On 15 November 2023, Germany’s Federal Constitutional Court declared the second supplementary federal budget for 2021 unconstitutional and therefore null and void (case 2 BvF 1/22). The ruling created a need to overhaul the Climate and Transformation Fund (Klima- und Transformationsfond, “CTF”), and a significant step towards this was taken on 18 January 2024 when the Bundestag Budget Committee voted to retain the CTF’s key funding programmes. Following the successful conclusion of the delayed "budget week" in the Bundestag and Bundesrat, the Budget Act 2024 now only needs to formally enter into force for the budget freeze to be lifted and new funding to be approved.
The CTF is the German Federal Government’s main instrument for financing the energy transition and climate protection within Germany. A ruling by Germany’s Federal Constitutional Court deprived the Fund of EUR 60 billion, making extensive revisions necessary. The Federal Government’s declared aim for the overhaul was to maintain the Fund’s key funding programmes for energy and infrastructure projects. With the Budget Committee having accepted the proposed new-model CTF, the Federal Ministry for Economic Affairs and Climate Action (Bundesministerium für Wirtschaft und Klimaschutz, “BMWK”) lifted its pause on applications and approvals for CTF funding programmes on 22 January 2024. New applications will also soon be able to be approved when the provisional budget period ends with the publication of the Budget Act 2024 in the Federal Law Gazette.
Background
In February 2022, the Federal Government used the Second Supplementary Budget Act 2021 to retroactively shift superfluous 2021 coronavirus-related loan authorisations of EUR 60 billion into a special fund, the CTF (previously known as the Energy and Climate Fund), with the intention of repurposing them for future financial years. The Federal Constitutional Court considered this to violate a number of budgetary principles however, not least the debt brake enshrined in Articles 109 and 115 German Basic Law (Grundgesetz), resulting in a EUR 60 billion reduction in the CTF’s total volume of over EUR 200 billion.
Since the judgment, the Federal Government has mostly been prevented from entering into new commitment appropriations. The German Federal Ministry of Finance immediately froze numerous items in the 2023 federal budget, including the CTF’s economic plan. New 2024 commitments are presently hampered not only by this spending freeze but also by provisional budget management under Article 111 German Basic Law, which restricts spending to existing or statutory obligations until the year’s federal budget has been adopted. The BMWK consequently imposed a stop on all applications and approvals for CTF funding from 1 December 2023 except for those relating to energy efficiency and renewables in the building sector. The stop was lifted on 22 January 2024.
What are the implications of the CTF restructuring?
To absorb the EUR 60 billion shortfall, there will be changes in how the CTF is financed and the number of programmes it funds. While the CTF has previously been 100% self-financing through its share in the proceeds from European emissions trading and carbon pricing in national emissions trading, there are now plans for Federal Government subsidies for 2025 and 2026. Moreover, a return to the 2019 carbon pricing trajectory means that carbon pricing will also increase from 2024 onwards, the 2022 increase having been postponed in order to reduce the burden on individuals and companies.
As regards its future focus, the CTF will continue to concentrate on its core projects, most of which remain unchanged. Although the agreement reached by the Federal Government provides for just EUR 49 billion in funding for 2024, i.e. EUR 12 billion less than originally planned, the key programmes in the areas of the hydrogen economy, electromobility and the energy and building sectors will nevertheless be retained:
- The hydrogen economy is to be expanded by promoting hydrogen use in industrial production (funding of EUR 1.27 billion), the decarbonisation of industry (EUR 680 million), the implementation of the national hydrogen strategy (EUR 640 million), the Franco-German IPCEI (EUR 670 million) and the hydrogen strategy for foreign trade (EUR 280 million).
- In electromobility, funds of EUR 1.92 billion are available for the construction of refuelling and charging infrastructure and EUR 500 million for the industrial production of battery cells.
- The building sector continues to be a funding priority, with the EUR 16.7 billion in support for energy-efficient building refurbishment promised under the Building Energy Act remaining in place.
- The planned measures to help reduce energy costs for individuals and companies are also unchanged. In particular, EUR 3.9 billion will be invested in electricity price compensation and the “super cap” for energy-intensive industries. A further EUR 10.9 billion will be available to transmission system operators to compensate for the abolished EEG surcharge.
Some funding programmes outside the core projects have had to be discontinued, although existing commitments will be honoured. Savings are to be achieved, for example, by eliminating planned subsidies to transmission system operators that would have allowed them to reduce network charges, cancelling rebates for e-car buyers, and changes to the financing for rail infrastructure investments, which will now come from an increase in Deutsche Bahn’s equity rather than the CTF.
Outlook
The consensus in the Budget Committee means that the scope of the future funding programmes under the CTF is now largely decided, which enabled the BMWK to lift the pause on applications and approvals for CTF funding on 22 January 2024. However, whereas the BMWK is now accepting new applications for CTF programmes, approvals are not yet possible due to provisional budget management. This will end as soon as the 2024 federal budget comes into force, at which time new 2024 CTF applications will also be eligible for approval.
Forward