to reverse these agreements.
The SPD says that it wants Germany to remain a leader in car manufacturing, but with its focus on electric vehicles (EVs). In order to encourage consumers to buy EVs that are "made in Germany", it proposes tax cuts for domestically manufactured units. This might be a lesson learned from unintended consequences of the general subsidy for EV purchases that was phased out at the end of 2023 — this was as beneficial for foreign EV manufacturers as domestic ones. The Green party supports the same tax cuts, provided the car is mostly manufactured within Europe.
The SPD and Green party also believe that eFuels should primarily be used in aviation or shipping, rather than on the road. They aim to establish a climate-neutral European aviation sector through rules to prevent ‘carbon leakage', with the Greens even aiming to make domestic flights unnecessary.
The Conservatives and the AfD take a completely different approach — they believe that the market should decide which mode of mobility will prevail. Based on this belief, their main goal is to reverse the EU policy of banning new Ice car registrations from 2035. The CDU and AfD instead both aim to make Ice cars — probably running on eFuels — a financially competitive alternative to EVs. They do not believe it is the government's responsibility to influence markets in one way or another. For the AfD, this extends to not using public funds to finance vehicle charging infrastructure. The two parties also agree that EU fleet emission limits, or at least associated penalties, should be abolished to avoid subjecting the German car manufacturing industry to additional pressure.
The CDU's lead in the polls — and the performance of the AfD — reflects the priorities of Germany's voters, which are focused most heavily on immigration and the state of the economy, with energy and climate policies much further down the list. The CDU leads approval ratings on expected handling of economic issues. So the party's view on how far Germany's shift from fossil fuels to renewable energy dovetails with reviving economic competitiveness could play a role in dictating the pace of the energy transition in Europe's largest economy in the years ahead.
