Germany approves 177.5 billion euros funding to accelerate energy shift

GERMANY approved plans for the government's special "climate and transformation fund" to invest 177.5 billion euros (S$249.4 billion) over the next 4 years to help accelerate the shift to an economy that's cleaner and less dependent on Russia for energy supplies.

Spending of 35.4 billion euros is earmarked for next year, with about 2/3 of the cash, or almost 17 billion euros, to be used to make older buildings more energy efficient, the economy ministry said on Wednesday (Jul 27) in an emailed statement. The money will flow from revenues from carbon pricing and the fund's own reserves and will not impact the federal budget.

Finance Minister Christian Lindner said Russia's invasion of Ukraine had made the push to expand renewables, cut harmful industrial emissions, develop the hydrogen sector and promote electric vehicles "even more topical and urgent." Subsidies for energy-efficient buildings will be for the renovation of existing structures and no longer be available for new buildings, he added.

"This special climate and transformation fund is one of the most important financing instruments for climate protection and economic modernisation in our country," Lindner said at a news conference in Berlin.

Main points agreed on Wednesday by Germany's Cabinet before the plan is sent to parliament for approval:

• Total of 56.2 billion euros through 2026 for making buildings more energy efficient
• About 20 billion euros for expanding the hydrogen sector and reducing harmful industrial emissions
• About 3.4 billion euros for promoting energy efficient systems and processes
• About 3.8 billion euros for improving the efficiency of heating systems
• The plan will also lead to a reduction in the burden on households and companies from high energy prices of about 48 billion euros due to the scrapping of a levy to fund expansion of renewables, the economy ministry said

Lindner is for the time being standing by his plan to restore a constitutional limit on new borrowing next year despite facing the lingering impact of the coronavirus pandemic and widening fallout from the war in Ukraine. The restriction - known as the debt brake - was suspended for the past 3 years.

The government announced on Tuesday that it's trimming generous subsidies for electric vehicles starting next year and will target smaller, cheaper models. Under the plan agreed on Wednesday, 2.1 billion euros was allocated from the fund for the subsidies for next year and 1.3 billion in 2024.

"In view of the billions in profits of car companies, such subsidies are no longer necessary," Lindner, a long-term opponent of the measures, told reporters on Wednesday. He said he's "counting on the market to provide impetus to make electric vehicles more affordable through competition." BLOOMBERG