Ditching due diligence rules and embracing carbon removals: sustainability under Germany’s new government

This week’s coalition agreement gives a glimpse of what’s on the cards for companies over the next four years

Germany’s new government spelled out its plans for climate change and supply chain due diligence laws this week.

In a coalition agreement unveiled on Wednesday, the Christian Democratic Union, the Christian Social Union and the Social Democratic Party provided a clearer picture of what would be in store for companies over the next four years, including the end of the Supply Chain Act and a greater focus on carbon removals.

The agreement reiterates Germany’s support for the 90% decarbonisation target currently being considered by the EU for 2040.

Given how much pressure the European Commission is under to water down its climate ambitions, it’s notable to see such explicit support for the goal from Europe’s largest economy.

It comes with caveats, however.

Germany won’t go beyond its own 88% target for 2040, and it must be allowed to use ‘Article 6’ credits – those traded between countries under the Paris Agreement – to achieve up to 3% of its national reductions.

According to lawyers, the latter point is at odds with EU law, which requires emissions to be reduced within Europe. That means EU regulation would have to be amended to facilitate it.

In a big move, Germany also wants carbon removals to be accepted as a necessary part of achieving the net-zero targets.

Carbon pricing

The coalition broadly backs the introduction of the second European Emissions Trading System, known as ETS2, which will cover emissions from buildings, road transport and small industry.

But it doesn’t want the agricultural sector brought into the system, it said.

Support for companies and sectors

Germany already pledged €100bn to a ‘climate and transformation fund’ last month, which will be channelled into renewables, energy efficiency, green transport, carbon storage and climate adaptation.

The EU also recently approved plans for a €5bn national programme to decarbonise businesses via hydrogen, carbon capture and electrification technologies.

Now, the coalition has said it will make existing cost-saving measures for industrial electricity consumption permanent, and expand them to cover new sectors.

Data centres are top of that list, and will be subject to a raft of other measures too, as the coalition attempts to make Germany a “beacon of hope” for the energy-intensive sector.

In the steel sector, it will consider green quotas and support for CCS and scrap recycling.

And it will develop a Chemicals Agenda for 2045.

Energy  

On energy, the government will publish a review of its current national policies before the summer.

It has already committed to accelerate the deployment of solar and wind – partly by making permitting easier – and build up to 20GW of new gas capacity for electricity while maintaining its gas heating networks.

There is no mention of nuclear, but it’s likely to be addressed in upcoming review.

Due diligence rules

The German Supply Chain Act is going to be abolished in its current form, paving the way for the EU’s Corporate Sustainability Due Diligence Directive (CS3D) to replace it.

The Act’s reporting requirements will be axed and, until CS3D becomes national law (probably in 2027), due diligence enforcement will be suspended in all cases apart from those involving “massive human rights violations”.