Climate challenges force Scholz to tackle German golden calf

Chancellor Olaf Scholz arrived at Cop28 climate talks on Friday trapped between a budgetary rock and a climate hard place.

In Dubai the German leader hopes to launch what he calls a “climate club” of countries with ambitious environmental policies.

If he’s honest, though, the German leader has no idea how ambitious, or otherwise, his own government’s climate policies will be in the next years.

The latest blow on this front came on Thursday, when Berlin’s state administrative court found Germany in breach of its own climate protection law in two sectors.

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Figures presented to the court indicated that the law’s goals for transport and building emissions overshot annual CO2 emissions targets by up to 226 megatonnes. That works out at a third of Germany’s total annual emissions.

It remains unclear whether Berlin will appeal the ruling or simply rewrite the law, but the ruling piles further pressure on the Scholz team in Dubai.

Berlin’s €60 billion climate transformation fund was rejected two weeks ago by the constitutional court because a big chunk of its financing was repurposed pandemic emergency funding.

[ Germany’s obsession with debt threatens to paralyse its economy ]

That has left Robert Habeck, Germany’s Green economics and climate minister, scrambling for money to pay for big political projects such as an €18.6 billion green hydrogen plan.

Complicating matters further is a 2021 ruling from another constitutional court chamber on intergenerational climate justice.

Two years ago young German climate activists argued in Karlsruhe that the Merkel administration’s first climate protection law pushed into the future most of the heavy lifting on emissions.

The court agreed with the complainants and found that this approach had had a disproportionate affect on their constitutionally guaranteed rights to human dignity and self-determination. If they wished to survive, the court noted, future generations would be forced to “engage in radical abstinence”.

In its landmark ruling the court shifted the German state’s obligation to mitigate climate change away from its previous legal foundation – international obligations – and on to a new footing: intergenerational equity.

These three court rulings, taken together, have caused heated debate in Germany on just what, exactly, constitutes equitable and sustainable fiscal and climate politics, for today, and for future generations.

From the euro crisis on, former chancellor Angela Merkel prioritised so-called “black zero” balanced budgets as generationally just.

Underpinning this thinking was the so-called debt brake, a constitutional provision adopted in 2009 that obliges German governments to limit borrowing to 0.35 per cent of gross domestic product.

In 2016 the chancellor’s second finance minister, Wolfgang Schäuble, insisted his latest balanced budget was “not a fetish” but a sustainable fiscal approach that “opens scope to be prepared for the future”.

[ Germany, a country that is now less ‘ahead through engineering’ than behind through bureaucracy ]

Even then, though, leftist politicians warned that Berlin was worshipping balanced budgets like a golden calf, paid for by infrastructure spending cuts that would eventually come home to roost.

In the 2016 budget debate, one Left Party leader described Schäuble’s budgets as based on “the vague hope that the Lord will eventually take care of [infrastructure] investments. But he won’t: we have to fix all that ourselves.”

Fixing creaking infrastructure while meeting ambitious green goals – and all without new borrowing – is the challenge facing Olaf Scholz and his cranky three-way coalition.

His SPD allies refuse to consider welfare budget cuts, while his Green partners know their political credibility rests on salvaging unfunded climate promises. Meanwhile, their liberal Free Democratic Party partner, in control of the finance ministry, cling to hopes of a balanced budget next year.

With Germany’s climate credibility on the line in Dubai, his country’s courts may have done Scholz a favour. To qualify for his own climate club, he may be forced to cull – or at least retrain – Germany’s golden calf, the debt brake.