Merkel Seals $60 Billion Deal in New Attempt at Climate Targets

(Bloomberg) --

Germany has pledged a 54 billion euros ($60 billion) program to put its climate target back on track without abandoning its long-standing policy of zero deficit spending.

The landmark package worth more than Germany’s 2009 economic stimulus plan following the financial crisis, gradually increases automotive fuel prices and taxes air travel, while cutting costs for trains. It also introduces carbon allowances for transportation and provides incentives for people to junk old furnaces.

The deal gives Chancellor Angela Merkel something to showcase at a UN climate conference next week, partially alleviates investor concerns that swelling expenditures could increase debt, and at least temporarily breathes some fresh life into an otherwise fragile coalition. Yet critics say the measures could be too little too late to make the 2030 target of slashing greenhouse gas emissions by 55%.

Environmental groups and opposition politicians agreed that the carbon price set was far too low to really have an impact.

Johannes Teyssen, Chief Executive Officer of power utility EON SE, agreed.

"It’s good news that there’ll be a price for carbon dioxide in heating and transport," said Teyssen, who is shifting EON away from power generation to concentrate on network solutions like electric car charging services. "But costs under 35 euros per ton will have little steering effect."

Speaking at a press conference to detail the plan, Merkel said the measures were a compromise between what science required to slow climate change and what the population would be willing to support.

“We’ve created numerous incentives, so that people can behave in a more environmentally responsible way,” said Merkel.

The 65-year-old physicist-turned-politician insisted the plan wouldn’t require the government to raise more debt. The costs for incentives such as promoting electric vehicles and upgrading older furnaces will be balanced by income from carbon-dioxide certificates. The deal was reached after more than 16 hours of overnight negotiations that began Thursday evening in Berlin.

"We’re sticking by the black zero," she said in reference to her administrations long-standing policy of a zero deficit spending.

The measures could shake up Germany’s transport sector, an industry that includes automotive giants like Volkswagen AG and Lufthansa AG, Europe’s biggest airline. On electric cars, the government said it wants to see the number of those vehicles rise to 10 million. It also wants to attract battery cell factories to Germany, breaking an all-Asian stranglehold on supply from LG Chem, Samsung SDI and CATL.

The cabinet wants to make flying more expensive with changes to ticket price laws to restrict the number of ultra-low fairs. Higher prices could benefit Lufthansa, analysts have said, as the airline struggles to compete in a pan-European war for market share. When Germany raised the cost of flying in 2011, Ryanair retreated from the country’s market, allowing Lufthansa to claw back customers.

Germany’s leaders were under pressure to seal a deal, with the country falling far short of its climate goals. Tens of thousands of demonstrators gathered to march in Berlin, Hamburg, Munich and around 500 other locations across Germany as part of the Fridays for Future movement. Finance Minister Olaf Scholz said the demonstrations have been a “wake-up call.”

But the plan was also criticized for its incremental approach in other areas. Automotive fuels would initially rise by only 0.03 euro per liter, while oil-fired furnaces can be sold for another six years.

Merkel has faced a series of protests this year demanding action to stem emissions, and the Green party has surged in the polls as the impact of global warming becomes increasingly tangible, with forests fires more frequent and droughts causing the Rhine river to recede.

Some of the SPD leaders had indicated they would push for the party to leave Merkel’s coalition if the government didn’t agree on substantial climate measures.

--With assistance from Tom Lavell, Patrick Donahue and Chris Reiter.

To contact the reporters on this story: Brian Parkin in Berlin at bparkin@bloomberg.net;Arne Delfs in Berlin at adelfs@bloomberg.net;William Wilkes in Frankfurt at wwilkes1@bloomberg.net

To contact the editors responsible for this story: Chad Thomas at cthomas16@bloomberg.net, Raymond Colitt, Iain Rogers

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