The Traffic Light’s Mixed Climate Record

After years of climate policy stagnation under conservative governments led by the Christian Democrats and their Bavarian sister party (CDU/CSU), Germany’s 2021 federal election briefly kindled hopes that the self-proclaimed “progress coalition” would not only champion progressive social policies but also kickstart the urgently needed socio-ecological transformation. Indeed, the federal government did launch a few important projects: the phase-out of coal, the expansion of renewable energies, and the first steps towards a heating transition through the introduction of the Heizungsgesetz (Heating Act).

On the other hand, however, Germany risks missing its 2030 climate targets. In terms of electricity generation, for example, the proportion produced from renewables has continued to rise. In the first half of 2024, it accounted for more than 61.5 percent of the total energy mix for the first time, according to the Federal Statistical Office. However, coal remains the second most important energy source in the electricity mix. The expansion of LNG terminals will further promote fossil fuels, despite the fact that natural gas prices have been falling since late 2022 and that experts have stated that a stable gas supply has never been at risk.

The transport and building sectors in particular are lagging far behind other sectors when it comes to transitioning away from the use of fossil fuels; the German government, for example, continues to spend around 15.5 billion euro per year on environmentally harmful subsidies, such as the diesel tax break and company car privileges, instead of using these funds to ensure a stable price for the 49-euro monthly public transport ticket or to finance rail network improvements through fixed budget allocations.

For a genuine energy and transport transition to actually occur, the German government and the industrial sector must systematically promote the uptake of renewable energies and continue to expand their use. Through funding measures aimed at decarbonizing large corporations and small- to medium-sized enterprises, the traffic-light coalition advanced the ecological transformation of the economy.

However, in addition to financial support, clear regulatory frameworks from policymakers are also required. Companies themselves must be obliged to present concrete transformation plans outlining how the transition can be achieved without negatively impacting their workforce in the process.

Just like the previous government, the coalition under Chancellor Scholz failed to make large corporations more accountable. The decarbonization of the economy requires massive investment in the climate-neutral transformation. Many of the companies that would be impacted by it, particularly those in the transport sector, could easily cover the necessary investments from their own profits — without the need for state subsidies or tax breaks.

Nevertheless, even Germany’s wealthiest corporations continue to receive substantial government subsidies, with the total amount increasing significantly in recent years. Among the largest recipients are the energy company E.ON, followed by Volkswagen and energy supplier RWE. Between 2016 and 2023, E.ON and RWE received more subsidies than they paid in taxes.

At the same time, large corporations continue to distribute ever-higher profits to their shareholders. In Germany, DAX-listed companies distributed a record level of 53.8 billion euro in profit in 2024. What’s more, while dividends in Germany rose by 27 percent between 2020 and 2023, real wages fell by 12 percent across the same time period.

The “Social” Aspect Is Missing

The case of the Heating Act exemplifies what happens when climate policy measures fail to adequately consider their social impact. When Minister for Economic Affairs Habeck’s draft of the bill was prematurely leaked to the public, there were no clear proposals on how households would be financially supported in installing heat pumps.

For essential climate protection measures to gain broad public acceptance, social compensation must be considered from the outset. The climate allowance (Klimageld), which the coalition had agreed on as an instrument of social compensation, will no longer be implemented during this parliamentary term. This is a critical failure.

At the international level, the German government, together with the other economically privileged countries, has pledged to pay around 100 billion US dollars annually to low-income countries to promote climate protection and support climate change adaptation. While 116 billion US dollars was pledged on paper in 2022, the majority of these funds came in the form of loans, many of which were not even provided at preferential interest rates. The actual financial contribution from these wealthy nations in 2022 is estimated to have only been between 28 and 35 billion US dollars — effectively up to 88 billion less than reported.

Further trouble now looms: the coalition’s restrictive fiscal policy will lead to further cuts to the Federal Ministry for Economic Cooperation and Development’s budget and thus also to cuts to climate financing. This will further undermine Germany’s already insufficient contribution to socially just climate policies with global impact.

The interaction between social inequality and the climate crisis, and the resulting challenges that exist at both national and global levels, vary greatly. What remains consistent, however, is that the people least responsible for the crisis are disproportionately affected, while those most responsible face far fewer consequences.

The Rich Are Responsible

The primary responsibility for the current situation lies with the economically privileged countries of the Global North (such as Germany), the fossil fuel companies that continue to cling to their destructive business models, and ultra-wealthy individuals whose consumption and climate-damaging investments further exacerbate the crisis.

When considering greenhouse gas emissions by country, the wealthy industrialized nations are responsible for around half of all emissions since 1850. Emissions can be traced back to a relatively small number of major players: just 78 private or state-owned companies in the fossil fuel industry are responsible for over 70 percent of global CO2 emissions since the onset of industrialization. Fossil fuel companies around the world continue to invest in coal, oil, and natural gas, reaping record profits in the process.

On a planetary level, a significant reduction in oil and gas production remains unlikely. Although countries agreed to phase out the use of fossil fuels at the 2023 UN Climate Conference, oil and gas companies once again reported substantial profits in the first half of 2024. Instead of investing these billions in the energy transition, they have largely distributed them to shareholders. This underscores the urgent need for clear policy frameworks to accelerate the transition away from fossil fuels on a global scale.

There are also significant disparities at the individual level: the wealthier people are, the higher their emissions, due to more frequent air travel, larger homes, and higher consumption overall. In 2019, the richest 10 percent of the global population were responsible for around half of all CO2 emissions worldwide. Around 53 percent of Germans belong to this richest ten percent. Even within Germany, the responsibility for the climate crisis varies greatly. In 2019, the wealthiest 1 percent accounted for an average of 83.3 tonnes of CO2 emissions per person per year in 2019.

It is no coincidence that rich countries, fossil fuel companies, and ultra-wealthy individuals are primarily responsible for the climate crisis. The global exploitation of natural resources and workers, coupled with a relentless pursuit of short-term returns, are what drive high profits. And these can only be generated at the expense of long-term investments in the ecological transformation of companies, better wages for workers, and respect for human rights along supply chains. The one-sided focus of corporations on profits and a dependence on constant economic growth remain the main causes of climate catastrophe, environmental destruction, and extreme social inequality.

Inequality and the Climate Crisis Fuel Each Other

Extreme economic inequality and the climate crisis exacerbate each other. The consequences of the rapidly advancing climate crisis are distributed very unevenly across the globe. In many countries, especially in the Global South, people with lower incomes often live in areas that are more susceptible to flooding, heavy rainfall, heat stress, and storms. Their homes frequently lack even basic protections, such as flood defences, leaving them disproportionately exposed to climate-related disasters.

In addition, many people on low incomes have no savings and no access to social security systems to mitigate the consequences of an emergency. The climate crisis is already significantly aggravating inequality between the wealthiest countries and the economically marginalized ones, with a 2019 study indicating an increase in this disparity of around 25 percent.

While the wealth of billionaires has increased by over a third since 2020, 60 percent of the global population has become poorer over the same period. Worldwide, men possess 105 trillion US dollars more wealth than women — a wealth gap more than four times the size of the US economy. This growing inequality is placing societies under increasing strain. It undermines democracy, intensifies gender and racial discrimination, and fuels the climate crisis.

While high incomes and wealth are increasingly concentrating in a few private hands, many governments are cutting funds for public social infrastructure. According to Oxfam’s calculations, in 2022, three-quarters of governments around the world were planning to cut spending in the following years to the tune of 7.8 trillion US dollars, partly due to rising debt. Poverty and social inequality will continue to increase as a result,

Redistribution as a First Step

Ecological transformation and social issues go hand in hand — climate protection can only be achieved through redistribution. If measures to facilitate an ecological transformation are not accompanied by financial assistance for those on low incomes, and if public infrastructure continues to be cut back, then frustration among the population will only grow. At the same time, if the profits of large companies continue to rise, the public’s acceptance of the need for transformation and their trust in politics will keep eroding.

The “progress coalition” indeed took some important steps in this regard. However, much more could have been achieved with respect to socio-ecological transformation were it not for Finance Minister Lindner’s restrictive fiscal policy, the lack of constructive collaboration within the coalition, and the absence of the necessary political will. To effectively break the feedback loop between economic inequality and the climate crisis, the next federal government must implement a socially just transformation that finally holds corporations and ultra-wealthy individuals more accountable and does adequately accounts for Germany’s responsibility for the climate crisis.

Such a transformation looks increasingly improbable, however. That which the traffic-light coalition was unable to accomplish seems even more unlikely in the immediate future given the current conservative backlash and rightward shift. While a green-capitalist shift seemed possible during the 2010s, we are now at a point where the priority seems to be defending the status quo as much as possible.

This will only lead to a disastrous dead end, however: if we want to create a more socially and ecologically just future around the world, we need a fairer economic system in which the common good matters more than maximizing profit at any cost. We must move away from the paradigm of endless growth, which only leads to the exploitation of natural resources and further escalates the climate crisis.

Redistribution would be a first step in the right direction. The money is there. The vast wealth concentrated in the hands of relatively few people in particular must be more effectively used to fund projects that benefit the common good and socio-ecological transformation. According to Oxfam’s calculations, a progressive wealth tax on assets starting at a value of around 5 million euro, for example, could raise 85.2 billion euro in Germany alone.

Furthermore, there also needs to be a shift in fiscal policy, meaning a departure from the debt brake while simultaneously eliminating unnecessary climate-damaging subsidies for businesses. The funds freed up could be invested in infrastructure, public services, socio-ecological measures, and sufficient levels of climate financing.

This article originally appeared in LuXemburg. Translated by Diego Otero and Ryan Eyers for Gegensatz Translation Collective.