The German government’s 54 billion euro ($60 billion) climate deal, approved Friday after about 20 hours of overnight negotiations, is a typical product of the reluctant coalition run by Chancellor Angela Merkel: It achieves a balance of interests and little more. If German voters want a more ambitious plan, and there are indications that they do, they’ll have to wait until after the 2021 election.

The package is an exercise in evenhandedness. It’s neutral from the budgetary point of view, meaning the government isn’t sacrificing its balanced budget for the sake of reducing emissions. It makes fossil fuels more expensive, but it does so slowly, and counterbalances the rising costs with promised cuts to other energy-related levies, such as grid fees and a renewable energy subsidy, and with incentives to take trains and buy electric cars. It also promises government investment in expanding the charging network for electric cars, and avoids burdening automakers with additional costs. One can see that center-right and center-left politicians had a hand in drafting the 22-page position paper that emerged from the talks -- and that the Greens, Germany’s second-most-popular party but not a member of the governing coalition, weren’t there.

The key element of the plan is the introduction of trading in emission allowances for transport and heating starting in 2021. The two sectors are responsible for a combined 33 percent of Germany’s greenhouse gas emissions, but they are not covered by the European Union’s existing emissions trading system, which is designed for large industrial users such as power plants and airlines.

In 2021, an allowance for 1 metric ton of carbon dioxide will be offered for 10 euros; that price will rise to 35 euros in 2025. After that, the government will start issuing fewer and fewer allowances to match its emissions reduction goals, and they’ll be auctioned; the maximum price will be set at 60 euros per ton of CO2. The idea is that by 2030, Germany’s greenhouse gas emissions will be cut by 55 percent from the 1990 level. This is quite a lofty goal, since only a 30 percent cut has been achieved to date, far from the 40 percent reduction Germany had targeted for 2020.

The proposed measures are expected to increase the price of gasoline and diesel by some 3 euro cents per liter in 2021 and by 9 to 15 euro cents starting in 2026, so it will be some time before the change becomes noticeable to drivers. By the time it happens, they should find it easier to switch to electric cars: Germany aims to have 1 million charging stations available by 2030, and it’s planning to keep subsidizing the purchase of vehicles running on non-fossil fuel and hybrids.

Rail passengers won’t notice the increases at all, even if they use diesel-powered trains: The government wants to cut the value-added tax on train tickets. But air tickets will be taxed at a higher rate, especially if they’re offered at rock-bottom prices.

The leftist part of the coalition, the Social Democrats, clearly was worried about the damage any fuel price increase would have on poorer Germans. A fuel tax was what sparked the recent yellow vest protests in France, after all. So those who have to commute to and from work will be able to write off a bigger share of their transport costs from their taxable income.

Merkel and her finance minister, Olaf Scholz, peppered their presentation of the plan with references to the teenage climate activist Greta Thunberg and the climate strikes held in many countries, including Germany. But Merkel also reminded her audience that politics is the art of the possible, and said the deal would fall short of “impatient young people’s” expectations. And, lo and behold, it did. After the presentation, the German branch of Fridays for Future, the movement founded by Thunberg, tweeted, “It’s a bad joke that the government praises Fridays for Future at the beginning of each statement and then tries to sell us decisions that further trample upon our future.”

Instead of the carefully balanced package rolled out by the government, climate activists would have liked to see a speedier transition away from coal in power generation (Germany only plans to exit coal by 2037) and an immediate, hefty price tag on CO2 emissions.

The latter would have been possible if the government had opted for a carbon tax rather than an emissions trading scheme, which requires time and additional bureaucracy to put into operation and supervise. Two climate change think tanks made this argument in detail in a recent report, pointing out that a tax would achieve the same results in terms of climate goals as the more complex trading scheme. Politically, however, a tax is less palatable -- it looks like the government taking money directly out of citizens’ pockets. The more elaborate scheme is less obvious, and it appears to be more clearly linked to emissions.

It seems as though Merkel’s coalition is about to fall apart over every more or less important issue. Climate is important, and the chancellor must be relieved that her quarrelsome Cabinet has dodged another bullet. But Germans are unlikely to be equally relieved.

According to a poll published on Friday, 63 percent of Germans say protecting the climate should have priority over economic growth. I wouldn’t be surprised if the government’s timid effort gave a boost to the Greens, who are only slightly behind Merkel’s Christian Democrats in the polls. They have been able to lure many of Merkel’s more liberal voters away, and they can keep doing so by demanding more climate action. Then, if no centrist government can be created without them in 2021, Friday’s deal will be considerably strengthened.


Leonid Bershidsky
Leonid Bershidsky is Bloomberg Opinion’s Europe columnist. He was the founding editor of the Russian business daily Vedomosti and founded the opinion website Slon.ru -- Ed.

(Bloomberg)