OECD Environmental Performance Reviews: Germany 2023

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OECD Environmental Performance Reviews

8 May 2023

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Assessment and recommendations

Abstract

This section presents the main findings of the OECD Environmental Performance Review of Germany. They identify 28 recommendations to help the country make further progress towards its environmental objectives and international commitments. The OECD Working Party on Environmental Performance discussed and approved the Assessment and Recommendations at its meeting on 12 April 2023.

1. Towards sustainable development

Addressing key environmental challenges

Germany, one of the world’s strongest, export-oriented economies, continued to improve its environmental performance over the past decade. The country reduced many environmental pressures, despite its important industry base and dense population. Germany improved air quality and is one of the best performing countries in terms of sustainable waste management in Europe. It is working towards a more circular economy and more sustainable supply chains. Despite remarkable growth in the share of renewables, the country’s energy mix still depends largely on fossil fuels, which accounted for about three‑quarters of total energy supply in 2020. Germany has an ambitious climate policy and aims to reach climate neutrality by 2045 and achieve negative emissions after 2050.

Germany faces multiple pressures on nature and water, threatening biodiversity and natural capital. The Baltic Sea and North Sea face acute problems with eutrophication. Nitrate water pollution from agriculture remains a serious concern. Germany needs to strengthen efforts to improve water quality. About one-third of forests have near-natural conditions and more than 90% of peatlands have been drained (BMUV, 2022[1]). The conservation status of species and habitats shows deteriorating trends. Climate change increasingly affects the country as witnessed by the 2021 flood catastrophe. Germany is scaling up efforts to adapt and become more climate resilient (Chapter 2).

Like other members of the European Union (EU), Germany has a large number of environmental and climate policies that fall under EU legislation. Drawing on Germany’s leadership in Europe, it has contributed to shaping new EU policy (e.g. European Green Deal, Fit-for-55 package, REPowerEU, EU CAP1). At the same time, Germany has also benefited from implementing more environmentally rigorous EU directives. At the international level, Germany has pushed for strong multilateral alliances for more ambitious environmental and climate policy, notably within its G7 presidency in 2022. Germany is committed to implementing Agenda 2030 at home and abroad, ranking sixth of 163 assessed countries (Sachs, J.D. et al., 2022[2]). The 2022 spending review lays the groundwork to increase the focus on performance-based budgeting for sustainable development.

The economic downturn caused by the COVID-19 pandemic hit the economy hard, with gross domestic product (GDP) contracting by 3.7% in 2020. The economy recovered in 2021 (+2.6%) and was then again affected by the economic consequences of the Russian war in Ukraine, which resulted in a lower-than-expected real GDP growth of 1.9%. It is projected to recover slowly (0.3% in 2023 and 1.7% in 2024) (OECD, 2023[3]). In 2022, Germany recorded a high inflation rate of 8.8%. The crisis revealed structural weaknesses of Germany’s energy supply due to strong dependency on Russian oil and gas, obliging the federal government to rethink its energy strategy. However, the German economy has weathered the global energy crisis much better than expected (OECD, forthcoming[4]). As part of its energy crisis response, Germany has taken a series of measures, which are historic in size and scope. They are set to accelerate massively its green energy transition in the coming years.

Germany’s green energy transition is underway but needs to be accelerated while addressing the triple crisis of energy, climate and biodiversity simultaneously

Germany’s green energy transition (Energiewende), initiated in the early 2010s, aims at moving away from nuclear and fossil fuels towards renewables while promoting better energy efficiency. The country has decoupled energy demand and carbon dioxide (CO₂) emissions from economic growth and is one of the G20 and EU-27 countries with the highest levels of energy efficiency (Brüggemann, 2018[5]). The share of renewables has achieved remarkable growth over the past decade (Figure 1). The 2020 Act on the Phase‑out of Coal-fired Power Plants committed Germany to phase out coal by 2038. In addition, the federal government committed to accelerating the process and completing the coal exit, ideally, by 2030.

Despite progress, Germany will need to advance its energy transition at a much faster pace. More particularly, it needs to address three major challenges: i) ensuring energy security; ii) achieving national environmental and climate goals; and iii) ensuring the country’s economic competitiveness. In practice, the federal government faces several trade-offs. For example, some energy emergency measures negatively impact progress on climate goals (e.g. re-opening of coal energy plants, fuel price support, suspended step increase of CO₂ price). Meanwhile, despite efforts, it has not yet been possible to reverse biodiversity loss. Given the pressing environmental and climate challenges, the country cannot afford any further delays in designing pathways towards a sustainable energy transition. Germany needs to address the triple crisis of energy, climate and biodiversity in an integrated and holistic manner.

Germany responded swiftly to the global energy crisis…

The federal government has greatly accelerated its pace of policy making in the energy sector. Measures include filling up gas storage tanks, negotiating liquified natural gas (LNG) trade deals, temporarily re‑opening coal plants and raising public awareness on energy saving. Gas storages had been fully filled in October 2022 and stood at 77% in early February 2023, notably thanks to a relatively mild winter (OECD, forthcoming[4]). With a view to avoiding severe energy shortages, the federal government extended the three remaining nuclear plants until April 2023. It also temporarily postponed the phase-out of several coal plants. These are temporary setbacks in Germany’s energy transition, but the long-term impact can be moderate if these emergency measures remain time-bound.

In addition, two new public LNG terminals were built within less than one year. In total, six LNG terminals should be operational by winter 2023-24. While Germany should be commended for acting swiftly, the rapid construction of terminals cost EUR 6.6 billion, more than double the initial budget. The federal government should assess import needs to avoid overcapacity and ensure that energy emergency responses are consistent with climate objectives and do not create lock-in effects (G7, 2022[6]). The LNG Acceleration Act underlines that LNG infrastructure use beyond 2043 should be allowed only for facilities that produce climate-neutral hydrogen and its derivatives.

The crisis triggered opportunities to accelerate the country’s green transition. These include legislation and funding programmes targeting the switch away from fossil fuels with an ambitious roll-out of renewable energy and the faster coal phase-out in the state of North Rhine-Westphalia by 2030, eight years earlier than initially scheduled. The federal government is adjusting rapidly to new realities by diversifying its energy supply sources. Direct imports from Russia to Germany through Nord Stream 1 and 2 gas pipelines have stopped (Bundesnetzagentur, 2023[7]).

…but needs to better target support and promote transformational change

Like in many other countries, consumer support measures need to be better targeted to protect the most vulnerable populations (OECD, forthcoming[4]). For example, Germany lowered taxes on fuels, which helped citizens but discouraged fuel savings. While implementation of general measures is easier, fuel price cuts are untargeted and disproportionally benefit larger energy consumers, who often have higher incomes. Moreover, a EUR 300 tax bonus was granted to all employees regardless of their level of vulnerability; income tax progressivity ensures some social balance of the support measure. The lump sum was extended to pensioners; students received compensation of EUR 200. Both groups are among the hardest hit by the energy price shocks but certain members of each group suffer more than others. Financial vulnerability of households should also be assessed according to location, building standards, household composition and access to public transport (OECD, 2022[8]).

In September 2022, the federal government announced a EUR 200 billion energy relief plan, including gas and electricity price brakes.2 The plan aims to shield all households and businesses against soaring energy prices while maintaining incentives for energy savings. The federal government should develop a targeted and socially just transfer system to mitigate high energy costs through time-bound support that is disconnected from energy consumption levels. A more suitable cash-transfer system is being developed at the federal level. Implementation will require stronger administrative capacities and a better understanding of vulnerabilities (OECD, forthcoming[4]).

Energy savings and energy efficiency are top priorities

Over the past decade, the country significantly enhanced energy efficiency in the commercial, public service and residential sectors. Private households reduced their energy consumption by over 10% (IEA, 2021[9]), mainly thanks to technological improvements. However, absolute levels of primary energy consumption decreased only slightly as rising energy demand offset technical efficiency gains.

The federal government has set a goal of “making Germany the most energy-efficient economy in the world” (BMWK, 2020[10]). Within Germany’s Energy Efficiency Strategy 2050, ambition was further raised with a new goal of reducing energy consumption by 30% in 2030 and by 50% in 2050, compared to 2008 levels. The National Energy Efficiency Action Plan (NAPE 2.0) bundling measures required until 2030 and a cross-sector stakeholder dialogue, have been part of this strategy. The updated climate goal for reaching net zero by 2045 has also impacted this process. Furthermore, a national Energy Efficiency Law is underway, in parallel to the now concluded EU process on the Energy Efficiency Directive (EED). In order to secure the supply of heat during the colder weather periods in 2023 and 2024, the federal government has introduced additional energy saving measures on the basis of the Energy Security of Supply Act (Energiesicherungsgesetz, EnSiG) in August 2022. Germany could harness behaviour-related efficiency potential to a much greater extent (e.g. incentives for shared mobility, reduced heating temperatures in buildings) (ERK, 2022[11]).

Energy policy reforms are expected to boost renewables

While the share of renewables in total energy supply remains modest (17%), the share in electricity outputs reached 41% in 2021 (Figure 1). Solar energy has been boosted across the country since the early 2010s. Germany has the biggest wind onshore capacity in Europe. The total installed capacity was 57 gigawatts (GW) onshore and 7.8 GW offshore in 2022. The federal government aims to double wind onshore capacity to 115 GW and reach a 30 GW offshore wind target in 2030. The renewable energy forecasts for 2022-27 project major increases in solar photovoltaic and onshore wind (IEA, 2022[12]).

The Easter Package 2022 lays out ambitious targets and makes significant changes to the country’s regulatory framework, including measures to introduce higher auction volumes and accelerate permitting procedures. The 2023 Renewable Energy Sources Act sets a new legally binding target to increase the share of renewable energy sources to 80% of electricity consumption by 2030 (previously at 65%). In addition, the share of renewables should reach 30% of gross final energy consumption, 50% of heating, and 30% of transport (Figure 1). The Federal Ministry for Economic Affairs and Climate Action is working on measures to accelerate decarbonisation of heating and cooling, aiming to increase the share of carbon‑neutral heating to 50% by 2030. Germany must also respond to rising electricity demand due to the ongoing electrification of the transport and building sectors. The development of renewable energy becomes an “overriding matter of public interest” (BMWK, 2022[13]).

Figure 1. Germany has set ambitious targets for renewables

Bottlenecks such as grid expansion and skilled labour shortage need to be addressed

Reaching the renewable energy targets will require massive investment in the modernisation and expansion of electricity grids and energy infrastructure. The 2019 Grid Expansion Acceleration Act set targets, including major power lines such as north-south connections to channel energy surpluses from wind power in the north to the major power consumption regions in the west and south. However, progress has been slow, mainly due to complex planning and approval procedures. Farmers’ concern about soil damage and related compensation claims have also slowed down grid expansion. Additional measures aim to simplify and accelerate planning, while ensuring more equally distributed onshore wind power. This would greatly help ease pressure on the power grid by favouring local usage. Digitalisation will also play a key role in better managing electricity flows over space and time.

Germany needs to urgently address the shortage of skilled labour across the renewable energy sector, which lacks more than 200 000 workers (electricians, heating and air-conditioning technicians, IT specialists) (Monsef and Wendland, 2022[14]). A new Skilled Immigration Act is under discussion. It aims to further simplify and accelerate administration, while make working and living conditions more attractive to facilitate immigration of skilled workers at a much larger scale. It is also crucial to expand adult learning opportunities and support the labour market integration of women.

Germany has ambitious climate targets but needs to accelerate climate action

Germany has set an economy-wide target to reduce greenhouse gas (GHG) emissions by at least 65% by 2030 and by at least 88% by 2040, compared to 1990 levels. It aims to reach climate neutrality by 2045 (five years earlier than the EU target) and achieve negative emissions after 2050 (Figure 2). National targets are enshrined in the Federal Climate Change Act, which was approved in 2019 and amended in 2021. Some Länder such as the state of Baden Württemberg, have set more ambitious subnational targets.

On the international scene, Germany encourages stronger alliances for progress on climate protection. Within its G7 presidency in 2022, the country initiated an international Climate Club3 to help define common standards for emission measurements and carbon pricing, among other goals. Germany is also a major provider of international climate finance.

The country has set up annual CO₂ emission budgets for six sectors until 2030, along with a monitoring and policy adjustment mechanism (OECD, 2022[15]). Nearly all sectors achieved their sector-specific annual emissions targets in 2021, except buildings and transport. In parallel, Germany aims to increase the contribution of the land use, land-use change and forestry (LULUCF) sector.

Figure 2. Germany needs to accelerate climate action to reach its 2030 and 2045 climate targets

Germany produces about 2% of global emissions and is still among the ten largest GHG emitters in the world. In 2020, the country managed to reduce its emissions by 40% compared to 1990 levels, narrowly meeting its target (OECD, 2021[16]). This is one of the largest percentage emission reductions since 1990 in the OECD area. However, the federal government will need to accelerate the implementation of new climate measures to achieve its ambitious 2030 targets. Against the background of the global energy crisis, it will need to assess the short and medium-term impact of energy measures, update GHG projections and develop additional climate measures to fill the gaps on its pathway towards net zero.

Germany’s climate policy is aligned with EU climate legislation, including the EU Emissions Trading System (ETS), the Effort Sharing Regulation and transport and land-use legislation. Emissions reduction targets under the EU Effort Sharing Regulation (covering the non-ETS sector) are legally binding. Within the Europe’s Fit-for-55 package, its national emissions reduction targets in non-ETS sectors shall be raised from -14% in 2020 to -50% by 2030, compared to 2005 levels. Between 2013 and 2020, Germany missed climate targets in key sectors. A lack of sector-specific progress will demand acquiring offsets, which will have significant financial consequences (OECD, 2022[15]).

Germany’s youth has been a driving force in advancing public climate action. Most prominently, Fridays for Future, a youth-led climate strike movement, has played a key role in raising public awareness on climate change. Their claim for more intergenerational justice led to the amendment of the Federal Climate Change Act in 2021 with more ambitious targets following a ruling of the Federal Constitutional Court.

Beyond 2030, Germany should develop a long-term vision that provides a clear roadmap towards a net zero and climate-resilient future. To date, many policy measures only focus on the next couple of years; however, investment decisions are based on much longer lifecycles of buildings, equipment and products. Businesses and households need better foresight to achieve post-2030 goals.

Bold action is needed to promote green mobility within an integrated strategy

The decarbonisation of Germany’s transport sector is not on track. The sector missed its 2021 CO₂emission reduction targets by 3 million tonnes of CO₂-equivalent (eq). Road transport is responsible for nearly all transport-related emissions. Passenger cars represent the bulk of transport-related emissions at 60%; freight accounts for about one-third. Emission reduction efforts have been counterbalanced by the rising number of cars and more traffic from heavy duty trucks. The independent Council of Experts on Climate Change judged the federal government’s proposal for an immediate action programme to be “insufficient” (ERK, 2022[17]). Germany faces gaps both for ambition and implementation. Many opportunities such as broader use of speed limits, tolls for passenger and light duty vehicles, congestion charges in urban areas etc. have not been taken; others, such as, increased parking fees, are slowly materialising. Plans to expand federal motorways (e.g. from six to eight lanes) need stronger consideration of environmental concerns. While electric mobility will play a key role in decarbonising transport, Germany should not aim to replace each petrol and diesel-fuelled car with an electric vehicle.

Germany will need to take bold action to move from individual policy measures mainly focused on “making cars cleaner” to an integrated mobility strategy for net-zero systems by design (OECD, 2021[18]). This requires a long-term vision that integrates all transport modes with a view to building synergy. On an average day, urban dwellers in Germany travel 19 km, compared to less than 6 km in Greece (Eurostat, 2021[19]). Urban planning needs to better reflect sustainable mobility priorities by creating functional urban areas that shorten distances between home, work and leisure activities. Integrating land-use planning and promoting densification also play an important role. An annual report on sustainable mobility could help track progress on various elements of Germany’s transport transformation. The country needs to reduce car dependency by better internalising the social costs of road transportation through road pricing and by providing sustainable alternatives.

The share of electric vehicles (EVs) is rapidly growing but remains modest in the total vehicle stock. Between 2020 and 2021, EV sales doubled, reaching about 25% of newly purchased vehicles by the end of 2021. Germany is the largest market in terms of number of EVs sold in Europe. It also offers some of the highest subsidies (IEA, 2022[20]). The country surpassed the 1 million EV mark in 2022 (including hybrid vehicles), two years after its 2020 goal. However, the country has a way to go to reach the federal government’s goal of 15 million EVs and 1 million charging points by 2030. In May 2022, Germany had about 60 000 charging points, which means it would need to build about 300 new ones per day to reach its target (PwCNetwork, 2022[21]). Policy makers should think more strategically about how to build a coherent, spatially balanced, user-friendly network of fast-charging points across the entire territory. More particularly, low-density areas will require public financial support to establish and maintain public charging stations in areas that lack a commercial market.

Public transport and active transport modes require strong public investment

Despite efforts to scale up use of public transport (9-euro ticket, reduced VAT), car use often remains the cheapest and sometimes only option in low-density areas. Rail infrastructure has suffered from several decades of chronic underinvestment and the federal government should prioritise and allocate more resources to rail infrastructure, particularly for connecting rural areas to large metropolitan regions. Investment decisions also need to become more transparent (OECD, forthcoming[4]) and set the right incentives to ensure efficient maintenance. The most recent Bahn reform aims at developing faster, better co‑ordinated and more reliable connections (Deutschlandtakt). Federal support for the overhaul of the most important rail corridors is essential.

Following the success of the 9-euro ticket in summer 2022,4 the digital Deutschlandticket is an important step towards making train trips more financially competitive for citizens. The digital ticket offers an introductory price of EUR 49 per month for local public transport throughout Germany. This initiative is welcome and should considerably simplify the complex tariff structures of local public transport. In addition, public transport services need to become more reliable, better developed in low-density areas and more easily accessible for disabled travellers, the elderly and young children. A systematic expansion of park‑and-ride facilities could help fill the missing links. Germany’s National Cycling Plan 3.0 includes many good measures. However, implementation will require increased funding to build a coherent, high-quality network without weak links in the chain. Cycle infrastructure planning must also become faster and easier.

Financial assistance needs to target worst-performing buildings and vulnerable households

Improving energy efficiency in buildings is essential as the sector represents close to a third of Germany’s energy demand (BMWK, 2020[10]). Progress has been slow; generous support measures did not sufficiently target the worst-performing buildings. The building sector has missed its sectoral climate targets for two years in a row. Nearly half of all buildings urgently need renovation (OECD, forthcoming[4]). More than 10 million heating systems are over ten years old and heavily rely on oil. The federal government’s plan to make Germany's building stock virtually climate-neutral by 2045 requires a massive transformation. The recent switch in emphasis from new buildings to retrofits is therefore a step in the right direction. Germany has earmarked EUR 56.3 billion for 2023-26 to support climate-friendly renovations.

The coalition agreement foresees to advance the transition to renewable-based heating systems. As of 2024, every newly installed heating system shall be required to run on 65% renewable energy. This could significantly accelerate emission reduction in the building sector. However, the technical feasibility is under discussion considering major bottlenecks related to the production and installation of heat pumps.

Furthermore, the federal government provided tax incentives, financial support and information services to convince owners to take the necessary renovation measures. Discussions at EU level are underway to enforce mandatory renovation for the worst-performing public and commercial buildings. Socio-economic selection criteria could help provide more targeted support for the most disadvantaged households (DUH, 2022[22]). The 2022 CO₂ Cost Sharing Act regulates the sharing of costs for CO₂ emissions regarding heating and hot water supply between landlords and tenants. This could have a positive impact; it provides an incentive for property owners to invest in energy-efficient building refurbishments, while encouraging tenants to behave in more energy-efficient ways.5

Sustainable farming is progressing; nitrogen surpluses remain a challenge

High livestock concentration and intensive land use affect agricultural areas in the north-west and south‑east. Diffuse agriculture pollution places pressure on surface and groundwater bodies. More particularly, nitrogen surpluses remain a major problem in some areas. In 2017 and 2020, the federal government has revised the fertiliser legislation comprehensively and expects a significant reduction of nitrogen surpluses, as well as of ammonia and nitrous oxide emissions. However, it will take several years before the impact of these measures will become visible.

Agriculture represented about 9% of national GHG emissions in 2020. Emissions have been relatively stable during the past decade. Livestock accounts for about half of agriculture emissions. The Climate Action Programme includes ten key measures, with an earmarked budget of EUR 2.1 billion for 2020-25. The new EU Common Agricultural Policy 2023-27 could support Germany in making its agriculture greener and more sustainable. Despite progress, ambition in the agricultural sector will need to be further raised to reverse the loss of species and improve the sector’s climate balance.

Germany aims at reducing its livestock over time by supporting farmers to develop alternative income options. This would decrease emissions and free up a considerable amount of agricultural land so far used to produce animal feed. Animal welfare has gained increasing public attention (e.g. new mandatory labelling system, discussion on a meat tax and a state-funded long-term animal welfare premium).

Promoting expansion of organic farming is one of the federal government’s top climate measures for the agriculture sector. Organic farming has nearly doubled in the past decade, representing 11% of total agricultural area in 2021 (Eurostat, 2022[23]). Germany would need to significantly accelerate efforts to reach its new target of 30% by 2030.

Air quality has improved, but urban areas need to do better

Emissions of air pollutants are trending down and are decoupled from GDP growth. Germany complied with EU emission reduction commitments for all pollutants in 2020 (EC, 2022[24]). Emission intensities per unit of GDP and per capita are all lower than the OECD average. The country projects to meet the EU emission reduction commitments for major air pollutants without additional measures, except for ammonia between 2020 and 2029. However, meeting emission reduction commitments for nitrogen oxides and particulate matter (PM_2.5) will be challenging (EC, 2022[24]).

Air pollution is still a major health concern for citizens. In 2020, nearly 29 000 premature deaths were attributable to concentrations of PM_2.5, 10 000 to nitrogen dioxide (NO₂) concentrations and 4 600 to ozone concentrations (EEA, 2022[25]). Five air quality zones still exceeded the EU limit value for NO₂ in 2020 (EC, 2022[24]). People in bigger cities are much more exposed to PM_2.5 than the national average. The tightening of emission values of existing low emission zones could help reduce air pollution. Ultra-low and zero emission zones have proven to be effective in other countries (OECD, 2022[26]). Cities and municipalities need to be empowered to play a leading role in improving air quality. Germany is still far from achieving the global air quality guideline of the World Health Organization for PM_2.5.

Germany has good waste management but produces too much waste

Germany is one of the best performing OECD countries in terms of environmentally sound waste management. The country has one of the highest recovery rates and the second highest recycling rate in the OECD area. About two-thirds of municipal waste are recycled or composted. A ban of municipal waste landfilling has been in place since 2005. Nevertheless, the country still has room to shift reusable and recyclable waste away from incineration (EC, 2022[24]). As of 2023, suppliers of takeaway food and drinks must offer products in reusable packaging at no extra cost. This measure will greatly help reduce use of disposable plastic packaging.

However, the country made little progress to reduce municipal waste and needs to strengthen waste prevention. On average, a German citizen produced 632 kilogrammes (kg) of waste in 2020, compared to 505 kg within the OECD Europe area (OECD, 2022[27]). About 11 million tonnes of food is thrown away every year. Efforts should focus on both retail and household behaviour. Cutting household food waste in half, for example, could save 6 million tonnes of CO_2-eq (BMEL, 2022[28]). The public awareness raising campaign “Too Good for the Bin!” has been in place for a decade. Germany has had a national strategy to reduce food waste since 2019. Beyond dialogue platforms, binding measures with intermediate targets may be needed.

Water quality remains a concern and the sector needs to become more climate resilient

Germany’s water resources are relatively abundant, and water consumption by industry and households has fallen considerably over the past decades. Total annual water abstractions as a share of total available renewable water resources decreased from 20% in 2001 to 13% in 2016 (OECD, 2022[29]). Water abstraction per capita is well below the OECD Europe average. Nevertheless, Germany is still above the 10% threshold making it a moderate water stressed country (OECD, 2022[29]). Water leakage levels are traditionally among the lowest in Europe (DVGW et al., 2020[30]). Germany is also one of the best performing OECD countries when it comes to wastewater management, with nearly universal coverage of plants with tertiary (“advanced”) treatment (OECD, 2022[31]). Water tariffs are levied at Länder level and ensure recovery of financial costs.

Water quality remains a serious concern for Germany. The Baltic Sea and North Sea face acute problems with eutrophication. Only 8.1% of all surface water bodies reach “good ecological status” in line with the definitions of the EU Water Framework Directive (WFD) (EC, 2022[24]). No single surface water body in Germany achieved good chemical status. This can be explained by persistently high levels of nutrients, primarily phosphates, as well as contamination with mercury (German Federal Government, 2016[32]) Groundwater pollution due to diffuse agriculture pollution, remains a major challenge. Therefore, Germany needs to strengthen efforts to adequately monitor and address groundwater pollution, particularly in intensive farming areas. Germany still has a way to go to fully meet its obligations under the EU Water Framework Directive and the EU Nitrates Directive. The promotion of nature-based solutions (NbS) has great potential to make progress in this area, alongside economic incentives to reduce the use of fertilisers.

Germany’s water sector will be increasingly impacted by climate change. Prolonged dry periods and heatwaves may amplify and trigger seasonal, localised water shortages. They will also lead to dried-up rivers impeding inland waterway transport, receding groundwater levels and soil moisture loss, with major economic impacts. For example, due to the record dry summer in 2019, water levels in the Rhine River sank to their lowest since 1881 (Gustafsson, A., 2019[33]). Disruptions in inland waterways heavily impacted the industry and contributed to increased energy prices. Many companies such as BASF, a chemical giant, invest heavily in low-water vessels to ensure adequate supply of raw materials during times of drought. Modernising the water sector and adapting to climate change will require large investments. Germany will also need to invest heavily in flood prevention measures. NbS could play a key role in building natural water retention features by increasing the absorption capacity of land close to water bodies.

In response to these challenges, Germany’s National Water Strategy, approved in March 2023, develops a comprehensive vision for 2050 and aims to develop a greater awareness of the value and sustainable use of water as a resource. The strategy highlights the need to prevent water scarcity and conflicts of use, adapt water infrastructure to climate change, make water cleaner and healthier, and create a broader finance base. A two-year nationwide water dialogue, which is seen as exemplary, laid the groundwork for implementation at all governance levels and across different sectors.

Environmental governance and management

Co‑ordination mechanisms are good, but there is still room for improvement

Germany has a sophisticated, well-developed institutional system that ensures vertical and horizontal co‑ordination. German governance, which is based on federalism, aims to ensure that social and political issues are addressed by the lowest level of federal government possible. In practice, there is still room for improvement at various levels, especially to reduce administrative silos and encourage a more pragmatic and flexible application of shared responsibilities between different governance levels.

Implementation of environmental policies and programmes is mainly managed by the 16 Länder within Germany’s federal system, creating varying results. The federal government should systematically ensure that federal laws enable over-performance. It should also develop mechanisms that oblige poor performers at subnational level to move faster as in the onshore wind sector with binding area targets for all federal states (Wind-on-Land Law).

Local authorities are best placed to advance local policy issues. However, federal laws tend to place a heavy administrative burden on local administrations, which sometimes lack capacity. For example, cities and municipalities should be able to create bicycle lanes and set local speed limits more easily. They also need more flexibility in public procurement and approval processes, as well as sufficient funds for public investments (Dettling, 2022[34]). Local financial autonomy has been shrinking due to increased social expenditure, despite federal government support.

Germany has a solid regulatory framework for environmental management. Environmental law is generally strictly enforced. Germany has no centrally managed information on compliance handling or environmental offences. Public access to information on compliance monitoring and enforcement could be improved through a more centralised information system. This would provide better federal oversight and allow citizens to play a more active role in compliance monitoring.

Faster permitting processes in the renewable energy sector should not be achieved at the expense of biodiversity and nature conservation

While faster and less cumbersome permitting processes are urgently needed, biodiversity considerations should not be overlooked. As elsewhere, it has proven difficult to reconcile bird protection and wind power. The federal government defined a nationwide list of collision-prone breeding bird species with a view to accelerating risk assessments in the permitting process. On the one hand, it aims to streamline and harmonise processes across 16 Länder and provide legal certainty to wind farm developers. On the other, it intends to secure ecological protection standards required by EU law. Training to ensure consistent application and adequate staffing within local administrations are also needed.

The overriding “public interest” principle should not be used as a pretext to weaken environmental impact assessment, which must remain an essential part of the planning phase. Spatial planning processes for transport infrastructure and other major facilities require an integrated analysis of current and potential environmentally harmful impacts. The impact of accelerated permitting processes, including cumulative environmental effects, should also be carefully analysed through ex post analysis. Findings could be systematically shared and inform planning to facilitate mutual learning across the 16 Länder. The federal government plans to adopt key points for standardisation in species protection in the rail sector.

Economic instruments and investment for green growth

Germany’s recovery had a green focus, but its impact remains unclear

About 42% of Germany’s recovery measures (EUR 140 billion) support the country’s climate objectives (Wuppertal Institut, 2021[35]). The German Resilience and Recovery Plan (GRRP, 2021-26) includes grants worth EUR 25.6 billion from the EU Recovery and Resilience Facility, mainly focusing on hydrogen development, eco-friendly mobility, and renovation and construction. With the plan’s extension related to adoption of the new REPowerEU chapter, scheduled for 2023, Germany should benefit from an additional EUR 4.7 billion. While the GRRP is clearly future-oriented with a strong emphasis on hydrogen (EUR 10.5 billion), it pays relatively little attention to already available technologies that could make a difference in the short term. Like other countries, Germany needs to ensure that recovery funds are spent efficiently (OECD, 2021[36]). More particularly, the independent Council of Experts on Climate Change could play a role in assessing the impact and effectiveness of recovery measures and their contribution to transformative change.

Taxes need to be better aligned with the polluter pays principle

Germany’s environmentally related tax revenue (ERTR) has declined following a peak in 2003 in the context of the eco-tax reform (OECD, 2012[37]). The tax-to-GDP ratio and the share of ERTR in total tax revenues are both far below the OECD Europe average. While Germany has decoupled GHG emissions from economic growth, the current ERTR downward trend is not driven by a decrease of environmental pressures. Tax rates are poorly aligned with the polluter pays principle. Excise duties on energy products have remained virtually unchanged during the past decade. Moreover, tax rates are typically levied in nominal terms (e.g. per litre of fuel). In line with good practice in many northern European countries, Germany should consider introducing annual inflation adjustments to prevent further devaluation of ERTR. This could be introduced at a timely moment when energy prices are no longer skyrocketing.

Figure 3. Environmentally related tax revenue has been shrinking

As in other OECD countries, energy represents the lion’s share of taxes in Germany, followed by transport‑related tax revenue. Taxes on pollution and natural resources are virtually absent (Figure 3). Waste streams and water resources are mainly managed at the subnational level through a complex system of local fees and charges. As highlighted in the 2012 OECD Environmental Performance Review, Germany has significant scope to expand use of payments for ecosystem services and other market-based instruments (OECD, 2012[37]). Germany could also make stronger use of environmentally motivated subsidies to foster biodiversity conservation.

Germany prices most CO₂ emissions

Close to 90% of Germany’s emissions are priced, but carbon prices vary and are low in non-road sectors. Introducing a common carbon price floor across sectors would improve the effectiveness of abatement decisions (OECD, forthcoming[4]). Moreover, Germany would need to further reduce the number of exemptions and expand carbon pricing to sectors that are not yet covered. The European Union Emissions Trading System (EU ETS) covers about half of national GHG emissions. The new agreement on the EU Carbon Border Adjustment Mechanism (EU CBAM) will help reduce carbon leakage and should be followed by phasing out free allocation in the industry sector.

In 2021, the federal government introduced a national ETS (nETS), mainly targeting the transport and heating sectors. This is commendable as only few European countries have started pricing non-ETS sectors, and the scheme anticipates the introduction of an EU-wide system under the Fit-for-55 initiative. However, the starting level of the national carbon price was low (EUR 25 per tonne of CO₂);6 higher levels would be needed to decarbonise non-ETS sectors effectively, particularly buildings (OECD, forthcoming[4]).

The nETS provides a clear trajectory of future stepwise price increases to 2026 when auctions will start. Unlike excise taxes, which tax diesel at lower rates per tonne of CO₂ than petrol (OECD, 2022[38]), the scheme applies the same carbon price per tonne of emitted CO₂ irrespective of the fossil fuel source or the sector. Moreover, to ease pressure in the context of soaring energy prices, the federal government froze the step increase in 2023. While the fuel price is still high (and thus maintaining the price signal), this measure will reduce expected revenues for climate action. It should thus be a priority to move back to the initial planning and implement outstanding step increases. The emission cap would also need to be aligned with the emissions reduction targets. Providing a long-term perspective on carbon pricing with reliable, predictable increases will reassure private investors.

Transport-related taxes require an overhaul to become future proof

Germany’s large preference for car ownership is reflected in its tax system. The level of transport-related taxes is far below the OECD average (Figure 3). Germany is one of the rare countries that does not tax vehicle purchase or registration. For most passenger cars, the annual motor vehicle tax is assessed mainly based on CO₂ emissions. As of 2021, newly registered cars with high CO₂ emissions are charged an increased tax while EVs are exempted. This climate component in vehicle taxation should be further amplified. It could be complemented, for example, by a registration tax for heavy vehicles, as practised in other OECD member countries (e.g. Denmark, Norway).

Federal government support often sets the wrong incentives at the expense of sustainable transport modes. For example, company cars, which represent more than 60% of all new passenger cars, continue to benefit from a low taxation rate for private usage (1%). Forgone tax revenue was estimated at EUR 3.1 billion in 2018 (UBA, 2021[39]). Similarly, the commuter allowance encourages users to pursue regular long‑distance travel rather than providing targeted, time-bound support for developing viable alternatives. The allowance had a fiscal cost of EUR 6 billion in 2018 (UBA, 2021[39]). Both subsidies, in place for over a decade, disproportionally benefited medium and higher income groups and people who drive to work; a mobility premium has been recently introduced for low-income employees.7 From a social perspective, the subsidies remain insufficiently targeted; from an environmental viewpoint, they are harmful and should be replaced by more targeted support for people in need, privileging public transport.

Little progress has been made on developing a fair and efficient road pricing system, with the exception of heavy goods vehicles, which pay a toll (LKW Maut) since 2005. Following a failed attempt in 2015 to broaden use of road charges,8 the LKW Maut may eventually be expanded to all heavy goods vehicles (3.5 tonnes and more) in 2024. A nationwide toll system for all motorway users, including passenger vehicles, would be a first step towards sharing the financial burden of road maintenance, infrastructure development and other externalities, which represent a significant cost for society. Urban toll rings with environmentally differentiated rates could reduce traffic during peak hours and air pollution.

Germany’s transport-related tax base is set to shrink. With the ongoing electrification of vehicles, revenues stemming from taxes on motor vehicles and motor vehicle fuels will drop sharply in the next decade. In addition, new vehicle emissions standards at the EU level are under discussion. If plans go through, this would ban the widespread sale of petrol and diesel cars and vans in the EU-area by 2035. To prepare a more sustainable transport-related tax system, the federal government should make stronger use of road pricing to make drivers pay more directly according to use and damage. The introduction of a place-based road use tax system would be welcome. In such a system, tax rates would depend on where and when the driving take place, and on the type of vehicle.

Germany should improve policy coherence and phase out environmentally harmful subsidies

Germany provides substantive financial assistance and tax concessions for environmental and climate protection. However, it undermines the effectiveness of such measures through exemptions and many perverse incentives for environmentally harmful activities. This contradiction between positive and negative measures has been aggravated over time; the amount of environmentally harmful subsidies has been growing during the past decade. Subsidies with negative effects on the environment were estimated at EUR 65 billion in 2018 compared to EUR 48 billion in 2008 (UBA, 2021[39]).

As already emphasised in the 2012 OECD Environmental Performance Review, many long-term subsidies are no longer justified on economic or social grounds and should be phased out (OECD, 2012[37]). For example, diesel is still taxed less than petrol despite stronger air pollution impacts. Revenue forgone resulting from the diesel discount was estimated at EUR 7.3 billion in 2019 (Transport & Environment, 2020[40]). Little progress has been made in phasing out environmentally harmful subsidies in agriculture. The federal government should follow through on its intention to systematically screen existing and proposed subsidies to identify economic, environmental and social inefficiencies. The Federal Ministry of Finance produced 28 issues of its subsidy report with an increasingly climate-focused narrative. This provides a good starting point for advancing the phase-out of already identified harmful subisidies.

Within its G7 presidency, Germany facilitated the building of a common understanding of “inefficient” fossil fuel subsidies. G7 countries committed to end inefficient subsidies for oil, gas and coal by 2025. However, in practice, progress has been slow. Hard coal subsidies were phased out by 2018. Consumer subsidies for fossil fuels are on the rise again with the energy crisis, especially in Europe. Many measures are poorly targeted and should be time-bound and consistent with the transition to carbon neutrality.

Recommendations on sustainable development

Climate and energy

Prioritise energy saving and energy efficiency measures at all levels (public administrations, private sector, households); provide targeted support for worst-performing buildings and most vulnerable households; harness the potential for efficiency through incentives to change behaviour (e.g. provide incentives for shared mobility solutions, reduced heating temperatures in private and public buildings, monitor impacts of awareness-raising campaigns).
Pursue efforts to develop a targeted and socially just transfer system to mitigate high energy costs through time-bound support that is disconnected from energy consumption levels.
Expedite the expansion of Germany’s electricity grid and renewable energy infrastructure by ensuring coherent spatial planning processes to better respond to power needs; introduce time-variable grid charges to better align the grid capacity with shifts in renewables supply; engage in early public consultations and promote citizen-driven energy action; monitor the environmental impact of a fast-tracked permitting process for the expansion of renewable energy sources and share lessons across Länder; ensure that an expedited permitting process is not achieved at the expense of biodiversity and nature conservation (e.g. adequate resources for staffing and training).
Accelerate implementation of existing climate measures and take new ones, particularly for sectors that have not met their sectoral targets; ensure that earmarked budget for climate action is disbursed and measures are implemented efficiently in a timely manner.
Pursue efforts to advance the transition towards more environmentally and climate-friendly farming methods; pursue efforts to improve measuring of farm-level emissions (e.g. estimates of GHG emissions based on farm practices) and consider exploring the introduction of an agricultural emissions pricing mechanism; monitor the impact of fertiliser legislation and take further measures to reduce nitrogen surpluses and ammonia; provide positive incentives to accelerate organic farming, particularly in Länder with low shares of organic farm areas.
Assess the impact and effectiveness of measures implemented within the German Resilience and Recovery Plan and publish results; systematically provide information on funding sources at project level.

Transport

Develop an integrated national mobility strategy for net-zero systems by design, including intermediary targets at subnational levels (e.g. share of active transport modes and related investment levels); regularly assess nationwide progress through an annual sustainable mobility report covering key priorities (e.g. progress in reducing car dependency, increased use of public transport and active transport modes, and related investments; improvements in spatial planning to reduce distances in people’s daily lives).
Revise the road traffic regulations with a view to removing obstacles to sustainable mobility and empower local authorities to play a leading role in promoting sustainable mobility (e.g. allocation of parking spaces, car bans, simplified procedures for new bicycle lanes).
Shift public investment priorities towards sustainable transport modes: further increase public investment in rail, notably in short-distance local transport to improve the connections of low-density areas to urban agglomerations; implement and monitor the impact of the Deutschlandticket and other measures to make public transport more attractive, simplify the train ticketing system and accelerate digitalisation of the control and signalling systems; develop park-and-ride facilities; ensure adequate financing and accelerate implementation of the National Cycling Plan 3.0.
Encourage private investment to support the uptake targets of EVs; build a coherent, spatially balanced, user-friendly network of fast-charging points across the entire territory; provide targeted public support for low-density areas.
Conduct a comprehensive reform of the transport-related tax system to make it environmentally and fiscally sustainable: increase the use of road pricing (e.g. nationwide toll system for all motorway users; urban toll rings; higher parking fees in urban areas); progressively move towards a place- and time-based road pricing system; abolish the company cars’ privilege; replace the commuter allowance with more targeted support for people in need, privileging public transport.

Economic instruments for green growth

Introduce tax indexation to annually adjust environmentally related tax revenue and prevent further devaluation.
Better align taxes with the polluter pays principle and internalise costs related to pollution, overuse of natural resources and biodiversity loss (e.g. phase out excise tax rebates for diesel and other energy tax exemptions, particularly in agriculture and industry); explore opportunities to use market-based instruments to protect biodiversity.
Align the nETS emission cap with emissions reduction targets; implement the nETS stepwise price increases according to schedule and monitor its climate mitigation impact.
Systematically screen actual or proposed subsidies, including tax provisions to identify those unjustified on economic, social and environmental grounds; develop a plan to phase out support for fossil fuel consumption and use, as well as other environmentally harmful subsidies and define quantified, time-bound targets; assess the distributional and economic implications of removal of fossil fuel support and design alternative policies to achieve the same objectives in line with climate and environmental goals.

2. Climate change adaptation and nature-based solutions

Climate impacts and risks

Germany is significantly exposed to the impacts of climate change

In the past two decades, Germany experienced a considerable number of extreme weather events, notably floods, storms, droughts and heatwaves, all of which had a significant impact on livelihoods, the environment and the economy. Due to increasing climate change, these extreme events are on the rise in many regions of the country. In Germany, temperatures have increased faster than the global average. The current decade is 2°C warmer than pre-industrial times and precipitation levels have increased by 8.7% since 1881, with particularly high increases in the winter (+25%). About 9% of built-up area and 7% of cropland area are at risk of a 100-year return flood (Maes, M. et al., 2022[41]). Exposure to flood risk is much higher in harbour cities such as Bremen (40%) (Maes, M. et al., 2022[41]). Mean sea levels have risen by about 15-20 cm since 1921, putting 3.2 million people (about 4% of the population) at risk of coastal flooding (UBA, 2021[42]). At the same time, drought conditions have notably increased. The mean number of days with low soil moisture values9 has increased on average by 4.8 days since 1961 (UBA, 2019[43]) (Figure 4). Climate change is projected to increase the incidence of extreme weather events and to increase pressures on biodiversity, giving rise to new types of risks such as disruptions to supply chains and new levels of risk intensity.

Figure 4. About 9% of built-up area and 7% of cropland area are exposed to flooding

As an export country that relies heavily on imported raw materials, Germany’s economy is also vulnerable to climate impacts in other regions. Many of Germany’s trading partners such as the People’s Republic of China are vulnerable to climate change. This could increasingly create climate change-related disruptions in global supply chains with economic consequences affecting Germany’s trade. A broader diversification of operational value chains can reduce potential exposures to climate risks and strengthen resilience of the German economy (UBA, 2021[44]).

Extreme weather events cause significant loss and damage, signalling urgent need to better prepare for climate risks

Between 2018 and 2020, Germany recorded nearly 20 000 heat-related deaths, especially among elderly people (Winklmayr et al., 2022[45]). More particularly, extreme flood events have caused significant loss and damage. The 2021 flood catastrophe of North Rhine-Westphalia and Rhineland-Palatine killed 180 people and injured 800 inhabitants. It was the deadliest water-related disaster in Germany for the past 60 years. Direct economic damages were estimated at EUR 33.1 billion, with an additional EUR 7.1 billion of indirect damages. These are stark outliers from an annual average of documented losses of EUR 6.6 billion10 (Prognos, 2022[46]).

Figure 5. Germany’s damages from climate-related disasters are among the highest in the OECD

Between 2005 and 2021, direct damage from climate-related hazards per unit of gross domestic product (GDP) is among the highest in the OECD area. While on average such damage amounts to only 0.12% of Germany’s GDP annually (Disasters, 2022[47]), this is expected to change significantly. By 2050, EUR 280‑900 billion in damage is expected from the impacts of extreme weather events11 (Flaute, Reuschel and Stöver, 2022[48]). This would translate to up to 1.8% of annual GDP in losses.

Extreme weather-related disasters can also have lasting negative impacts on the environment, which diminishes natural protection against climate risks. For example, extended periods of droughts will increase the impacts of floods due to soil sealing. The degradation of ecosystems reduces their capacity to protect people and natural assets against climate risks and hence worsens risk of loss and damage.

Recent extreme weather events unleashed unprecedented engagement by all levels of government. For instance, in the aftermath of the 2021 floods, the federal government and Länder approved a reconstruction fund totalling EUR 30 billion to partially compensate for incurred loss and damage (Osberghaus, 2021[49]). However, a stronger focus should be placed on prevention. Germany needs to scale up and accelerate its adaptation actions to prevent significant human, economic and environmental loss and damage.

Risk assessments are getting more comprehensive but need to better measure climate risk exposure and vulnerability

The Climate Impact and Risk Assessment 2021 (Klimawirkungs- und Risikoanalyse, KWRA) for Germany provides a comprehensive and integrated assessment of a broad range of sectors, including land, water, infrastructure, economy and health. It provides regional climate hazard models for heat, drought, extreme temperature and precipitation changes, allowing it to identify hot spots prone to climate hazards. For selected types of hazards, such as for floods, detailed exposure maps are available, assessing how certain elements (e.g. number of people) and economic activities are exposed to the hazard (BfG, 2019[50]). This is still missing for other hazards.

The KWRA identifies and discusses sectors especially vulnerable to the impact of climate risks, including ecosystems, species, assets or people. While information on climate vulnerability remains rudimentary, work is underway to shed more light on it. For example, researchers – including those funded by government – are assessing climate change impacts on different social groups (Flaute, Reuschel and Stöver, 2022[48]; Jacob, 2022[51]). The federal government is on the right path to developing more information on climate vulnerability with preparation of “Regional information for climate action” (RegIKlim). This information system on current and future climate risks will include local-scale vulnerability data (German Government, 2021_[51]).

Climate risk assessments at Länder level could capitalise on local analysis and should be better communicated

Germany has made progress in downscaling climate risk assessments at subnational level. In all, 9 of 16 Länder have developed climate risk assessments, but the regional assessments tend to be less detailed than their national counterpart. All include downscaled temperature and precipitation projections, and each Land’s competent authority has developed flood and extreme precipitation risk maps in accordance with the EU flood directive (Directive 2007/60/EC). However, many Länder often fail to assess the frequency and intensity of other hazards such as heatwaves, droughts or wildfires. Exposure analysis is inconsistent across the Länder that do have climate hazard information. The climate atlas of North Rhine-Westphalia serves as a positive example. It maps hazard risk in relation to cropland and population density (Klimaatlas, 2023[52]). While some Länder evaluate the vulnerability of individual sectors (King, 2022[53]), vulnerability has not consistently been assessed.

While local climate risk assessments are often of excellent quality, they remain scarce and need to be scaled up. For example, the metropolitan region of Stuttgart assesses the vulnerability of its citizens to climate risks based on age, health status or access to green areas. It further assesses the vulnerability of ecosystems, such as the capacity of forest types to survive projected heat stress. This assessment allows the city to identify hotspots, where adaptation actions are most urgently needed (Verband Region Stuttgart, 2015[54]).

Germany needs to ensure nationwide coverage of localised climate risk assessments, a process in which the Länder play a key role. According to the Basic Law, the federal government cannot oblige cities and municipalities to assess local climate risks. However, it could mandate the Länder to do so. Developing nationwide coverage would also require additional funding for cities and municipalities that may lack adequate resources for such risk assessments. Existing federal support programmes could be extended; however, Länder would need to play a more active role in supporting local authorities in need. In this process, the use of comparable data and methods across levels of government is recommended to allow greater comparability at national level. To date, Germany has a broad range of different indicators, criteria and thresholds to analyse climate-related hazards and related risks.

Access to climate risk information is critical to trigger action. To date, information on climate risks at different government levels can be found on line, either in dedicated reports or through interactive mapping tools. However, the information is scattered across a number of websites maintained by national or subnational agencies, research institutes, non-governmental organisations (NGOs) and think tanks. The Centre for Climate Adaptation (Zentrum KlimaAnpassung, ZKA) was established to fill this gap and provide a one-stop shop for information on climate adaption. Nevertheless, access to information needs to be easier and more user friendly, and information should be disseminated to key target groups. An information gateway such as the research project RegKlim, which will act as a component for risk monitoring, could address this issue (RegIKlim, 2021[55]).

To date, it is not possible to assess to what extent climate risk information triggers action by relevant actors. Selected studies shed some light on this, suggesting more work is needed to communicate climate risk information effectively. With regards to health risks related to climate change, about a third of German citizens have reported being insufficiently informed (WIdO, 2021[56]).

Towards a new strategic framework for climate change adaptation

The policy framework for adaptation is robust, but implementation must be accelerated

Germany’s 2008 National Adaptation Strategy (DAS) laid out an overarching framework to enable adaptation actions across all relevant agencies, government levels and non-government stakeholder groups. Building on this strategy, the Federal Ministry of Environment, Nature Conservation, Nuclear Safety and Consumer Protection (BMUV) developed regular climate risk assessments, adaptation action plans, and monitoring and evaluation reports. These have enabled Germany to progressively strengthen its adaptation policies. However, as the repeated and devastating loss and damage from climate-extreme events demonstrate, Germany still has major gaps in building resilience and responding to climate change in a timely manner.

The federal government has limited competence to enforce adaptation actions at subnational levels

Climate change adaptation is a shared responsibility between the federal and subnational levels. This considerably limits the scope of possible actions by the central co‑ordination unit of the BMUV. It can steer the national adaptation policy agenda and monitor national action plans, but sectoral government bodies and subnational governments lead investment in and implementation of adaptation measures.

The BMUV has actively provided technical support, guidance documents and policy recommendations to enable actions by other key stakeholders (local authorities, NGOs, research institutes) at national and subnational levels. Through the KomPass Competence Centre on Climate Impacts and Adaptation, the BMUV has promoted information and technical assistance. In 2021, it also created the ZKA, which provides information and tailored advice to local authorities to access adaptation funding, training for local adaptation managers and knowledge exchange and networking platforms for subnational adaptation experts. However, since activities are voluntary, the ZKA has limited power to scale up adaptation action in areas where demand (or capacity) to engage are lower.

The Federal Ministry for Housing, Urban Development and Building (Bundesministerium für Wohnen, Stadtentwicklung und Bauwesen, BMWSB) helps municipalities adapt to climate change and climate protection. For example, municipalities can receive financial support from the ministry to implement climate protection and adaptation measures. For its part, the Federal Programme on Adaptation of Urban Areas to Climate Change promotes climate-adapted development of parks and green spaces, unsealing of areas, measures for rainwater management, greening of open and traffic areas, and strengthening of biodiversity. Meanwhile, the Urban Energy Redevelopment – Climate Protection and Climate Adaptation in Neighbourhoods programme provides loans and reduced interest rates for green infrastructure, heating and cooling supply, energy-efficient water and wastewater disposal, and climate-friendly mobility.

The new Federal Climate Adaptation Act is an opportunity to build a more effective and coherent adaptation architecture

The 2021 coalition agreement sets out to reinforce public engagement in climate change adaptation through the Federal Climate Adaptation Act (Bundes-Klimaanpassungsgesetz) – a goal reiterated in the 2022 Immediate Programme on Climate Adaptation (Sofortprogramm Klimaanpassung). The coalition agreement also sought to give a mandate to the BMUV to develop a new national adaptation strategy and a mandatory adaptation reporting system. These aim to accelerate action on climate change adaptation throughout Germany. The formulation process of the strategy provides an opportunity to reflect upon the roles and responsibilities of key stakeholders. The coalition agreement recognises the need to strengthen adaptation finance and investment environment; and use adaptation measurement to understand progress in building climate resilience through adaptation actions. However, a new approach to climate adaptation financing would require reassessing responsibilities and burden-sharing between federal and Länder levels. Instruments of joint financing are provided for by Germany’s Basic Law, which would have to be amended to allow for this - representing a complex and lengthy process.

Adaptation is increasingly mainstreamed across sectors, but outcomes need to be better monitored

With the creation of the Inter-ministerial Working Group on Climate Change Adaptation (Interministerielle Arbeitsgruppe Anpassung an den Klimawandel, IMAA) in 2009, Germany recognised at an early stage that adaptation needs to be integrated into all sectors. Over the past decades, the IMAA, co‑ordinated by the BMUV, has facilitated cross-ministerial dialogue on adaptation. Through its statuary meetings twice a year, it helped raise awareness about climate risks. However, there is room for moving beyond dialogue to collaborate jointly and accelerate adaptation action in sectoral policies.

In the water, agriculture and forestry sectors, adaptation issues are increasingly integral to long-term planning. The Forest Strategy 2050 sets forest conversion plans for the 2.85 million hectares (ha) of forest that are threatened by climate-induced droughts (BMEL, 2021[57]). The Arable Farming Strategy 2035 acknowledges the need for region-specific strategies throughout Germany, but they have yet to be developed (BMEL, 2021[58]). The National Water Strategy fosters cross-sectoral measures to tackle key climate risks, such as by making the water infrastructure climate-fit. Similarly, other sectors increasingly consider adaptation at the strategic level. However, some sectors are assessing climate risks but have not yet developed adaptation strategies.

A systematic review of adaptation integration into different sectors, respective funding levels and impacts could help Germany identify gaps. Germany’s Council of Experts on Climate Change (Expertenrat für Klimafragen), for example, has a mandate to assess annual GHG emissions trends and the effectiveness of measures taken under the Federal Climate Change Act (Bundesklimaschutzgesetz). It could be expanded to monitor sectoral mainstreaming of adaptation.

Spatial and environmental planning, as well as regulatory measures, have been recognised as key instruments to promote integration of adaptation into all key investments and economic activities. Environmental impact assessments require projects to evaluate their vulnerability to climate risks; guidelines are available to help project evaluators in their work. Within the broader EU framework, nationwide spatial planning regulations were issued in specific sectors. Since 2021, for example, all land-use decisions need to incorporate flood risk assessments and prevention measures, such as the creation of floodplains and retention areas. Such instruments can greatly foster climate resilience in new developments. However, appropriate monitoring and enforcement – such as linking compensation for loss and damage of assets to the integration of climate risk-proofing measures – are important to ensure their effectiveness.

The implementation capacity of subnational governments needs to be strengthened

Subnational governments have a critical role in understanding local climate risks, in identifying adaptation needs and in implementing adaptation measures. However, to date, there is no nationwide obligation for municipalities to adapt to climate change; action depends on the commitment of Länder and municipalities.

While all Länder have developed adaptation strategies and policies, their quality varies. Only about one-third of German municipalities have an adaptation plan (King, 2022[53]). This leads to an uneven level of climate preparedness and may reinforce vulnerabilities to climate risks. Highly vulnerable communities may not necessarily be best placed or supported by their respective Land to build climate resilience.

Lack of resources to prepare and implement adaptation strategies is an important barrier for adaptation investments. In addition, lack of experience, lack of good quality data and the unwillingness of municipal leaders to take adaptation action have equally inhibited progress. Some municipalities have dedicated adaptation managers, such as those supported by several federal initiatives (e.g. ZKA). Even so, they often lack the capacity, mandate or resources to implement local adaptation plans or strategies (UBA, 2019[59]; Bundesregierung, 2020[60]).

The coalition agreement, including the Federal Climate Adaptation Act, is an opportunity to build local climate resilience with a view to leaving no one behind. Through innovative finance instruments, municipalities could be encouraged to jointly invest in adaptation measures that cross municipal borders. For highly climate-vulnerable municipalities, with limited adaptation capacities, the federal government could encourage Länder to play a stronger role through co-financing and implementation support. Co-funding instruments could lead subnational governments to accelerate action, and perhaps also result in sectoral investments in adaptation.

Germany needs to rethink its adaptation finance

Investments in climate adaptation measures are significantly cheaper than addressing loss and damage from extreme weather events. Yet significant subnational – and federal – funding is made available only after a disaster. This gives rise to important considerations for adaptation finance.

In light of an observed and projected upward trend in extreme weather events, Germany’s adaptation funding needs are considerable and set to grow. Increasing adaptation spending is crucial to avoid more costly recovery and rehabilitation spending for public authorities. By 2050, the implementation of adaptation measures12 could reduce economic costs that arise from the impacts of climate change by 62 to 100% compared to a scenario without adaptation, considering a strong to weak climate change scenario (Flaute, Reuschel and Stöver, 2022[48]). Revenue-raising instruments could be introduced to cover increased budget needs. This could include local tax instruments or beneficiary contributions.

Improving spending oversight is essential for better understanding adaptation spending by federal and subnational government agencies, including the funding gap. To that end, the BMUV is designing a uniform classification framework on adaptation spending. It is working with the Länder to document their adaptation investment needs.

Access to adaptation funding needs to be made easier. To date, local governments must navigate a complex mosaic of funding programmes at both federal and Länder levels. This limits potential investments in adaptation. The ZKA focuses much of its efforts to help municipalities identify appropriate funding sources and support for applications to receive additional funding. The federal government should streamline procedures and reporting mechanisms to make it easier for eligible actors to access funding. An effective funding system needs to provide targeted support to ensure that nobody is left behind.

The funding architecture should create incentives for all actors to invest in adaptation. The federal government could reward, ex ante, adaptation investments and provide financial assistance for covering loss and damage from extreme weather events; for example, by considering them in the ex post allocation of recovery funding. In doing so, the funding architecture should also consider the role of private households and business in investing in adaptation. This should include how climate risk insurance could encourage private adaptation investments.

Less than half of German households are insured against natural hazards, with significant variation across Länder (Osberghaus, 2021[49]; Prognos, 2022[46]). The federal government should consider mandating insurance against natural hazards. In so doing, it would help protect assets to the expected increase in the exposure of buildings against extreme weather events.

Measuring progress in implementing national adaptation policies can help accelerate adaptation actions

The federal government recognises the need to monitor and evaluate progress in implementing adaptation policies. For the most recent evaluation of the DAS, Germany developed the “impact model” (Wirkungsmodell). This examined whether measures and instruments in the DAS are suitable for achieving its overall goal to reduce climate risks and increase resilience of natural, societal and economic systems (UBA, 2019[61]). Further development and use of this model could enhance the usefulness of adaptation measurement. For example, it could help users better understand links between implemented adaptation measures and climate impacts; and apply the impact evaluation to an increasing number of measures.

The German Environment Agency develops a monitoring report every four years that summarises observed climate variability and extreme events and impacts. It also discusses implementation of selected adaptation measures. However, the report does not analyse how these measures influence trends observed in climate impacts. In some cases, this is due to the need for longer time series to infer statistically significant climatological trends. The measurement efforts of Germany have been descriptive, providing limited understanding of which actions work – or not – in building climate resilience.

As part of the development of the new National Adaptation Strategy, Germany is preparing concrete adaptation indicators and targets in consultation with sectoral stakeholders. Setting measurable targets is challenging, involving a complex, normative debate around how to set targets that best reflect the values of German society. It is encouraging to see that Germany has started taking up this challenge through a broad-based consultation process, involving all sectors. Germany is breaking new ground in this area and the outcomes of this experience could inspire many other OECD countries. Indicators and measurable targets will allow Germany to better gauge progress in implementation of adaptation policies and to improve effectiveness.

Promoting nature-based solutions for climate and biodiversity

Germany’s biodiversity has been degraded over the past decades

Germany experienced a marked acceleration in biodiversity degradation in the past decades, affecting different ecosystems, as well as species loss. Key pressures include intensive farming and forestry, landscape dissection and urban sprawl, soil sealing and pollutants (e.g. acidifying chemicals and nutrients) (CBD, 2022[62]). Forest surface area has grown by 1 million ha (about 10%) in the past 40 years to 11.4 million ha in 2021. However, a third of this area is where the proportion of damage, tree death rates and tree crown defoliation of deciduous trees – a key indicator for tree vitality – have risen sharply since 1984. (BMEL, 2021[63]). This is mainly due to climate change, especially drought, which causes premature leaf fall and mass reproduction of bark beetles. Storms and wildfires brought on by climate change are another factor in tree loss and damage (BMEL, 2021[64]). Germany has 1.8 million ha of peatland soils, of which 92% have been drained of water to make them arable. Carbon dioxide equivalent (CO₂-eq) emissions from peatland amount to 6.7% of total CO₂-eq emissions, at around 53 million tonnes (Mt) CO_2-eq annually (BMUV, 2022[1]). Moreover, urban development has contributed to increased rates of soil sealing, leading to greater risk of flooding; higher vulnerability to heat stress by reducing groundwater recharge and soil moisture; and significant biodiversity loss in urban areas.

A significant share of species is threatened despite efforts to avert biodiversity loss

More than one-third of species are endangered, making Germany one of the worst performers across the OECD area. Bird species typical of agricultural landscapes (covering about half of total area) have declined by about 30% on average since 1990 (Heinrich Böll Stiftung, 2019[65]). Moreover, the loss of meadows, fallows and land have contributed to biodiversity loss. Urban sprawl, landscape dissection, soil sealing, hydraulic engineering and watercourse maintenance and construction measures further increase pressures. Gradual changes in temperature and precipitation, as well as extreme weather events, have also had an impact (UBA, 2021[42]). About 44% of settlement and transport areas are sealed (UBA, 2022[66]). Germany is not on track to achieve its objective to reduce land take to less than 30 ha per day by 2030.

Nevertheless, the Red List index, a measure of change in aggregate extinction risk across groups of species, has remained at 0.98 (low extinction risk) since 1991 compared to the global average (IUCN, 2022[67]). While Germany has kept all species from risk of extinction, regeneration of threatened species is not evident yet. Despite multiple efforts to increase and protect biodiversity, no fundamental reversal in the loss of biodiversity has been achieved. Many national targets adopted under the Convention on Biological Diversity (CBD) have not progressed sufficiently (e.g. Target 8, 10 and parts of Target 1) (CBD, 2019[68]). Concomitantly, Germany has also failed to achieve several goals of the 2007 National Biodiversity Strategy.

Agricultural and environmental policies should be more closely linked to avert biodiversity loss. Germany has, for instance, identified and assessed the types and magnitudes of incentives in place that harm biodiversity or the environment more broadly (FOES, 2021[69]; UBA, 2021[39])_]. Environmentally harmful subsidies should be reduced to prevent further harm to biodiversity. Reflecting the true values of biodiversity and hence the costs of its damage (e.g. pesticide use) across the economy could help incentivise behavioural change and more sustainable consumption patterns. Introducing payments for ecosystem services could be further encouraged (Matthews and Karousakis, 2022[70]).

With the revision of its 2007 National Biodiversity Strategy to contain concise objectives and quantified indicators as well as nature-based measures, Germany is on the right path to address biodiversity loss. To give the implementation of biodiversity goals stronger leverage, interdisciplinary co‑operation will be crucial. To that end, the federal government should move forward with its new strategy and mainstream biodiversity goals in relevant sectors (e.g. accounting for biodiversity in welfare indicators). In addition, the legal framework for nature conservation could be strengthened by including a habitat improvement imperative (RNE, 2022[71]). Germany fills important gaps in monitoring biodiversity trends by developing indicators for species biodiversity and landscape as part of the new strategy. Annual reporting on progress towards Germany’s biodiversity goals could strengthen accountability and action to achieve national biodiversity targets and the goals agreed upon at COP15.

Protected areas need to ensure effective protection

Between 2000 and 2016, Germany increased areas designated as nature reserves from about 3% to 4.4% of total surface area (German Environment Agency, 2019[72]). In these reserves, strict regulations ensure conservation and development of rare and endangered species and biotopes. About 60% of nature reserves are smaller than 50 ha (BfN, 2020_[89]), which impacts their effectiveness in protecting biodiversity. Overall, Germany protects 38% and 45% of its terrestrial and marine surface area, respectively,13 compared to OECD country averages of 15% and 21% (OECD, 2022[73]). However, strict terrestrial nature reserves, wilderness areas and national parks, as defined by the European Union, comprise only 1% of total surface area. They must be expanded to contribute to achieving the EU member states’ collective goal of achieving 10% of terrestrial surface area by 2030 in line with the EU Biodiversity Strategy (EC, 2022[74]).

Germany is not on track to achieve its emission targets in the LULUCF sector

With the amendment of the Federal Climate Change Act in 2021, Germany has increased its ambition for the land use, land-use change and forestry (LULUCF) sector to reduce carbon emissions and enhance its carbon sink capacity. The LULUCF sector should contribute to the climate goals by absorbing at least -25 MtCO₂-eq by 2030, -35 MtCO₂-eq by 2040 and -40 MtCO₂-eq by 2045. In 2020, net removals in the LULUCF sector amounted to -11.3 MtCO₂-e. However, emission balance projections expect Germany to fall short of these targets by about 7 MtCO₂-eq in 2030 and 22 MtCO₂-eq in 2040 (UBA, 2021[75]). These projections are based on already adopted LULUCF policies and expected land and land-use changes in the sector until 2040. It would be useful to update projections to include the expected impact of new climate and biodiversity measures.

To reach its LULUCF emissions targets, Germany needs to significantly accelerate action. It has significant potential to sequester carbon by expanding and maintaining near-natural forests, which store 1.3 billion tonnes of CO₂-eq and sequester an additional 62 Mt annually (Thünen-Institut, 2017[76]). Rewetting drained peatlands could significantly reduce CO₂ emissions, estimated at 53 Mt CO₂-eq in 2020 and enhance its carbon sink capacity (BMUV, 2022[77]). There is considerable potential to address climate change through NbS in the LULUCF sector, as well as through spatial planning and coastal management.

The Federal Action Plan on NbS for Climate and Biodiversity provides an unprecedented opportunity to enhance ecosystem health and address the climate crisis

In response to the double crisis of climate change and biodiversity loss, Germany aims to accelerate investments in NbS to address biodiversity loss, enhance ecosystem quality and tackle the climate crisis. A new and ambitious national NbS programme (Aktionsprogramm Natürlicher Klimaschutz, ANK) has been under development since 2022. The programme is set to contribute significantly to Germany’s LULUCF targets while promoting biodiversity and ecosystem health, resilience to climate impacts and sustainable land management.14

Besides identifying new measures, the ANK aims to contribute to climate and biodiversity targets by also accelerating the implementation of existing NbS. Specifically, it aims to remove policy and institutional barriers to accelerate implementation of NbS measures. The BMUV consulted broadly with the public, engaging citizens, community-based and non-profit organisations, and agencies across government to inform the design of the programme. The consultation has contributed to raising awareness of ANK objectives among key stakeholders, and thus lays the ground for implementation.

For the programme to deliver short-term results (2023-26), stakeholders should rapidly agree on key priorities, eligibility criteria and delivery, funding and accountability mechanisms. The short timeframe and large scope of the ANK represents a major challenge for the BMUV. However, the unprecedented amount of funding also provides an opportunity to greatly upscale NbS and change long-standing, harmful practices that have degraded Germany’s biodiversity. To help ensure long-term impact, Germany should consider the following ways to secure funding for maintaining measures beyond the initial timeframe.

The Länder could become key partners in delivering the ANK programme

Instead of creating new delivery mechanisms for the entire ANK, Germany’s Länder could implement some of the programme. In many cases, they may already have a comprehensive understanding of the NbS potential in their regions. They also have the relevant networks of government and non-government agencies, which could greatly facilitate implementation. Furthermore, they are closer to those who will be directly affected by these measures, such as municipalities, landowners or farmers. This could help identify and address potential implementation barriers more easily.

The delivery mechanisms need to consider the complex landscape of regulations at the subnational, federal and EU levels and address ways to overcome potential barriers in that regard. Delivering parts of the programme directly through citizens, companies and organisations under public or private law is itself progressive and may lead to innovative suggestions in NbS. However, the size of the programme would not allow it to be fully deliverable through private stakeholders alone.

The ANK programme needs to measure progress and sustain benefits over time

Long-term effectiveness of NbS and possible trade-offs should be considered in planning. The ability of ecosystems to act as carbon sinks, reduce impacts of climate change and enhance biodiversity is directly affected by the exposure and vulnerability of ecosystems themselves to climate impacts. Continued warming, heat stress or extreme precipitation can reduce the effectiveness of NbS.

For the programme to deliver on its high ambitions, it should identify clear objectives and targets and build in frameworks that can monitor progress, and to the extent possible, impacts. A range of existing data and indicators could be explored in this regard. For example, the national forest inventory (Bundeswaldinventur) monitors and assesses forest cover and quality, as well as carbon sequestered by forests. The German Environment Agency has monitored peatland size, quality and emissions.

ANK funding needs to be aligned and co‑ordinated across sectors and government levels

While the ANK’s initial funding envelope of EUR 4 billion marks a step change in available funding for NbS, its activities should be aligned with existing NbS funding. The ANK should thus fund genuinely new measures as opposed to projects that would be covered by existing programmes. The federal government and Länder governments provide another EUR 800 million from 2020 to 2023 through the Joint Task for the "Improvement of Agricultural Structures and Coastal Protection" (Gemeinschaftsaufgabe Verbesserung der Agrarstruktur und Küstenschutz, GAK). Appropriate funding mechanisms should be established that make use of and co‑ordinate with existing funding channels to Länder and sectors (e.g. GAK) within the constraints of the provisions of the Basic Law and related budgetary requirements. It will be important to secure long-term funding for maintaining ANK measures beyond 2026.

Building synergies for effective long-term climate action

There is a large untapped potential to foster synergies between climate, biodiversity and water-related action

Forest and water strategies increasingly identify synergies with climate mitigation, adaptation and biodiversity, but these need to be translated into practice. For example, the Forest Strategy 2050 sets measures to enhance biodiversity and nature protection; provides financial incentives for forest owners to foster biodiversity and nature protection; and establishes a monitoring system for forest ecosystems. The impact of these synergies in practice should be monitored and evaluated. Similarly, the National Water Strategy considers synergies between climate mitigation, adaptation and NbS measures. The ANK is a unique opportunity to both foster synergies and demonstrate how this is done in practice. As it sets out to address climate change and biodiversity loss through NbS, the ANK can thereby identify projects and demonstrate how they harness such synergies effectively. In doing so, the ANK’s monitoring system should identify indicators that evaluate each NbS impact on different objectives.

ANK measures could benefit from emphasising adaptation synergies more explicitly. NbS projects financed by the ANK need to demonstrate their contribution to climate mitigation but also their own exposure and vulnerability – and contribution to building the resilience – to the impacts of climate change. For example, new trees planted as part of ANK efforts to increase carbon storage need to be adapted to expected changes in temperature or precipitation. Failure to do so risks undermining its impact over time.

Germany has benefited from and largely contributed to raising ambitions in international co-operation on climate change and nature-based solutions

Germany has contributed to – and benefited from – strong EU and international co‑operation on adaptation. In line with reporting requirements, Germany has increased efforts to measure adaptation as demonstrated by ongoing initiatives to quantify adaptation spending. Targeted EU funding has helped scale up implementation of adaptation initiatives, especially at subnational level. EU platforms have also facilitated cross-border adaptation planning and investments. Germany is among the first countries to assess its exposure and vulnerability to climate risks emanating outside of its territory, thereby responding to a key priority of the EU Adaptation Strategy. This early awareness is needed to tackle climate risks that have not materialised but that will become more significant (e.g. climate-induced international migration).

Germany has promoted the use and scaling up of NbS at international level, making it one of its key commitments under its presidency of the G7 in 2022. As a result, the G7 committed to protecting at least 30% of land and 30% of the ocean nationally and globally by 2030. Mirroring Germany’s domestic policy objectives, the G7 also recognised the need to transform agriculture by creating synergies between biodiversity, climate change and food security (G7, 2022[6]). Conversely, as recognised by the ANK and the National Peatland Strategy, Germany’s own success in implementing the ANK programme will depend on certain international legislation. This includes phasing out peat products’ horticulture in support of measures which, without an EU-wide ban, would lead to shifting peat extraction abroad.

Germany is a major development partner focusing on climate adaptation and biodiversity

In line with the OECD-DAC Declaration of 2021, Germany aims to align its official development assistance (ODA) with the goals of the Paris Agreement (OECD, 2021[78]). It supports developing countries’ efforts to fight climate change, biodiversity loss and environmental degradation by channelling a substantial part of its ODA to these purposes (OECD, 2021[79]).

With total ODA (USD 32.2 billion) representing 0.74% of gross national income, Germany is the second largest bilateral provider of ODA (OECD, 2022[80]). This reflects a large increase, more than double the amount spent a decade ago (USD 12.7 billion in 2010) (OECD, 2012[37]). It makes Germany the largest provider of environment- and biodiversity-focused ODA globally. According to the Rio Markers, about 37% of Germany’s bilateral ODA had an environmental focus in 2019-20, with about 16.8% spent on mitigation; 13.1% on climate adaptation; and 10.8% on biodiversity (OECD, 2022[80]). Germany has also been the largest donor of the Adaptation Fund, a key multilateral instrument for climate adaptation financing.

Germany’s International Climate Initiative (Internationale Klimaschutzinitative, IKI) is a key instrument of the federal government for funding international climate action and biodiversity conservation. Since 2008, it has supported developing countries in formulating and implementing their respective Nationally Determined Contributions under the Paris Agreement. IKI approved EUR 5 billion for more than 950 climate and biodiversity projects in over 150 countries between 2008 and 2021 (IKI, 2022[81]).

Despite progress, there is room for greater exchange of experience in the implementation of climate, biodiversity and NbS programmes. This includes reciprocal knowledge exchanges between Germany’s sectoral agencies and its development co-operation agencies implementing adaptation action abroad. There is also a huge opportunity to improve the sharing of good practices and lessons learnt more systematically across different countries and regions.

Recommendations on climate change adaptation and nature‑based solutions

Climate risk assessment

Conduct regular climate risk exposure and vulnerability assessments in all 16 Länder; consider encouraging Länder to make municipal and city-level climate risk assessment mandatory with a view to ensuring that all cities and municipalities have a solid understanding of climate-related hazards, exposure and vulnerability at local level.
Harmonise standards and encourage the use of comparable data and methods across governance levels to allow greater comparability of risk assessments at national level.
Increase and further facilitate access to climate risk information for all relevant actors and regularly evaluate whether this contributes to raising awareness levels and triggers action.

Climate change adaptation

Ensure systematic integration of adaptation into all sectoral and subnational development policies and investments; develop and enforce measurable targets that hold sectoral agencies and subnational governments to account for their adaptation actions.
Strengthen subnational adaptation capacity; propose measures to increase local adaptation capacity and incentives for municipalities to implement adaptation measures jointly to address resource constraints.
Strengthen proactively the climate resilience of highly vulnerable communities so as to leave no one behind; consider stronger federal and Länder government support to advance implementation at the local level.
Reform adaptation finance and place stronger emphasis on prevention; monitor adaptation spending ex ante and ex post, in response to climate-extreme events; identify ways that simplify information about – and access to – different adaptation funding programmes; consider an increase in dedicated adaptation funding at all levels of government; identify ways that reward adaptation investments by all government and non-government actors (e.g. increasing loss and damage compensation or lowering insurance premiums for those that had invested in risk-reducing measures).

Biodiversity and nature-based solutions

Further reduce GHG emissions from land use and increase carbon removals in the LULUCF sector, focusing on expansion and maintenance of forests and redevelopment of peatlands to enhance their natural carbon sink function.
Increase terrestrial and marine ecosystem protection to avert continued biodiversity loss and implement swiftly additional measures to contribute to meeting the targets of the Kunming‑Montreal Global Biodiversity Framework; consistently identify measures that enhance biodiversity as part of land use and construction permit decisions.
Rapidly agree upon delivery mechanisms, including eligibility criteria, funding and accountability mechanisms for the ANK to start delivering results within a short timeframe (2023-26); consider the critical role of the Länder to support implementation of the ANK.
Avoid duplication and communicate clearly about the ANK support in relation to existing programmes for NbS; secure long-term funding for sustaining outcomes of ANK beyond 2026; consider trade-offs in NbS; ensure that NbS themselves are designed to withstand and adapt to climate impacts, such as heat stress.

Linkages and synergy

Ensure that all ANK projects consider their impact on biodiversity, water and broader ecosystem health in addition to their climate change mitigation and adaptation objectives.
Strengthen exchanges of adaptation insights and knowledge generated by Germany’s national adaptation engagement, as well as its EU and international partnerships.

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[56] WIdO (2021), Versorgungs-Report Klima und Gesundheit, [Supply Report Climate and Health], WIdO, https://www.wido.de/publikationen-produkte/buchreihen/versorgungs-report/klima-und-gesundheit/.

[45] Winklmayr, C. et al. (2022), “Heat-related mortality in Germany from 1992 to 2021”, Deutches Arzteblatt international, Vol. 119/26, pp. 451-457, https://doi.org/10.3238/arztebl.m2022.0202.

[35] Wuppertal Institut (2021), Green Recovery Tracker, website, https://www.greenrecoverytracker.org/ (accessed on 3 March 2022).

Annex 1. Actions taken to implement selected recommendations from the 2012 OECD Environmental Performance Review of Germany

Recommendations	Actions taken
Policy-making environment
Further promote the policy co-ordination approaches and implementation tools embedded in the National Sustainable Development Strategy.	Under the co‑ordination of the Federal Chancellery, Germany applies a whole-of-government approach to support implementation of the National Sustainable Development Strategy. The State Secretaries’ Committee on Sustainable Development serves as the central co-ordination tool. The Committee’s meetings are attended at permanent state-secretary level by all ministries. The resolutions of the meetings are published on the federal government’s website. A dialogue group, composed of 15 institutions and organisations, prepares focus topics. The 2022 spending review lays the groundwork to increase the focus on performance-based budgeting for sustainable development. The federal government started introducing agile project teams operating across ministries, along with transformation teams for the six transformative areas of the German Sustainable Development Strategy, as well as in international co-operation as a lever of transformation.
Further integrate the results of environmental assessments and sustainability checks on legislation in decision making; strengthen support for the more effective implementation of Environmental Impact Assessment and Strategic Environmental Assessment, particularly at the local level; reinforce the quality and independence of the economic assessment of environment-related policies.	Every draft regulation or law requires the ministries to conduct an ex ante sustainability impact assessment. The targets and indicators of the Sustainable Development Strategy provide the reference framework for this assessment. A computer-assisted tool – the electronic sustainability impact assessment eNAP (elektronische Nachhaltigkeitsprüfung) – was developed in 2018 and updated in 2021 to improve the quality of regulatory impact assessments. The use of eNAP for sustainability impact assessments is mandatory for all regulatory projects. Moreover, eNAP has been integrated into the platform e-legislation, establishing a closer link with the electronic legal impact assessment (eGFA). In 2017, the Environmental Impact Assessment Act (EIA Act) was amended to transpose the EU Directive 2014/52/EU into national law. Specifically, EIA rules were streamlined to ensure faster implementation by public authorities and project developers.
Promote the use of independent mechanisms to monitor and report on how federal environmental legislation is implemented by the Länder, with a view to benchmarking and disseminating good practice approaches.	Federal government-Länder Working Groups (Bund-Länder-Arbeitsgemeinschaften, BLAGs) play a key role in disseminating best practices and evaluating the implementation of federal environmental legislation at Länder level. These are set up by the German Conference of Environment Ministers (Umweltministerkonferenz, UMK). In 2022, there were nine BLAGs. In many cases, BLAGs provide guidelines on how to facilitate and enforce implementation. The BLAGs can set up committees open to individual Länder to address issues of specific interest. The success of a Land on a specific issue is generally communicated within respective BLAGs, although there is no formal process. The need to amend a federal law is usually first discussed within BLAGs.
Continue to deepen and broaden the participation of stakeholders in environmental decision making; review provisions for access to justice in environmental matters in order to ensure consistency with the Aarhus Convention.	The Federal Ministry for the Environment, Nature Conservation, Nuclear Safety and Consumer Protection (BMUV) explores innovative approaches in public participation in environmental decision-making processes. For example, the National Water Strategy benefited from a two-year dialogue with over 200 stakeholders. Other recent examples include the draft Action Plan on Nature-based Solutions for Climate and Biodiversity, or the national dialogue on the safety of nuclear disposal. Key outcomes and comments are published through the ministry’s website, such as the dialogue platform (BMUV im Dialog, https://dialog.bmuv.de) and printed publications. EIA-Portals have been launched by the federal government and at Länder level. The Environmental Appeals Act has been amended to extend access to justice of associations.
Further promote synergies and coherence among policies related to resource productivity (e.g. waste, raw material, energy, climate and innovation policies).	Since the adoption of the German Resource Efficiency Programme (ProgRess) in 2012, the federal government must provide reports on resource efficiency trends to the national assembly (Bundestag) every four years, triggering an update of the programme. Two update reports were adopted in 2016 and 2020.
Build upon the ongoing assessment of the economics of ecosystems and biodiversity to guide implementation of the National Strategy on Biological Diversity and to strengthen inter-institutional co‑operation in this area.	"The Economics of Ecosystems and Biodiversity" (TEEB), implemented between 2012-18, resulted in four national reports on "Natural Capital Germany, TEEB.DE". The Federal Statistical Office has started developing a comprehensive ecosystem accounting approach as part of the national environmental accounting system. The implementation of the corresponding Target 14 of the Kunming-Montreal Global Biodiversity Framework will be covered in the update of the National Biodiversity Strategy.
Towards green growth
Consider creating an effective carbon tax in the sectors not covered by the EU Emissions Trading System and ensure that other, non-carbon related, externalities are adequately priced.	The federal government introduced a national emissions trading system (nETS) in 2021 for emissions from combustion of fossil fuels, which are not covered under the EU ETS. The nETS covers all fuels that fall under the Energy Tax Act, including petrol, diesel, heating oil, natural gas, liquefied gas and non-sustainable biomass. The system started with a fixed price phase to provide planning security for all stakeholders during the introduction phase of national emissions trading. Auctions will start in 2026.
Reduce perverse incentives for car use by revising the tax treatment of company cars and the commuting allowance; consider extending the current system of road tolls to light duty vehicles and eventually passenger cars; consider adjusting the rates of the annual motor vehicle tax and complementing it with a vehicle purchase tax.	Little progress has been made in this area. Transport-related taxes are far below the OECD average. The 1% tax rate for the treatment of company cars as non-cash benefits is still in place. In the context of the nETS, the commuter allowance was further increased in 2021 until 2026, including a mobility premium for low-income employees. Road tolls only apply to heavy duty vehicles. Germany does not apply a vehicle purchase tax. As of 2021, newly registered cars with high CO₂ emissions are charged an increased tax while EVs are exempted.
Introduce a mechanism to systematically screen existing and proposed subsidies against their potential environmental impact, with a view to phasing out environmentally harmful and inefficient subsidies.	The Federal Ministry of Finance produced 28 issues of its subsidy report with an increasingly climate-focused narrative. This provides a good starting point for advancing the phase-out of already identified harmful subsidies. While hard coal subsidies were phased out by 2018, progress in phasing out potentially environmentally harmful support in agriculture has been slow.
Strengthen the incentive effect of wastewater charges and promote water abstraction fees in all Länder and all sectors, including mining; consider introducing taxes on agricultural inputs.	To date, 13 of 16 federal states charge for water abstraction. Moreover, the federal government intends to restructure wastewater charges and to introduce extended producer responsibility measures to create stronger incentives for reducing water pollution from municipal and industrial wastewater. In the agricultural sector, policy attention has mainly focused on regulatory measures.
Strengthen coherence between agriculture and water policies, including by: ensuring effective cross-compliance with environmental requirements (Pillar 1 of agriculture payments); and expanding nature protection payments (Pillar 2 payments).	The federal government intends to strengthen coherence between agriculture and water policies through a more co-ordinated interaction between conditionality, eco-schemes and natural protection payments. Measures are mainly focused on incentivising voluntary efforts. The German Strategic Plan of the EU Common Agricultural Policy 2023-27 provides an opportunity to make further progress. The National Water Strategy, adopted in March 2023, aims at strengthening policy coherence between agriculture and water issues.
Strengthen waste prevention, for instance by: broadening and strengthening extended producer responsibility systems; expanding the use of economic instruments to promote primary resource substitution (e.g. incineration tax); and expanding knowledge networks and dissemination of best practices.	Germany has had a national strategy for food waste reduction since 2019, but there is room for improvement. Germany has had a five-point plan since 2018 to reduce plastic waste and support international efforts to reduce marine litter. Germany made little progress to reduce municipal waste and needs to strengthen waste prevention. The public awareness-raising campaign “Too Good for the Bin!” has been in place for a decade. A broader waste prevention programme is under development.
Maintain a strong, balanced commitment to environment within an expanded volume of official development assistance, in line with international commitments.	Germany is the largest bilateral provider of environment- and biodiversity-focused development assistance. It has also been the largest donor of the Adaptation Fund and for the eighth replenishment of the Global Environment Facility. Germany’s International Climate Initiative (Internationale Klimaschutzinitative, IKI) is one key instrument of the federal government for funding international climate action.
Economic innovation
Establish a clear, predictable policy framework that provides continuous innovation incentives, e.g. by providing a clear signal about the long-term future taxation of energy carriers; promote coherence between policies for environment-related innovation and sectoral policies, particularly transport policy.	In the context of the Fit for 55 package, the European Commission also proposed a revision of the EU Energy Tax Directive. Fuels should be taxed according to their energy content and environmental performance rather than according to their volume. The proposed minimum rates shall be adjusted annually to reflect the most recent prices. Kerosene used as fuel in the aviation industry and fuels used in the maritime industry should no longer be fully exempt from energy taxation for intra-EU travel. The negotiations are still ongoing.
Carefully design instruments aimed to financially support environment-related innovation so as to achieve policy objectives efficiently and effectively, promote diversity, avoid picking winners and maximise the leverage of private capital; adjust the subsidy component of financing instruments in light of market developments, and phase out subsidies as technologies become commercially viable.	The federal government strongly emphasises technology-neutral approaches. As the electric vehicle market is maturing, the federal government started scaling back support for electric vehicles (EVs) in 2023 (a maximum of EUR 4 500 instead of EUR 6 000 for the purchase premium). As of September 2023, only private consumers can benefit from the scheme. Support for hybrid vehicles has been abolished.
Systematically assess the effectiveness and efficiency of environmental and innovation policies in terms of measurable outcomes (e.g. environmental benefits, patented inventions, rate of mobilisation of private capital).	There is still room to improve mainstreaming of impact assessment across all government levels. For example, the recovery package is not part of Germany’s regular annual budget cycle and draws on different funding sources at national and European level. This makes a coherent monitoring and impact assessment more complex.
Assess possible shortages in high-skilled labour needed for the development and diffusion of environment-related innovation, and develop measures to fill gaps.	A new Skilled Immigration Act is under discussion. It aims to further simplify and accelerate administration, while make working and living conditions more attractive. A new points system may open the door to third-country nationals with “good potential” to come to Germany to seek a job. In addition, Germany introduced a monitoring system to analyse future labour market developments, including projections for the next decade and beyond.
Make further efforts to improve policy co-ordination at the EU level and beyond to strengthen incentives and support for environment-related innovation (e.g. labour mobility, energy pricing and infrastructure development).	Germany’s national efforts are aligned with the objectives of the European Green Deal. The German Recovery and Resilience Plan (GRRP, 2021-26) is clearly future-oriented with a strong emphasis on hydrogen. Within Horizon Europe, the EU's research and innovation programme (2021-27), the federal government intends to further leverage national public and private investment to foster new technologies, sustainable solutions and innovation.
Climate change
Strengthen mechanisms to identify policy adjustments needed to stay on track to achieve climate targets, e.g. by explicitly benchmarking progress, presenting an annual report to the Bundestag, and enhancing mechanisms for stakeholder and civil society participation in policy making.	The Federal Climate Change Act introduced a mandatory emissions monitoring mechanism in which sectoral emissions are assessed annually and compared to sectoral targets. If a sector fails to meet its annual target, the responsible ministry must prepare an immediate action programme (Sofortprogramm), which is reviewed by the independent Council of Experts on Climate Change and then presented to the Bundestag. However, at a coalition meeting in March 2023, government parties agreed to soften the policy adjustment mechanism of annual sectoral targets.
Contribute to discussion at EU level about possible measures to maintain an effective carbon price signal in the EU Emissions Trading System in line with overall medium and long-term EU emission reduction targets.	The federal government has played an active role in shaping EU policies, specifically in support of an ambitious EU ETS reform: emissions in the ETS sectors must be cut by 62% by 2030; free allowances to industries in sectors that fall under the Carbon Border Adjustment Mechanism will be phased out from 2026 and disappear by 2034. Meanwhile, the EU ETS will be expanded to include shipping. An ETS II for fuel emissions from the building and road transport sectors, as well as process heat within smaller industries currently outside the EU ETS, shall be introduced as of 2027.
Use energy taxation to effectively complement the EU Emissions Trading System and to provide a consistent carbon price signal across the economy; gradually phase out energy tax exemptions that are not needed to avoid double taxation or pricing.	Close to 90% of Germany’s emissions are priced. As indicated above, the federal government introduced a nETS in 2021 for emissions from land transport and buildings not covered under the EU ETS. Little progress has been made in phasing out energy tax exemptions in the agricultural sector.
Review the taxation of diesel and petrol with a view to internalising their environmental external costs.	Tax rates continue to be poorly aligned with the polluter pays principle. Excise duties on energy products have remained virtually unchanged during the past decade.
Continue to monitor the costs of feed-in tariffs; ensure that the mechanisms to control for the impact of unpredictable developments in the renewable energy market on these costs are effective and efficient.	The feed-in tariff, initially introduced in 2000, was reformed several times and contributed significantly to financing renewable energy development. The scope of issues that can be regulated by means of a statutory ordinance was widened to facilitate an adequate and swift reaction to unpredictable market developments. In response to soaring energy prices, the federal government reduced the Renewable Energy Sources Act Surcharge (EEG levy) to zero. The EEG levy was completely abolished as of 1 January 2023.
Ensure that the energy and climate fund targets projects that are justified environmentally and economically by: establishing appropriate criteria for eligible projects; applying instruments to provide targeted support and to leverage private resources; and establishing an independent mechanism to assess progress.	In 2022, the Energy and Climate Fund was transformed into a new Climate and Transformation Fund (Klima- und Transformationsfonds, KTF), with a budget of about EUR 178 billion for 2023-26, including EUR 36 billion for 2023. The fund mainly focuses on the building sector, electric mobility, hydrogen development and energy efficiency. Better use of spending reviews and policy impact evaluation would increase the fund's efficiency.
Further improve the energy efficiency of buildings in the rental market, e.g. by introducing an energy-efficiency rental index.	The federal government has earmarked EUR 56.3 billion for 2023-26 to support climate-friendly renovations. The 2022 CO₂ Cost Sharing Act introduced a cost-splitting between landlords and tenants depending on a building’s energy and climate performance.
Further extend low-emission zones and use them to test the introduction of incentives to reduce vehicle use in urban areas.	As of 2023, Germany has over 50 low-emission zones comprising more than 70 cities. Vehicles are required to use an official German emissions sticker. However, emission levels would need to be tightened. Urban mobility remains heavily car-dominated, representing about 70% of daily travel distances.
Review support policies for biofuels in light of a comprehensive assessment of their costs and benefits, including their impact on land use, biodiversity and water.	The federal government intends to support development of synthetic fuels and has earmarked EUR 1.9 billion to support the rollout of e-fuels and "advanced biofuels" by 2026. Costs and impact of support measures are regularly analysed by the federal government and its specialised agencies, in line with EU requirements. Data on biodiversity exist but without attribution to bioenergy.

Source: OECD Secretariat based on country submission.

Notes

← 1. The European Green Deal (2020) sets out the main policy initiatives of the European Commission to help Europe become a climate-neutral continent by 2050. The Fit-for-55 package was released in two parts in July and December 2021. It includes drafts of EU climate and energy legislation to support its climate objective. The REPowerEU (2022) is the Commission’s response to global energy market disruptions. The EU CAP lays out the priorities of the new Common Agricultural Policy for 2023-27.

← 2. The price caps apply to all households and businesses in Germany from January 2023-April 2024. For households and small and medium-sized enterprises, the cap is fixed at 80% of the previous year’s energy consumption. For industry, the cap is applied at 70%. In practical terms, this means that 70-80% of energy consumption will be subsidised, while the remainder will need to be paid at market price.

← 3. The international Climate Club is a high-ambition intergovernmental forum for discussion focusing on three pillars: 1) Advancing ambitious and transparent climate change mitigation policies; 2) Transforming industries; and 3) Boosting international climate co‑operation and partnerships.

← 4. Over 50 million Germans purchased the EUR 9-Ticket between June and August 2022. The nationwide ticket offered unlimited access to Germany’s local and regional rail system for EUR 9 per month. Capitalising on this experience, the government was to introduce in 2023 the EUR 49-Ticket, which was expected to become more financially sustainable. The federal state agreed to cover half of related costs.

← 5. The landlord’s cost participation obligation is calculated using a 10-stage model, with values ranging from 0-90%: the higher the CO₂ emission of the building, the higher the share of the CO₂costs that the landlord has to bear.

← 6. The national carbon price for transportation and buildings will be raised from EUR 30 per tonne of CO₂ in 2022 to EUR 55 in 2025; in 2026, auctions will be introduced alongside a price collar of EUR 55-65 per tonne of CO₂.

← 7. As of 2022, anyone travelling more than 20 km to work can deduct 35 cents per km from his/her income tax.

← 8. The proposed measure targeted only users of foreign cars. Cars registered in Germany were set to benefit from a deduction of the road charge from their annual vehicle tax bill. This 1:1 deduction of the vehicle tax from the road charge would lead to a de facto exemption from the charge for cars registered in Germany. The European Commission launched an infringement procedure against the introduction of this discriminatory PKW-Maut.

← 9. Days with soil moisture below 30% of usable field capacity for winter wheat and sandy clay.

← 10. Considering direct and indirect damages of a total of 619 extreme climate-related events including flash floods, floods, extreme precipitation, heatwaves, storms, hail and snow that caused damages of at least EUR 100 million.

← 11. The exact amount is dependent on the climate scenario assumed (weak, medium, strong); numbers are measured in terms of cumulative changes in real GDP.

← 12. Measures included in the calculation are those set out in the latest Adaptation Action Plan (III) (assuming a “realistic” implementation) as well as potential adaptation opportunities identified for 29 key climate impacts assessed in the KWRA 2021.

← 13. Data are based on definition of protected area from the IUCN (World Database on Protected Areas).

← 14. Findings in this report were developed on the basis of a draft version of the ANK that was published in September 2022.

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