Berlin: Germany is considering overhauling its climate transformation fund, a key source of finance for green technologies.

One of three proposals being deliberated would scrap the fund altogether by 2027 and instead subsidise projects directly from the country’s main budget, according to a draft law seen by Bloomberg News.

The proposed overhaul risks creating a funding gap until a decision is reached, business lobby groups have warned.

The government had been set to pass the nation’s budget for 2025 yesterday after months of protracted talks.

The document lays out three options for future of the climate and transformation fund to be discussed and decided by 2027. That’s essentially a fudge on the future of the fund, pushing the decision to the next government.

Europe’s biggest economy wants to slash carbon emissions by about two thirds by decade’s end, a goal which will be made more difficult without adequate government support.

The purpose of the separate off-budget climate fund is to finance key technologies like electric car charging, electrifying railroads and hydrogen projects.

The fund is equipped with €49bil this year and gets its income from the sale of national and European carbon permits that polluters must buy to cover their emissions. That revenue stream could be diluted if it’s redirected into the main budget.

The fund would no longer have to pay the subsidies for Germany’s renewables expansion - forecast at €15.9bil next year - but it would no longer receive revenue from the core budget, according to the draft.

The climate fund was facing a €10bil shortfall for this year after a top court ruled last year that it was unconstitutional to transfer more than €60bil earmarked to tackle the Covid-19 pandemic.

The 2024 budget finally passed but only after the government readopted a debt brake, raising concerns about the funding available to achieve Germany’s climate targets.

It’s “extremely critical that the future of the fund remains unclear beyond 2025”, said Ingbert Liebing, chairman of the Association of Local Public Utilities. Companies need long-term security and reliability to plan investments, he said.

“The coalition must show its colours, otherwise we will fall into a funding gap and investments will be on the brink,” Liebing said.

 - Bloomberg