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What climate neutrality will cost Germany

September 21, 2021

Germany wants to be climate neutral by 2045. Restructuring its economy will cost trillions. But not investing the money would cost even more.

Wind turbines in front of a coal plant in Germany
Germany is the fourth-largest historical polluter of carbon dioxideImage: Rupert Oberhäuser/picture alliance

Record temperatures and forest fires in North America, southern Europe and Siberia. Typhoons in Southeast Asia. Floods in Germany and China.

Climate change has already made extreme weather worse across the world — and only rapid cuts to greenhouse gas emissions can stop temperatures rising further and weather extremes getting stronger.

Germany amended its climate law this year to aim for greenhouse gas neutrality by 2045, after its highest court declared its old plans partly unconstitutional. But bringing the climate balance of the EU's biggest emitter to zero will cost a lot of money: €6 trillion ($7 trillion), according to a recent study on Germany's net-zero goals by consulting firm McKinsey & Company. 

Germany would need to invest 7% of its economic output — about €240 billion — into green technologies and infrastructure each year. It's an "unprecedented task," said Ruth Heuss, a senior partner at McKinsey and co-author of the study.

A police officer at a sunken street in western Germany after devastating floods
Burning fossil fuels made the heavy rains that flooded Germany in July more likelyImage: Christof Stache/AFP

Next 10 years 'crucial'

In total, this would require an additional €1 trillion of investment. A further €5 trillion of funding that would be spent regardless would need to be invested differently — namely in green technologies. This could be used for subsidies to buy electric cars, for example, or support entrepreneurs who invest in climate-friendly production processes instead of keeping old plants online.

It also includes investments in public transport, charging stations for electric cars, battery storage and the expansion of a nationwide infrastructure for green hydrogen. The money could be redirected from polluting investments like subsidies for air travel. 

Money is less critical than time, said Heuss, because the latter is in short supply. "The next 10 years are the crucial ones. We need to roughly triple the speed at which we decarbonize," she said.

Years of approval procedures for solar parks, power lines or the location of wind turbines can no longer be afforded, she added, neither from an ecological nor an economic point of view. And the longer the conversion is delayed, the faster the measures would have to be implemented — which in turn leads to higher costs. That's why it's crucial "to create the framework conditions relatively quickly now."

Infographic showing German emissions by sector

Germany's energy sector is responsible for about a third of the country's carbon pollution, and the emission of climate-damaging gases must be reduced twice as fast this decade when compared to the past 30 years. The challenge also applies to industry, which generates a quarter of total emissions.

Other measures for climate neutrality include the electrification of transport, supplying the steel and cement industries and other businesses with green electricity, and more investment in recycling and technologies for improved battery storage.

Research and investment in storage processes for carbon dioxide are also essential for Germany's climate balance to be truly zero in the end, said Detlef Stolten from the Jülich Research Center in western Germany. "Without that, it won't work." 

Climate damages

Experts expect that the money devoted to economic restructuring will have a positive effect not only on the environment, but also on the German economy as a whole. And the restructuring itself is expected to create more jobs.

In an optimal scenario, the authors of the McKinsey study assumed that the additional investments could be covered by the savings. This means that in a best-case scenario, climate neutrality would come at zero cost to society as a whole — even before factoring in the damages caused by climate change.

A wind turbine surrounded by transmission lines in Germany
As well as building more wind turbines and solar panels, Germany would also need to invest in battery storage technologyImage: Karl-Josef Hildenbrand/dpa/picture alliance

Stolten, whose institute is working on a separate calculation of the costs, estimates that the 2045 target could incur about €1.8 trillion in additional costs — about €70 billion a year. This would put the total additional investment for the country's climate neutrality at about the same level as the cost of German reunification.

"From what we see now, that is affordable," said Stolten, pointing to the floods in western Germany in mid-July that killed more than 180 people, wiping out roads and bridges and destroying livelihoods. "If we now need €30 billion to rebuild small parts of Rhineland-Palatinate and North Rhine-Westphalia — and that is certainly not the total damage, it will be higher — then you can already see that this puts things incredibly into perspective."

Conditions 'better than ever before'

Germany's Federal Environment Agency has estimated that each extra ton of CO2 emitted costs the economy €201 today — a number that is rising. This includes not only the damage to houses, roads or crops caused by floods, storms or drought, but also the health consequences of heat waves and air pollution, as well as the ecological costs of destroyed forests and soils. The damage caused to ecosystems worldwide alone could rise to €14 trillion by 2050 — 7% of the global gross domestic product.

It is "definitely also cheaper for everyone in total," said Carolin Schenuit, executive director of think tank Green Budget Germany, adding that "the weakest in society also suffer disproportionately from the consequences of climate change."

A house burning during a wildfire in California, US
Wildfires in recent years have devastated rich parts of the world including the United States, Australia and Southern EuropeImage: Josh Edelson/AFP/Getty Images

If the global community sticks to the Paris Agreement and limits climate change to less than 1.5 degrees Celsius (2.7 degrees Fahrenheit), immense social, ecological and economic damage could be prevented. The McKinsey report finds the conditions for a climate-friendly shift in Germany "are better than ever before." Consumers are increasingly opting for sustainable products and many companies are pushing toward sustainable value chains.

But even if the goal of being climate neutral by 2045 is achieved, Germany could still fall short of the agreements of the Paris Agreement for the 1.5 C target. For this to happen, ideally Germany's carbon footprint would have to be at zero before 2032.

This article was adapted from German

This article has been updated. An earlier version stated that Germany would have to be climate neutral by 2038 to achieve the 1.5 degree target. At this point, however, warming of up to 1.75 degrees by the end of the century is more likely. We have corrected the figure