Germany

Germany’s current policies are “almost sufficient” when compared to modelled domestic pathways. With implemented policies, Germany risks falling short of its 2030 target, as well as its long-term targets.

The “Almost sufficient” rating indicates that Germany’s climate policies and action in 2030 are not yet consistent with limiting warming to 1.5°C but could be, with moderate improvements. If all countries were to follow Germany’s approach, warming could be held at—but not well below—2°C.

Further information on how the CAT rates countries (against modelled pathways and fair share) can be found here.

The German government’s climate agenda is poised to undermine – rather than reinforce – existing emission reductions efforts. The previous government, which had been in power since 2021, significantly accelerated climate policy implementation. Nevertheless, the previous government’s policies and actions were still insufficient to reach Germany’s climate targets. Given that the current government is generally weakening existing policies across all sectors since coming into power in 2025, Germany’s climate targets will likely be even further out of reach. Not meeting the legally binding targets puts the government at risk of legal action and creates a liability of several tens of billion Euros towards the EU.

The government is explicitly compromising existing emissions reductions efforts in the energy, transport, and buildings sectors.

In the power sector, the government agreed a new law to auction 9 GW of new fossil gas-fired power plants by 2031. In doing so, the government seriously risks locking in additional emissions from the sector and jeopardises Germany’s 2045 climate neutrality target. The cabinet, but not yet the parliament, approved regulations to scale back solar subsidies and to make renewable energy purchases conditional on grid capacity.

In the transport sector, the government has proposed and implemented measures to support the short-term interests of German automobile manufacturers, instead of proposing policies that would reinforce the industry’s long-term competitiveness and reduce its emissions alongside. Although having introduced a new EV subsidy scheme in January 2026, the government is undermining EV deployment by scrapping its predecessor’s EV sales target, seeking to weaken EU vehicle emissions standards, opposing the EU’s 2035 phase-out of internal combustion engine vehicles and temporarily cutting petrol and diesel tax prices following the US-Israel war on Iran.

In the buildings sector, the parliament repealed the previous government’s flagship “Building Energy Act,” which included a de facto ban of new oil and gas boilers from 2026 to 2028. In its place, the new parliament adopted law relies on bio and “carbon neutral” fuels, which prolong the use of fossil fuels and reinforce Germany’s fossil fuel import dependency.

Further challenging emission reductions efforts is that German forests are no longer an emissions sink but are now a net source. The forest sink capacity was a key component of the government’s plan for reaching climate neutrality by 2045.

The government’s restructure of federal ministries may further complicate federal climate action. The government has split the responsibility for climate and energy policy across different ministries, even though these policy areas significantly overlap. Domestic and international climate policy now strictly falls under the Ministry for the Environment’s responsibility, while the Ministry for Economic AffairsI remains responsible for energy. Both ministries state completely opposite positions in public.

The government agreed to mobilise EUR 500bn in special funds (“Sondervermögen”) for infrastructure and climate over the next 12 years. EUR 100bn is designated for investments in reducing greenhouse gases. However, it remains unclear towards which sectors and which emission reductions efforts the funds will be channelled. Real opportunity lies with the remaining EUR 400bn, which the government could use to further support the transition to climate neutrality or at least not hinder the transition. However, this would require significant political will and clear spending rules.

As such, the German government is not only slowing down the transition in Germany but has also actively pushed to weaken EU policies, including weakening the EU regulation on cars, enabling the use of Article 6 carbon credits to offset rather than reduce emissions and weaking the EU Emissions Trading Scheme.

The CAT’s review of the Federal Environment Agency (UBA) emissions inventory and its emissions projections from March 2026 finds that the 2030 target is even more difficult to achieve than it was under our 2025 assessment. Nevertheless, the UBA claims that the cumulative emissions target from 2021 to 2030 will be achieved, but only because of temporarily lower emissions levels during the COVID-19 pandemic.

The government’s climate plan of May 2026 relies on optimistic assumptions and outdated data. The government assumes significant increases in the share of renewable energy generation, electric vehicles (EV) sales and CO₂ certificate prices. The projections neglect the measures that are planned, which will slow the decline in emissions.

Growth in wind energy has slowed and EV sales have fluctuated in recent years and fossil heating systems have been replaced at a slower pace than expected, while CO₂ prices remain substantially lower than projected. Combined with the government’s weakening of existing climate policies and actions, it will be impossible for Germany to achieve its emissions reductions target for 2030.

It is alarming that the government proposes meeting its target by using the Paris Agreement's Article 6 international carbon credits from outside of the EU. Allowing the use of credits would enable Germany to sidestep its responsibility to reduce emissions domestically, marking a significant rollback of its climate ambition (see CAT’s recent output on Article 6).

It is also concerning that Germany will likely fail to meet the legally binding target within the EU effort-sharing scheme for emissions from transport and buildings. If Germany does not meet the target, the government must offset the target by purchasing costly certificates. Overall, Germany is expected to exceed its target cumulatively by at least 255 MtCO₂e in 2030. Such an overshoot would cost German taxpayers EUR 25bn, assuming an estimated price of EUR 100 per certificate.

The previous government weakened the Climate Change Act in May 2024. It did so by replacing the compliance mechanism for binding sectoral emissions reductions targets with the ability for sectors to compensate for each other, as long as the overall target is met.

Amending the compliance mechanism conceals the fact that the transport and buildings sectors will exceed their 2030 targets. It will be almost impossible for the transport sector to catch up after 2030 unless drastic and disruptive measures are being taken, such as extremely high CO₂ prices or driving bans. Significant compensation from the other sectors will also not possible after 2030, as it will become increasingly difficult for sectors to reduce any additional tonnes of CO₂.

The energy supply sector accounted for 189 MtCO₂e of Germany’s total emissions in 2025 (Umweltbundesamt, 2026c). Following an upward revision of the previous year's data, emissions remain broadly unchanged compared to 2024. This indicates that the earlier downward trend has stalled, at least temporarily. As a result, the sector is no longer fulfilling its previous role as a primary driver of emissions reductions.

According to the targets anchored in the Climate Change Act, the energy sector (electricity and heat supply) will have to limit its GHG emissions to 108 MtCO₂e by 2030, a reduction of 62% below 1990 levels. With currently adopted policies, Germany could exceed its 2030 power sector target by 14 MtCO₂e according to the 2026 UBA report.

However, these projections rely on the assumption that renewable capacity will largely expand in line with the government’s early 2022 plans (the “Easter package”) (Bundesministerium für Wirtschaft und Klimaschutz, 2023c). The UBA expects 79.5% of the 80% renewable share to be reached by 2030 (Umweltbundesamt, 2026c). While solar deployment is broadly on track, onshore wind has again fallen behind in 2025.

The Expert Council on Climate Change (ERK) highlights uncertainties in the UBA’s renewable deployment assumptions. While onshore wind capacity projections are broadly plausible, expected generation is likely overstated due to high assumed full‑load hours. Offshore wind assumptions also appear optimistic, whereas solar PV capacity may be slightly underestimated. Overall, these assumptions likely lead to an underestimation of emissions (Expertenrat für Klimafragen, 2026).

The energy price volatility associated with Russia's invasion of Ukraine and renewed instability in the Middle East, including the 2026 US-Israel war on Iran, has highlighted Germany's continued exposure to international fossil fuel markets. Rising fossil gas and coal prices have contributed to higher electricity costs and heightened concerns over security of supply. In response, the German government has increasingly prioritised short‑term stability and affordability by subsidising fossil fuels, instead of reinforcing long-term energy security through decarbonisation. The government’s priorities have been reflected in recent policy debates and legislative changes that allow for a continued – or even renewed reliance – on fossil fuels.

Examples include the newly-adopted law to auction 9 GW of new fossil gas-fired power capacity by 2031, the introduction of capacity payments for dispatchable generation and the government's renewed emphasis on LNG import infrastructure and long-term gas supply contracts.

A sluggish expansion of wind energy and the increasing focus on fossil fuel-based backup capacity poses a substantial risk to Germany's ability to achieve its longer-term climate targets. In 2025, the government announced its plan to install up to 20 GW of new fossil gas-fired power capacity by 2030 (double the amount planned under the previous coalition) marked a significant escalation and risks further locking in fossil infrastructure.

The planned 20 GW of new fossil gas capacity would correspond to roughly 60% of Germany's current gas-fired fleet, making it one of the largest fossil fuel generation expansion programmes currently proposed in Europe. The final law adopted in July 2026 (Electricity Supply Security and Capacity Act, StromVKG) foresee an initial rollout of 9 GW of new gas-fired power plants, supported through capacity payments (Bundesministerium für Wirtschaft und Energie, 2026b).

Germany’s coal phase-out remains a critical component of its energy transition, yet the current government has reaffirmed the legally binding coal exit date of 2038. This timeline falls well short of global climate benchmarks, which require OECD countries such as Germany to phase out coal power by 2030 (Climate Action Tracker, 2023).

The previous government had signalled a potential national coal exit by 2030, particularly through the 2022 agreement between RWE and the state of North Rhine-Westphalia (Ministerium für Wirtschaft, Industrie, Klimaschutz und Energie NRW, 2026). However, it ultimately stepped back from this ambition at the national level and instead expressed hope that coal would become economically unviable after 2030 due to rising carbon prices under the EU ETS.

The current coalition government has followed this retreat and no longer even refers to the 2030 phase-out as an ideal scenario (Bundesregierung, 2025a). Instead, it reaffirms the legally binding exit date of 2038. Recent political statements by chancellor Merz suggest that coal-fired power plants may remain in operation even longer (Die Zeit, 2026).

Coal

Germany has made substantial progress in reducing coal use over the last decade, but progress has slowed in recent years. Coal still accounted for around 21% of electricity generation in 2025, with more than two thirds coming from lignite, the most emissions-intensive form of coal (Ember, 2026; Fraunhofer ISE, 2026). Roughly one quarter of CO₂ emissions from coal-fired electricity generation in Europe are from Germany (International Energy Agency, 2025a).

Over the last five years, coal-fired electricity generation has declined, falling by around 20 TWh per year, while coal’s share in the power mix has decreased more gradually by around 2.6% per year. In July 2020, the former government adopted a coal exit law stipulating the last coal-fired power plant will be closed by 2038. The compromise was found only by compensating the affected regions (with EUR 40bn) and the affected companies operating the coal-fired power plants (with an additional EUR 4.35bn) (Agora Energiewende, 2019; Bundesministerium für Wirtschaft und Energie, 2019). We evaluate progress in Germany’s coal sector as “Slow progress”.

In the course of Germany’s coal phase-out, several lignite and hard coal-fired power plants have been shut down. This included seven lignite-fired power plant units with a capacity of around 3.1 GW, which the German government had originally planned to shut down earlier. Due to energy-saving measures for fossil gas during the energy crisis, the shutdown date for two of these units was postponed and the remaining five units were taken out of security standby (Die Zeit, 2024; MDR, 2024).

According to the 2025 coalition agreement, the government continues to pursue a coal phase-out by 2038. The coalition agreement now ties the timeline for decommissioning coal plants or placing them in reserve to the pace of building new controllable fossil gas-fired power plants, effectively making climate ambition conditional on fossil fuel infrastructure expansion. To be 1.5°C compatible, Germany needs to phase out coal by 2030 at the latest (Climate Action Tracker, 2023).

The government has entirely dropped the previously stated ambition of phasing out coal “ideally” by 2030. A legally required federal evaluation of whether a 2030 phase-out would be feasible has still not been carried out. While the energy company RWE and the state of North Rhine-Westphalia maintain their bilateral agreement to phase out coal by 2030, the eastern German states have reaffirmed their opposition to ending coal mining and coal-fired power generation in their regions by 2038. Chancellor Merz’s questioning of the 2038 coal phase-out signals a potential retreat from Germany’s climate commitments, using energy security to justify extending the lifespan of polluting coal plants (Die Zeit, 2026).

The attempt by the previous government to bring forward the coal phase-out may have paradoxically led to increased greenhouse gas emissions: in early 2022, RWE and the state government of North Rhine-Westphalia agreed to advance the coal phase-out from 2038 to 2030. However, as part of that deal, the shutdown of several units originally scheduled to close in 2022 was postponed until 2024, in order to reduce fossil gas consumption during the energy crisis.

For RWE, this is probably a good deal because it will lead to more operating hours before 2030 than originally planned. After 2030 it would likely not have been viable to operate the coal-fired power plants anyway, because of the high carbon price expected from the revised EU ETS.

Fossil gas

Germany has made only limited progress in reducing fossil gas use in the power sector. Fossil gas accounted for around 17% of electricity generation in 2025, making it the third-largest source of power generation after renewables and coal (Ember, 2026).

Over the last five years, fossil gas-fired generation has remained broadly stagnant, declining by only around 1.6 TWh per year, while its share in the power mix has slightly increased by around 0.4% per year. Germany does not have a fossil gas phase-out target for the power sector. To be compatible with a 1.5°C-compatible pathway, Germany would need to phase out unabated fossil gas power generation by 2035 (Climate Action Tracker, 2023). Germany currently operates around 32 GW of fossil gas power capacity, with plans to add a further 9 GW of new long-duration capacity under the Electricity Supply Security and Capacity Act (StromVKG) expected to be met with gas-fired power plants. We evaluate progress in the fossil gas sector as “Wrong direction.”

The previous government adopted a transitional approach by approving four new thermal power plants to operate initially on fossil gas, with planned conversion to hydrogen between 2035 and 2040. In response to the geopolitical risks following Russia’s invasion of Ukraine, Germany diversified its fossil gas imports by entering long-term LNG partnerships with countries such as Qatar, the US, and Senegal (Spiegel, 2022).

While this strategy enhances short-term energy security, it carriers significant long-term risks. These include the lock-in of Germany’s energy system into continued fossil fuel dependence. Several of these LNG supply agreements extend into the 2040s, beyond Germany's 2045 climate neutrality target. Combined with ongoing investments in LNG import infrastructure, including the conversion of temporary floating LNG terminals into longer-term import facilities, this raises concerns about fossil fuel lock-in and the risk of stranded assets. Recent analyses have also questioned whether Germany has contracted more LNG import capacity than is compatible with its long-term climate targets, potentially requiring unused volumes to be re-exported or infrastructure to become underutilised (Metz et al., 2021).

At the same time, such partnerships may delay the energy transition in partner countries. This raises serious concerns about international climate justice, as wealthier nations secure energy security at the cost of sustainable development paths elsewhere. Moreover, reliance on LNG extends geopolitical vulnerabilities by creating new dependencies in a volatile global energy landscape.

The 2025 coalition agreement recognises the need to move away from fossil gas towards a climate-neutral energy system. Yet, the government has argued that additional dispatchable capacity is needed to maintain security of supply as coal-fired power plants are retired and the share of renewable electricity increases. It announced a substantial expansion of fossil gas capacity, including plans to install up to 20 GW of new gas-fired power plants by 2030 (Tagesschau, 2025).

This approach was operationalised in 2026 through the StromVKG Act. The law establishes a capacity market that renumerates providers for making capacity available rather than for electricity generation. Initial auctions will procure 11 GW of new dispatchable capacity, including 9 GW of long-duration capacity. While the mechanism is formally technology-neutral, these requirements are expected to be met by new gas-fired power plants. Successful bidders receive contracts of up to 15 years (Bundesministerium für Wirtschaft und Energie, 2026b).

The StromVKG is reinforcing the role of gas in Germany’s power system. While new plants must be hydrogen-ready and operate climate-neutrally by 2045, the absence of binding milestones for an earlier switch to renewable hydrogen raises concerns about fossil gas lock-in, continued import dependence and delayed decarbonisation.

Renewables

Renewable energy continues to be the main driver of decarbonisation in Germany's power sector. We assess progress in the renewable electricity sector as "Making headway." Renewables supplied around 59% of electricity generation in 2025, making Germany one of the global frontrunners in renewable electricity deployment. Over the last five years, renewable electricity generation increased by around 16.6 TWh per year, while the share of renewables in the power mix grew by approximately 5.2 percentage points annually. Installed renewable capacity reached around 200 GW in 2025, expanding by an average of 16 GW per year, driven primarily by solar PV and wind power.

Germany has a legally binding target of obtaining 80% of gross electricity consumption from renewable sources by 2030, but this remains below the level required for a fully 1.5°C-compatible pathway, which would require renewables to provide around 90% of electricity generation by 2030 and 100% by 2040 (Climate Action Tracker, 2023).

Renewable energy expansion remains a cornerstone of Germany’s energy transition. However, the policy framework supporting this expansion has become less consistent. While targets and expansion pathways remain in place, recent policy proposals indicate a shift towards greater market exposure and reduced financial support.

In July 2026, the government cabinet, but not yet the parliament, adopted a substantial reform of the Renewable Energy Act (EEG). The reform would end guaranteed long-term support for many new small solar installations, expose projects more directly to market risks and reduce compensation for renewable energy generators that are required to curtail output because of insufficient grid capacity.

These decisions shift the costs and risks of insufficient grid and storage expansion to renewable energy investors, making these projects less profitable or even unviable. This will weaken investments and slow renewable deployment at a time when substantially more clean power capacity is still needed.

The government could have accelerated the transition by accelerating the modernisation of the power grid and accelerate storage capacity and further support build out of renewables, but has not done so.

Wind and Solar

Wind and solar energy account for the largest share of Germany's renewable electricity generation and are central to achieving the country's climate and energy targets. A recent analysis by the CAT (Climate Action Tracker, 2026), shows that aligning Germany’s power sector with a 1.5°C pathway would require renewables to supply 89% of electricity generation by 2030 and 100% by 2040. To meet this trajectory, Germany would need to add on average 22 GW of solar capacity per year through 2030, alongside significant expansion of wind power. Solar and wind capacity would need to reach a combined 400 GW of installed capacity by 2030, exceeding Germany’s current legally binding target.

Germany’s legally binding capacity targets call for 215 GW of solar PV, 115 GW of onshore wind, and 30 GW of offshore wind by 2030. Current deployment stands at around 200 GW in the first quarter of 2026. Meeting the 2030 targets would therefore require roughly 160 GW of additional capacity, bringing the combined total to 360 GW by 2030 (Bundesnetzagentur, 2026c).

Solar capacity additions reached around 17 GW in 2025 (Bundesnetzagentur, 2026c). Strong deployment in previous years created a temporary buffer, with installed capacity reaching around 109% of the target by the end of 2025. However, expansion is now falling behind rising annual targets.

The government aims to expand annual solar PV additions to around 22 GW by 2028 (Wirth, 2023), but current growth rates do not align with this goal. Additions in 2025 were similar to previous years but reached only around 85% of the planned level (Bundesnetzagentur, 2026c). As a result, the sector has started to draw down the buffer built up in earlier years. Without faster expansion, this buffer will gradually shrink towards 2030.

Wind deployment has lagged further behind official targets, missing the onshore wind target of 77 GW by 2025 by around 9 GW. Annual additions reached 4.6 GW in 2025, compared to a planned 8 GW (Bundesnetzagentur, 2026c). This continues a pattern of persistent underachievement relative to stated targets over the past years.

Meeting the 2030 target would require a significant increase in expansion. Annual additions would need to reach around 9.4 GW, almost double the current level. Current trends do not yet indicate such acceleration. In the first quarter of 2026, only around 2 GW of new onshore wind capacity was installed, suggesting that the required scaling is not materialising (Bundesnetzagentur, 2026c).

Despite slow deployment, permitting activity reached another record level in 2025. Around 3,300 turbines with a total capacity of over 20 GW were approved in 2025, representing a 45% increase compared to the previous year (Deutsche WindGuard, 2026). This surge suggests that acceleration measures are beginning to take effect.

The temporary EU Emergency Regulation has effectively been carried over into national law through the 2025 implementation of RED III, introducing acceleration areas, stricter timelines, and simplified procedures (Bundesministerium für Wohnen, Stadtentwicklung und Bauwesen, 2025). The legal recognition of wind energy as being of overriding public interest continues to strengthen its priority in permitting decisions. If this momentum in permitting can be matched by faster project implementation, it could pave the way for a more robust expansion of onshore wind in the years ahead.

Offshore wind remains even further behind. Installed capacity stands at around 11 GW, compared to a 30 GW target for 2030 (Bundesnetzagentur, 2026c). Reaching this level would require a tripling of capacity within a short timeframe, implying a steep and uncertain expansion path. The Area Development Plans published in 2023 and 2025 are important steps toward closing this gap, as they define clear timelines and designated areas for offshore wind expansion (Bundesamt für Seeschifffahrt und Hydrographie, 2023, 2025). While the political framework is moving in the right direction and planning processes are accelerating, scaling up deployment to the required level remains a significant challenge.

Alongside the challenge of scaling up wind capacity, the investment environment for renewables is becoming less certain as the new government considers changes to support schemes and grid access rules.

Policy developments add a new layer of uncertainty to the German power sector. Proposed reforms to the Renewable Energy Act (EEG), put forward by Economics and Energy Minister Reiche, would significantly reduce financial support for renewables. Key elements include the planned phase‑out of fixed feed‑in tariffs for new small‑scale solar installations below 25 kW and a stronger shift towards mandatory market‑based remuneration (Frankfurter Allgemeine Zeitung (FAZ), 2026; Table.Media, 2026b).

In parallel, the ministry’s draft “grid package” (Netzpaket) introduces measures that could further constrain renewable deployment. These include linking renewable expansion more closely to grid availability and allowing distribution system operators to designate “capacity‑constrained” areas. In such areas, new projects may only be built if operators waive compensation for curtailment over a period of up to ten years, thereby weakening priority grid access and increasing investment risks (Table.Media, 2026a).

Hydrogen

Beyond renewable electricity and grid expansion, the government increasingly sees hydrogen as a key pillar of the energy transition, particularly for balancing the power system and decarbonising hard-to-abate industrial sectors.

Germany’s National Hydrogen Strategy, originally adopted under the 2017–2021 government, committed EUR 11bn to support hydrogen-related projects (Bundesregierung, 2020; Bundesministerium für Wirtschaft und Klimaschutz, 2023a). The subsequent government (2021–2025) updated the strategy in 2023, doubling the electrolyser capacity target from 5 GW to 10 GW by 2030 and emphasising the role of hydrogen in industrial decarbonisation (Bundesministerium für Wirtschaft und Klimaschutz, 2023d).

Recent assessments indicate that Germany is unlikely to meet its 10 GW domestic electrolyser target by 2030 under current conditions, suggesting a growing reliance on imports to meet projected demand (Clean Energy Wire, 2026b). Germany expects hydrogen demand to reach 95–130 TWh by 2030 (Bundesministerium für Wirtschaft und Klimaschutz, 2023d).

The policy focus has shifted from target-setting towards implementation and infrastructure build‑out. A central element is the development of a nationwide hydrogen core network of around 9,000 km, approved in 2024, which is intended to link industrial demand centres, production sites, and import corridors by 2032 (Bundesnetzagentur, 2026b). This reflects the expectation that domestic production alone will be insufficient.

Government projections suggest that it will have to meet 50–70% of hydrogen demand in 2030 through imports, supported by a dedicated import strategy that prioritises diversified supply chains and multiple delivery routes (Bundesministerium für Wirtschaft und Energie, 2024c). The strategy envisages large-scale imports of hydrogen and its derivatives, supported by a dedicated import framework and auction-based instruments such as H2Global (Bundesministerium für Wirtschaft und Energie, 2024a).

Germany is pursuing a diversified set of supply partnerships and pilot projects with potential exporter countries, including Australia, South Africa, and regions in North Africa and Latin America. The reliance on long-distance imports raises questions regarding transport efficiency and associated emissions (Fraunhofer ISE, 2024).

The strategy explicitly allows for the temporary use of low-carbon hydrogen during the market ramp-up phase. Recent reforms to the Hydrogen Acceleration Act reinforce this technology-neutral approach by extending support and accelerated permitting to low-carbon hydrogen pathways, including blue hydrogen produced from fossil gas with CCS. While intended to accelerate hydrogen deployment, this approach risks prolonging fossil fuel dependence and slowing the transition to renewable hydrogen (Bundesministerium für Wirtschaft und Energie, 2024b; FuelCellsWorks, 2026).

The government's hydrogen strategy targets applications across industry, transport, buildings and the energy sector. At the same time, official strategy documents acknowledge that hydrogen is comparatively energy-intensive and costly to produce and should therefore be prioritised for applications where direct electrification is not technically feasible or cost-effective (Bundesministerium für Wirtschaft und Energie, 2024c).

Hydrogen policy directly interacts with developments in the power sector through both supply and demand channels. On the demand side, Carbon Contracts for Difference (CCfDs) have emerged as a key instrument to anchor hydrogen uptake in energy‑intensive industries. Following the first auction round in 2024, the government launched preparations for a significantly expanded second round, with up to EUR 5bn in funding and broader eligibility including hydrogen-based processes and carbon capture technologies (Bundesministerium für Wirtschaft und Energie, 2026a; Clean Energy Wire, 2026a). The scheme is intended to de-risk industrial investments and bridge cost gaps for hydrogen-based production.

The new coalition government formed in 2025 reaffirmed its commitment to a rapid scale-up of the hydrogen economy, aiming for a long-term transition to climate-neutral hydrogen from domestic and imported renewable sources. The coalition agreement emphasises pragmatic regulation, expanded infrastructure for imports, and the development of a nationwide hydrogen core network.

Nuclear

In April 2023, Germany disconnected its last nuclear power plant from the grid, marking the official end of domestic nuclear energy production. Originally planned for 31 December 2022, the shutdown was postponed to 15 April 2023 due to the fossil gas crisis. This decisive step enhances investment certainty for renewable energy and lays the foundation for a truly sustainable electricity system. As of 2024, the remaining share of nuclear power in Germany's electricity consumption comes exclusively from imports, accounting for roughly one quarter of imported electricity (Agora Energiewende, 2025).

The industry sector made up approximately one-fifth of Germany’s total emissions in 2025, emitting 144 MtCO₂e (Umweltbundesamt, 2026c). Emissions from the sector decreased by approximately 6 MtCO₂e in 2025 compared to 2024.

Annual emissions reductions and fluctuations in the sector—including the decrease in emissions in 2025—have been largely driven by economic factors rather than by targeted policies (Agora Energiewende, 2026b). To reduce emissions more quickly and more consistently, the sector needs to decrease fossil energy use and electrify processes. For processes that cannot be electrified, the use of zero emission fuels needs to be expanded.

Chemical, steel, cement, paper and glass production account for 80% of Germany’s industrial emissions (Kędzierski, 2024). The sector remains highly dependent on fossil fuels which, in 2022, accounted for nearly 60% of the sector’s energy consumption (International Energy Agency, 2025b).

Industry’s heavy reliance on fossil fuel imports – particularly fossil gas – makes the sector particularly vulnerable to supply shortages and price shocks. Fossil fuel prices have been elevated and volatile over the past five years, following the Russian war on Ukraine in 2022 and the US-Israel war on Iran in 2026. Due to high and fluctuating fossil gas prices, the sector's overall production volume has remained below the Federal Environment Agency’s (UBA) forecast (Umweltbundesamt, 2026b). As a byproduct of reduced industrial activity, the sector’s emissions in 2025 have decreased by approximately 23.5% since 2021. In 2025, emissions were 19.5 MtCO₂e lower than the sector’s annual emissions reductions target.

In its 2026 emissions projections report, the UBA forecasts that Germany will continue to face elevated energy prices and decreased industrial output through 2030 relative to previous projection reports (Umweltbundesamt, 2026b). Therefore, the agency projects the sector will emit at a level below its annual emission targets until 2030. The 2026 report estimates the sector’s emissions will total 116.5 MtCO₂e in 2030 (Umweltbundesamt, 2026b). However, the government’s Council of Experts on Climate Change finds that the emissions projections report may underestimate fossil fuel prices, particularly for fossil gas, until 2027 (Expertenrat für Klimafragen, 2026).

The government’s policy package for the industry sector, as outlined in its coalition agreement, focuses on making German industries more globally competitive, but also extends and expands many of previous government’s policies and actions to decarbonise industry, including reducing the electricity tax rate, reserving free allocations in the EU ETS and introducing “Carbon Contracts for Difference” (CCfDs).

Electrification is a key factor for decarbonising Germany’s industry sector. Relatively high electricity prices pose a major challenge to industrial electrification. To alleviate the financial burden of the high electricity prices, the previous government reduced the electricity tax for the industry sector at the end of 2023, lowering it from 1.537ct/kWh to the EU’s minimum rate of 0.05ct/kWh (Bundesregierung, 2023a). The current government indefinitely extended the electricity tax rate reduction beginning in 2026 (Bundesregierung, 2025b).

The EU Emissions Trading System (EU ETS), which covers emissions from large-scale industrial installations and production facilities, is the main driver for emission reductions in Germany’s industry sector. The revised 2030 target for reducing emissions by 62% compared to 2005 under the EU ETS provides a strong signal for industry to decarbonise more rapidly (International Energy Agency, 2025b). The EU ETS reached record CO₂ prices in 2023, breaching EUR 100t/CO₂, averaging nearly EUR 85t/CO₂ (Twidale et al., 2023). However, prices declined substantially in 2024 and stabilised to an average price of approximately EUR 74/tCO₂ in 2025 (Umweltbundesamt, 2026a). To account for decreased CO₂ prices, the UBA downgraded its carbon price projections until 2030: in 2030, the allowance price is now forecast to only reach EUR 84t/CO₂ in 2030 (Umweltbundesamt, 2026b). For reference, the UBA’s 2025 projections report indicated the allowance price would reach EUR 95t/CO₂ in 2030 (Umweltbundesamt, 2025b).

An important issue to monitor is the government’s approach to the 2026 revision of the EU ETS. Recent signals from both the Economic Affairs Ministry and the Chancellery indicate a push for a more lenient regulatory framework, which would further undermine Germany’s ability to meet its climate targets, as well as for thw whole of the EU (Kędzierski, 2026).

The government amended the Carbon Dioxide Storage Act in November 2025 (Bundesregierung, 2025c). The act enables the capture of CO₂ and its deep geological storage for hard-to-abate industrial sectors, including to produce chemicals and cement. Previously, the use of carbon capture and storage technologies was limited to non-commercial research purposes. It is important to note that, despite decades of research, development, and deployment, carbon capture technologies have yet to demonstrate commercial viability or scalability at the level required for widespread implementation.

The previous government introduced CCfDs to incentivise investments in low-carbon technologies in particularly energy-intensive industries. CCfDs guarantee a certain fixed price for low-carbon industrial products and processes that are not yet price competitive. If the market carbon price (e.g., EU ETS) falls below this fixed price, the government pays the difference—reducing financial risk and incentivising decarbonisation. CCfDs mitigate the risk that industries do not invest in low-carbon solutions, even if such investments already pay off in the long term. Although an important policy lever for industrial decarbonisation, the duration for which the federal budget can sustain CCfDs remains uncertain. The lower than projected EU ETS prices further complicate the potential for CCfDs to function as intended (Kędzierski, 2024).

Germany awarded the first group of companies with CCfDs in October 2024. In total, EUR 2.8bn was awarded to 15 companies (Amelang and Wehrmann, 2024). These companies intend to reduce emissions by 60% over the next three years and by 90% in 15 years, relative to when employing conventional technologies. The government projects the first round of CCfDs will reduce emissions by cumulative 17 MtCO₂e between 2024 and 2030.

In May 2025, the current government announced the second bidding round for CCfDs, worth EUR 5bn (Knolle, 2026). However, the government relaxed the contracts’ eligibility criteria: companies need to reduce emissions by 50% over the next four years and by 85% in 15 years.

In 2025, Germany’s transport sector emitted 146 MtCO₂e and accounted for approximately 20% of the country’s total emissions (Umweltbundesamt, 2026b). Overall, emissions from transport increased by approximately 2% in 2025 compared to 2024. Emissions from several sub-sectors within the transport sector—notably aviation—are increasing.

Emission reductions are not occurring fast enough to achieve the government’s targets. According to the government, transport sector emissions need to be reduced to 79 MtCO₂e in 2030 (Umweltbundesamt, 2026c). Transport emissions in 2030 are expected to overshoot the target by 36 MtCO₂e.

Additional, ambitious action is required to reach the 2030 emissions reductions target. However, the government’s current and proposed policies for the transport sector are inconsistent and will likely further slow sectoral emissions reductions.

Road transport

The government’s actions send particularly mixed signals for the decarbonisation of road transport, which accounts for the largest share of Germany’s transport volume and emissions. In 2023, 80% of all passengers and 55% of all freight was transported on roads. Road transport generates over 95% of the sector’s total emissions (International Energy Agency, 2025a). Therefore, reducing emissions from road transport—primarily through electrification—is key to reducing overall emissions from the sector.

Current policies and actions to electrify road transport appear contradictory. The government has pursued several actions that appear to obstruct progress towards electrifying road transport. Notably, the government has abandoned its predecessor's target to register 15 million electric vehicles (EVs) by 2030. The government instead advocates for a technologically neutral approach to reducing emissions from road transport. In its 2025 coalition agreement, the government emphasises its commitment to Germany’s auto industry and asserts that it will oppose penalties incurred by German automakers that fail to meet the EU’s fleet-wide CO₂ emissions targets; a move that would be in direct violation of the EU’s regulation. The government is also promoting car ownership and usage by increasing the tax credit for commuters, reducing taxes on company cars, and lowering the cost of driver licenses; policies which will likely increase emissions from road transport in the short term.

Germany played a central role in pressuring the European Commission to weaken the EU’s vehicle CO₂-standards. In response, the Commission relaxed the emissions reductions target from 100% to 90% for new cars and vans in 2035, undermining the standard’s credibility and jeopardising the EU auto industry’s long-term global competitiveness. Previously, Germany delayed the adoption of the CO₂-standards for cars and vans by negotiating an exception for “CO₂ neutral” e-fuels. The use of e-fuels is problematic, given no cars that run exclusively on e-fuels, e-fuels will remain significantly more expensive in comparison to directly using electricity from batteries, and e-fuels are not zero emissions (Transport & Environment, 2023).

In 2025, the government passed a draft reform of its Greenhouse Gas Reduction Quota, which expands the role of biofuels and synthetic fuels, claiming the reformed quota will reduce the sector’s emissions by 6.3 MtCO₂e by 2030. However, the quota’s emissions reductions potential may be overestimated, given that biofuel production—due to indirect land use and land use change—is emissions-intensive and synthetic fuels remain cost-intensive.

On the other hand, in early 2026 the government introduced a new purchase incentive scheme for purchasing and leasing EVs (Bundesministerium für Umwelt, Klimaschutz, Naturschutz und nukleare Sicherheit, 2026). The scheme replaces the previous government’s incentive scheme, which was abruptly eliminated at the end of 2023. The new scheme is progressive and provides between EUR 3,000-6,000 per new BEV depending on household income and size. However, certain plug-in hybrid vehicles (PHEVs) and extended-range electric vehicles (EREVs)—vehicles that use fossil-based internal combustion engines (ICE)—also qualify for subsidies worth up to EUR 4,500. In doing so, the scheme prolongs the production and use of ICEs and slows a more rapid transition to BEVs. The continued production of ICEs also extends Germany’s fossil fuel import dependency, exposing households and businesses to volatile external supply shocks.

Both the existing vehicle fleet and new vehicle registrations remain dominated by ICE vehicles. At the end of 2025, over two million passenger battery electric vehicles (BEVs) were registered in Germany, accounting for approximately 4% of the country’s total passenger car stock (Kraftfahrt-Bundesamt, 2026). Demand for electric vehicles (EVs) increased in 2025, offsetting a decrease in new EV registrations in 2024. Registrations of new passenger BEVs increased by over 40% in 2025 compared to 2024 and accounted for nearly 20% of all new passenger vehicles registrations.

Germany’s energy import dependency was highlighted by the fossil energy crisis caused when the US-Israel war on Iran began in February 2026. In response to the energy crisis, the government passed a fossil fuel price relief package, worth EUR 1.6bn, to reduce the energy tax on diesel and petrol by approximately EUR 0.17 per litre from April to June 2026 (Martinez and Murray, 2026). The government did not choose to compensate only those in need for the high fuel prices, which would have been more socially just and less costly to government budgets.

Charging infrastructure for EVs is expanding. As of April 2026, over 200,000 public charging points were operational (Bundesnetzagentur, 2026a); a near sevenfold increase in charging points since 2020. However, infrastructure development differs greatly between municipalities and regions and needs to accelerate to accommodate the continued growth in Germany’s EV fleet (Verband der Automobilindustrie, 2025). In 2026, the government introduced a targeted subsidy scheme for expanding EV charging infrastructure for apartment building parking (Bundesministerium für Verkehr, 2026a). The scheme provides between EUR 1,300-2,000 per electrified parking spot. The previous government planned to operationalise one million public EV charging points by 2030 (Bundesministerium für Digitales und Verkehr, 2022). It is unclear whether the current government intends to reach this target.

Rail transport

Rail transport, which is significantly less emissions-intensive than road transport, accounted for only 10% of total passenger transport volume and 20% of total freight transport volume in 2024 (Bundesnetzagentur, 2025).

The previous government and Deutsche Bahn, the national rail company, committed to jointly invest EUR 86bn into the country’s rail network by 2030. Half of the investment will be covered by income generated from increased highway toll fees for heavy-duty trucks. The current government’s coalition agreement states that the government will increase investment in the German rail network but does not specify the level or source of investment.

Germany’s nationwide public transit ticket, the “Deutschlandticket,” is the government’s flagship measure for enabling a modal shift away from passenger cars to rail and other forms of public transit. The Deutschlandticket grants access to all modes of local and regional public transit. The government introduced the ticket for EUR 9 per month in 2022 as a temporary measure to dampen the fuel price shock because of the Russia-Ukraine war. It introduced it permanently in May 2023 for EUR 49 per month. The ticket price increased to EUR 63 per month in 2026. The government intends to continue funding the ticket indefinitely without increasing the monthly ticket cost until 2029. As of April 2026, there are 14.5 million active Deutschlandticket subscriptions, corresponding to one-fifth of Germany’s population (Bundesministerium für Verkehr, 2026b).

Estimates for the ticket’s short-term impact on emissions range from reductions of 4.2 MtCO₂e per year to 22.6 MtCO₂e per year by 2030 (Expertenrat für Klimafragen, 2024). The long-term impact may be more significant, given the single ticket system makes using public transport more affordable and accessible.

The previous government set ambitious targets for public transport volumes. Specifically, the government planned to double the volume of rail passenger transport by 2030 compared to 2020 levels. It is unlikely that the current government aims to reach this target, as it is not mentioned in the coalition contract.

Carbon price on transport fuels

Germany’s national emissions trading scheme for fuels (Brennstoffemissionshandelsgesetz or BEHG) sets a carbon price that remains far too low to meet the government's emission reductions target without other supportive measures. The fixed carbon price was increased from EUR 45/tCO₂e to EUR 55/tCO₂e in 2026 (Umweltbundesamt, 2026a). This price level results in a relatively small markup on fuel prices, limiting the scheme’s impact on greenhouse gas emissions from the transport sector. In 2028, one year later than originally planned, the national scheme will be merged into the revised EU ETS for transport and buildings.

Based on current policies, the UBA estimates an allowance price of at least EUR 350/tCO₂e would be necessary to reduce emissions to the sectoral target (Harthan and Repenning, 2022). The German government’s own projections report assumes an increase to EUR 106/tCO₂e in 2030 and reaching a maximum of EUR 251/tCO₂e in 2050 (Umweltbundesamt, 2026b).

All proceeds from the German ETS will either be reinvested in climate protection measures or returned to citizens. The German ETS generated record revenues in 2025, totalling approximately EUR 16bn (Umweltbundesamt, 2026a). The increase in revenue is linked to the 2025 increase in the carbon price. The revenue was channelled into the government’s Climate and Transformation Fund (KTF), which functions as the principal economy-wide source of climate finance (Umweltbundesamt, 2023). The previous government agreed to return ETS revenues to consumers, the current government is not planning to do so.

The buildings sector in Germany made up about 15% of Germany's total emissions in 2025, emitting 103 MtCO₂e (Umweltbundesamt, 2026c). Emissions rose by 3.4% compared to the previous year, marking a reversal after declining in previous years. The increase was largely driven by a colder winter and higher demand for space heating, which led to greater fossil gas consumption. The growing share of renewables in heating helped to partially offset emissions growth (Umweltbundesamt, 2026c). Recent developments point to an overall stagnation rather than a sustained downward trend (Expertenrat für Klimafragen, 2026).

Emissions from the buildings sector have declined since 1990, but only incrementally over the last decade, and the sector remains persistently off track for its 2030 target. By 2030, the Climate Change Act foresees a limit of 67 MtCO₂e for buildings, which current projections suggest will be exceeded by around 13 MtCO₂e. Cumulatively, the sector is expected to miss its 2021–2030 emissions budget by around 110 MtCO₂e (Umweltbundesamt, 2026c).

Recent projections assessed by the Expertenrat indicate that current estimates are likely overly optimistic, as they rely on ambitious assumptions regarding renovation rates and the replacement of heating systems under the existing Building Energy Act (GEG). The structural changes are progressing more slowly than assumed, suggesting that projected emissions reductions may not materialise (Expertenrat für Klimafragen, 2026).

This gap between assumptions and underlying trends needs to be seen in the context of a broader shift in Germany’s heating policy framework since 2023. The previous government coalition proposed a 65% renewable energy requirement for new heating systems from 2024 (Bundesministerium für Wirtschaft und Klimaschutz, 2023b).

After strong political opposition, even from within the coalition, the responsible ministry revised its draft law, delaying implementation in some regions until 2028 and allowing more exceptions, including for wood-based heating. The often-called “Heating Act”, passed in September 2023, promotes heat pumps and district heating, but only applies when heating systems are newly installed or replaced. Existing systems can continue operating, and broken gas or oil systems may be repaired. In case of irreparable failure, transitional rules and exemptions apply.

Following the 2025 elections, this trajectory culminated with the newly elected government including major revisions to the heating law in its coalition agreement. In 2026, the government presented a draft for a new Building Modernisation Act (GMG) to replace the “Heating Act”, which has passed parliament in July 2026.

The Building Modernisation Act (GMG) removes the 65% renewable requirement, allows the continued installation and operation of gas and oil heating systems, and eliminates a previously envisaged phase-out of fossil heating by 2045. Instead, it introduces a quota system for “CO₂-neutral” fuels (“Bio-Treppe”), requiring a gradual increase in the share of alternative fuels such as biomethane or synthetic fuels in fossil heating systems, starting at 10% in 2029 and reaching 60% by 2040. Responsibility for emission reductions has therefore now shifted from building owners to fuel suppliers (Bundesministerium für Wirtschaft und Energie and Bundesministerium für Wohnen, Stadtentwicklung und Bauwesen, 2026).

This approach significantly differs from the previous regulatory framework. While the “Heating Act” aimed to structurally transform the heating system through electrification and efficiency improvements, the Building Modernisation Act (GMG) allows continued reliance on combustion-based technologies and assumes the future availability of large volumes of low-carbon fuels. These fuels are, however, expected to remain scarce and costly, and are subject to competing demand from hard-to-abate sectors such as industry. As a result, the new framework risks locking in fossil-based infrastructure and increasing costs for households over time.

The Building Modernisation Act (GMG) is also not fully aligned with EU policy frameworks. The EU Energy Performance of Buildings Directive requires a complete phase-out of fossil fuel heating systems by 2040, while the Building Modernisation Act (GMG)’s fuel-based approach only reaches 60% renewable shares in heating by 2040 (European Parliament and Council of the European Union, 2024).

The heated debate surrounding the "Heating Act” also affected the market and led to uncertainty among consumers: after record-high heat pump sales in 2023, sales plummeted in 2024. In 2025, heat pump sales rebounded to 300,000, surpassing fossil gas boiler sales figures for the first time (Agora Energiewende, 2026a). The recovery was supported by growing consumer confidence in the technology and subsidy schemes (IWR, 2026).

Under the existing Building Energy Act (GEG), municipal heat planning was intended as a central coordination tool to align individual heating decisions with local infrastructure strategies, such as district heating expansion or electrification. Municipalities must submit these plans by mid-2026 (for those over 100,000 inhabitants) or mid-2028 (for smaller ones). Financial support of up to 70% was introduced to support the switch (Bundesamt für Wirtschaft und Ausfuhrkontrolle, 2024). In parallel, the Heat Planning and Decarbonisation of Heating Networks Act, effective from 2024, obliges federal states to develop plans for GHG-neutral heating by 2045, with interim targets of 50% climate-neutral heat by 2030 and 80% by 2040 (Bundesministerium für Wohnen, Stadtentwicklung und Bauwesen, 2023).

Under the Building Modernisation Act (GMG), this coordination logic is weakened. While municipal heat planning formally remains in place, its role is reduced: requirements for data collection are simplified, and final technology choices are largely left to building owners.

The energy efficiency of the German buildings stock is poor, and energy consumption for space heating stagnates on a high level. This is partly due to rising per-capita living space, and partly due to low renovation activities. The annual renovation rate fell to 0.7% in 2024 – a new low. Existing policies, such as subsidies for energy efficiency measures of 35%, are a start, and should be sustained, but unable to significantly improve the energy efficiency of the German buildings stock without further (regulatory) measures. Available data for 2017-2020 indicates that almost 45% of living space falls into the three worst energy performance classes (F, G or H) with a consumption of over 160 kWh/m2 (Agora Energiewende, 2026a).

The former government put the improvement of existing buildings in the centre of its policies, e.g. by allocating more funding to renovation activities rather than new-builds. The new government pursues a different approach, introducing incentives to build more new houses, which are resource- and land-intensive and associated with high embedded emissions (Bundesregierung, 2026).

Germany’s national emissions trading scheme (BEHG) covers all non-ETS sectors, including the buildings sector. Companies selling fossil fuels have to purchase certificates for the carbon content of those fuels, and pass on the additional financial burden to the end consumers through an increased price.

The scheme started in 2021 with an initial price of EUR 25 per tonne of CO₂ (/tCO₂) It was meant to increase annually, but in 2022 the government postponed the increase because of the high energy prices driven by the invasion of Russia in Ukraine. As of 2024, it is raised to EUR 45/tCO₂. In 2025, the price increased further to EUR 55/tCO₂, marking the end of the fixed-price phase.

From 2026 onwards, the system shifts to an auction-based mechanism within a price corridor of EUR 55 to EUR 65 per tonne of CO₂, marking a transition rather than fully market-based pricing. As a result, the carbon price signal remains constrained. A stronger increase is expected only with the transition to EU ETS 2, now planned for 2028, which raises the risk of a sharp price jump for consumers in the following years (Umweltbundesamt, 2025a).

As carbon prices rise, operating fossil-based heating systems will become increasingly expensive. While some informed building owners may anticipate this and invest in cleaner options, many are likely to stick with familiar systems that have lower upfront costs. With the government’s decision to repeal the Heating Act and replace it with the less prescriptive Building Modernisation Act (GMG), this regulatory uncertainty could compound risks for consumers. Without clear mandates or bans on fossil heating, rising carbon costs may disproportionately impact low-income homeowners and tenants.

The agricultural sector in Germany emitted 61 MtCO₂e in 2025, nearly 10% of Germany’s total emissions (Umweltbundesamt, 2026c). Over the last two decades, emissions in the sector slightly declined. Methane released through livestock’s enteric fermentation emits approximately half of the sector’s emissions. Nitrous oxide from agricultural soils is another key emissions source.

In 2025, emissions from the agricultural sector remained below the sectoral limit set by the Climate Change Act. For 2030, the Climate Change Act foresees a sectoral limit of nearly 59 tCO₂e/yr, which the UBA forecasts will be met with implemented policies and actions (UBA, 2025b). However, to reach climate neutrality by 2045, emissions in this sector need to be reduced rapidly and significantly.

Meat consumption increased by over 2.5% in 2025 relative to 2024, reaching nearly 55kg of meat per capita (Bundesministerium für Landwirtschaft, Ernährung und Heimat, 2026). The level of meat consumption is significantly greater than the world average (Climate Action Tracker, 2018). While demand for meat products increased, demand for plant-based products continued to grow in Germany, which is the largest market for plant-based foods in Europe: plant-based product sales volume increased by 7% in 2024 compared to 2023 (GFI Europe, 2025).

In 2024, the government’s Federal Forestry Inventory found that German forests are no longer a net-CO₂ sink but instead a net-CO₂ source (BMEL, 2024a). As a result, Germany’s LULUCF sector is an emissions source (Expertenrat für Klimafragen, 2025). This development seriously jeopardises Germany’s capacity to reach its climate neutrality target by 2045, as enshrined in the Climate Change Act. The Climate Change Act expects the LULUCF sector to remove greenhouse gases from the atmosphere by 40 MtCO₂e in 2045. The government’s Council of Experts on Climate Change (ERK) is unable to conclusively determine whether the LULUCF sector will be able to develop in a net-CO₂ sink.

The waste sector emitted 5.1 MtCO₂e in 2025 (Umweltbundesamt, 2026c). The sector’s emissions have decreased by over 85% since 1990. This significant reduction has been mainly achieved by ending the disposal of untreated residential waste and the increased use of energy and materials from waste (Umweltbundesamt, 2017). Since 2005, landfilling of biodegradable waste has been prohibited in Germany. Beginning in 2024, CO₂ emissions from waste incineration have been covered by Germany’s emissions trading scheme for fuels (BEHG).