Fitch Ratings suggests that the German Federal Government’s sweeping package of climate policy reforms could become the blueprint for an intermediate climate action step for nations seeking to achieve their commitments on carbon neutrality by 2050 – although the agency cautioned that the specific credit impact of the policy reform would only become clear once more detailed information became available.
Germany’s reforms, approved at the end of 2019, aim to slash the country’s greenhouse gas (GHG) emissions by 55% by 2030 compared to 1990 levels. The German government has maintained its commitment not to raise new debt to finance this package.
The package combines a carbon pricing-and-trading system with a wide range of restrictions and incentives. It includes the first comprehensive Federal law, which created the framework and legally binding sector targets, and the Climate Action Programme 2030, which prescribes measures and support programmes that will be legislated in sector-specific and regional laws.
The reforms also introduce a national emissions pricing-and-trading system for sectors and companies not covered by the EU Emission Trading Scheme (ETS). “Transportation and heating, along with smaller power plants and installations excluded from the ETS, are likely to be most affected by this system,” says Fitch.
The package identified emissions reduction targets for six sectors – including energy, buildings, transport, industry, and agriculture.
“The first three will be most affected by demanding decarbonisation requirements so companies in those sectors are likely to bear the largest impact on their credit profiles. Rail transport is likely to receive most direct investments as part of the package,” says Fitch. All sector emissions reduction targets in the package arise from Germany’s Climate Action Plan 2050.
Energy decarbonisation is a cornerstone of the package. “We expect the energy sector to be the most affected as it needs to cut over 40% of GHG emissions by 2030 (compared to 2018) and support electrification of other sectors, i.e., road transport and heavy industries. The two main pillars of this strategy are coal being phased out by 2038 and a rapid expansion of renewable energy,” says Fitch.
In terms of transport, the Federal government plans to contribute €62 billion to national rail operator Deutsche Bahn’s expansion and modernisation programme as part of its goal to double the number of rail users by 2030, while VAT will also be cut on long-distance travel in order to lower ticket prices. By contrast, air traffic tax is expected to increase, thus raising air fares. New public funding for electric vehicle (EV) charging infrastructure and incentives will also be made available to support the transition to cleaner road transport.
In the industrial sector, the focus will be on reducing carbon emissions through more efficient processes.
The full report, “German 2030 Climate Package May Become a Blueprint for National Environmental Regulations”, is available here.