Crypto News: Germany's Greens seize the moment

Today's newsletter looks at a risky bargaining chip for Germany's Green party as the country's next chancellor needs them to agree on a plan for new defense spending. For unlimited access to climate and energy news, please subscribe.

Germany's Greens drive a hard bargain

By Petra Sorge

For Germany's Green party, and many climate-focused politicians worldwide, the past several months have been nothing but setbacks. Yet despite huge losses during Germany's recent federal election, the Green party is suddenly finding itself in a position of rare power in shaping a historic piece of legislation as members prepare to leave government.

Chancellor-in-waiting Friedrich Merz now needs the group's support to unlock borrowing limits for billions of euros in defense and infrastructure spending, amid Europe's ramp-up in support for Ukraine in its war against Russia. In return, their wish list includes more money for climate projects, following a government freeze on programs such as a €23 billion ($25 billion) program to clean up heavy industries.

It's a high risk strategy given Europe's urgent military needs and the limited time for deal brokering. Germany requires a constitutional change to loosen its so-called debt brake and Merz will not have a two-thirds supporting majority in parliament for the amendment when new members from the far left and right convene on March 25. Merz's conservatives and their likely coalition partner, the Social Democrats, will need to push through the plan in the outgoing legislature, which includes a large representation from the Green party.

Friedrich Merz, leader of the Christian Democratic Union (CDU), center right, delivers a speech at the party's election night event in Berlin on Feb. 23. Photographer: Krisztian Bocsi/Bloomberg

The Greens have already criticized the first draft proposal from Merz's likely coalition, it will be used to fund a reinstitution of tax cuts on agricultural diesel along with higher benefits for car commuters. The incoming coalition partners have given short shrift to climate-related projects, the Greens say.

The Greens "were asked to sign a blank check" that would be used for "environmentally harmful subsidies," said Georg Zachmann, senior fellow at think tank Bruegel.

Yet there is still room to maneuver. Germany's Greens have been calling for the debt brake to be loosened for years, as the country needs an investment jolt to meet its legally binding goal to slash carbon emissions by two thirds by 2030, compared to 1990-values. This requires overall public funding of up to €93 billion annually, according to calculations of climate think tank Agora Energiewende. "New projects must focus on this," Green lawmaker Lisa Badum said in an written statement.

The Greens are also keen to back Ukraine, especially after the US's recent withdrawal of support made Germany its biggest contributor. While the Trump administration reinstated military aid on Tuesday after talks with Ukraine in Saudi Arabia, a lot hinges on Moscow's willingness to join the cease fire.

In Thursday's parliament session, the Greens plan to introduce a counter proposal that demands tougher rules for defense spending. It calls for widening the definition of security – not just looking at the army and weapons purchases – but also at support for intelligence capabilities and cybersecurity.

Their plan would also raise the threshold for military spending exemptions from debt rules to 1.5% of gross domestic product, compared with 1% in Merz's plan.

However, still unsolved is a €500 billion fund that Merz is separately planning to set up to invest in roads, schools, or power grids.

If such a fund is agreed on, Greens will want a clear part of it to be used for investments in decarbonization, said Carolin Schenuit, managing director of the FÖS economic think tank.

Leading conservatives didn't dismiss the Green proposal and said they would study them. In a further positive sign for the Greens, a group of lawmakers and members affiliated with Merz's center-right alliance on Wednesday published a climate action program that confirmed commitment to the nation's 2045 net neutrality goal.

Andreas Jung, a deputy caucus leader for Merz's Christian Democratic-led bloc in parliament, said at a utility conference on Thursday that parts of the fund could also be directed towards supporting local heating networks, power grids, charging stations, as well as hydrogen or CCS infrastructure.

The parties are also aligned on the main objective. Green party chair Franziska Brantner told Bloomberg TV the dire situation in Ukraine means Europe needs to speed up defense spending.

"We are ready to negotiate," she said.

Call to arms

€150 billion

This is how much the European Union has proposed to extend in loans to boost defense spending. European Commission President Ursula von der Leyen said the package could mobilize nearly €800 billion — if governments take full advantage of the new leeway.

Collateral damage

"The world has changed a lot in the last month and there's no question we have to raise defense spending...[But by cutting climate aid to developing nations] we risk withdrawing something that stabilizes those countries and opens up an opportunity for others – like Russia – to step in."

Gareth Redmond-King

Head of international program at nonprofit Energy and Climate Intelligence Unit

Redmond-King said the retreat by western governments from development finance risks ceding soft power in strategically important geographies to nations that Europe considers hostile.

More from Green

Climate programs targeting about $45 billion in funding for emerging economies won't be derailed by America's decision to withdraw, according to analysts.

The US decision to exit from a leading role in Just Energy Transition Partnerships for South Africa, Indonesia and Vietnam will complicate financing efforts, but won't halt the overall objectives of the deals, BMI, a unit of Fitch Solutions, said in a research note.

"Although we expect the loss of US funding in the JETP partnerships to be disruptive and potentially add further delays to these programs, we see other international partners stepping up to fill the void," BMI analysts wrote in the note dated Tuesday. China could be among nations to replace US leadership and financing.

The US, which had pledged to contribute more than $4 billion according to investment plans drafted for the JETPs, has quit the programs amid President Donald Trump's wider retreat from climate action. It's a move that has raised questions about the future of the programs, which had been viewed as a test case of how to bring together public and private finance to help large developing nations move way from fossil fuels.

Germany confirmed last month that it would replace the US as co-leader of work focused on Indonesia. Japan has reaffirmed its support for transition efforts in both Vietnam and Indonesia, while the UK pledged renewed backing to a South Africa deal.

The Babelan coal-fired plant in Bekasi, West Java, Indonesia. Photographer: Muhammad Fadli/Bloomberg

Trade war increases anxiety over power supply. President Donald Trump backed down on raising tariffs on certain Canadian goods from 25% to 50% on Tuesday after Ontario retreated on a plan to place a surcharge on electricity sent to the US. Among other things, the tense moment put a spotlight on how much the US depends on the low carbon electricity that comes from the Canadian province.

The EPA is terminating $20 billion in climate grants. The money is part of a $27 billion pool and awarded to community development organizations and other nonprofits, credit unions, housing agencies and solar energy projects. Environmental Protection Agency head Lee Zeldin claims that the Greenhouse Gas Reduction Fund is part of a "scheme" handled by the previous administration without proper oversight.

Bankers climate alliance prepares to vote in ditching 1.5C goal. The Net-Zero Banking Alliance is considering a revised strategy that would remove the requirement for member banks to align their portfolios with a 1.5C global warming limit. Instead members would be offered greater flexibility to adapt their targets to the markets in which they operate, the steering group member said.

Data deep dive

The hype for green hydrogen, or hydrogen produced via electrolysis powered by renewable electricity, has disappeared into the rear-view mirror. As the industry grapples with political uncertainty and rising costs, companies are reevaluating their clean hydrogen portfolios and canceling many projects altogether.

Three project developers have announced changes to their low-carbon hydrogen projects in just the past few weeks. Producers of electrolyzer equipment have also been hitting roadblocks.

These announcements come on the back of a blistering year for cancellations. BloombergNEF tracked 35 green hydrogen project cancellations in 2024. The year before, that number was just six. However, it is likely that more projects were canceled, as many companies do not announce the abandonment of a project publicly. —Payal Kaur, BloombergNEF hydrogen analyst

Worth a listen

Mark Carney has won the race to become Canada's next prime minister. What's next for the country? Rick Smith, president of the Canadian Climate Institute, recently spoke with Zero podcast host Akshat Rathi about what shape the country's climate ambitions might take under new leadership, how it can deal with challenges posed by US President Donald Trump, and why he expects meaningful climate policy to be driven by provinces and municipalities. Listen now, and subscribe on Apple, Spotify, or YouTube to get new episodes of Zero every Thursday.