Alles in Ordnung: A Balanced Look at Environmental Policy Successes (Germany vs US)

In recent years, discussions around climate policy have often painted a contrast between Germany and the United States. Germany, long regarded as a pioneer in green energy and sustainability, has faced challenges in fully realizing its energy transition (the Energiewende), while the United States made headlines with its Inflation Reduction Act (IRA), touted as a game-changer for American climate action. However, a deeper comparison shows that while the U.S. may have surged in policy announcements, Germany’s achievements on the ground remain significant, even if less publicized.

Inspired by - and largely deriving from an excellent podcast episode of Ones and Tooze, I want to correct some of the misconceptions and provide a clearer picture of how German climate policy compares to the U.S., particularly from the vantage point of living in Germany. Far from being a failure, Germany has made substantial progress, and its leadership in environmental policy is grounded in real-world outcomes rather than political fanfare.

The U.S. IRA vs. Germany’s Climate Policies: Misunderstood Differences

The Inflation Reduction Act (IRA), passed in 2022, has been hailed as the largest investment in green energy in U.S. history. With over $370 billion earmarked for clean energy incentives, tax credits, and industrial decarbonization, it positions the U.S. as a significant player in global climate action. However, this narrative has led some to believe that Germany, despite having a Green Party in government, has lagged behind the U.S. on climate policy.

This belief stems from two major misconceptions:

1. Scale and Scope: The U.S. economy is roughly four times larger than Germany’s. So, comparing the dollar amounts between the IRA and Germany’s climate fund misses the point of proportional investment. Germany’s 60 billion euro climate fund, though blocked by the Constitutional Court in 2023, would have been equivalent to a $270-280 billion investment in the U.S., a substantial figure by any measure. Additionally, Germany’s climate policy is integrated with EU-wide green subsidies, where countries like the Netherlands and Germany collectively outspend the U.S. on renewable energy.
2. Policy Timeline: The U.S. is playing catch-up in renewable energy. Germany has been systematically working on its energy transition for nearly two decades, starting with significant wind and solar installations as far back as the early 2000s. This is reflected in Germany’s electricity supply, which, by 2022, was 43% renewable and is likely approaching 50% today. In contrast, the U.S. remains at around 20% renewable energy. While the IRA is projected to scale up renewable capacity in the U.S., Germany is further along in its transition, addressing the tougher parts of the energy shift, such as home heating systems and insulation.

The Numbers: A Closer Look at Renewable Energy Installations

A side-by-side comparison of recent renewable energy installations sheds more light on the gap between the two countries.

In 2023:

• Germany installed 18 gigawatts of new renewable capacity (solar and wind), continuing a steady trend of green energy growth.
• The U.S. installed 23 gigawatts, which, while more in absolute terms, represents only about 30% more than Germany—despite the U.S. economy being four times larger.

Moreover, projections for 2024 suggest that the U.S. will install around 40 gigawatts, compared to Germany’s expected 25 gigawatts. But even with these increases, the U.S. is still not hitting “stratospheric levels,” especially when adjusted for economic size and the installed renewable base. Germany’s long-term commitment to renewables, combined with its existing infrastructure, gives it a solid head start that U.S. policies are just beginning to address.

The Energy Transition Beyond Electricity

One crucial factor often overlooked in discussions of Germany’s climate policy is the complexity of the energy transition. Unlike the U.S., Germany is tackling the more difficult aspects of the energy shift, such as:

• Home heating: Germany has aggressively pushed to phase out oil and gas heating systems, requiring the installation of energy-efficient heat pumps in millions of homes. While the U.S. remains focused primarily on decarbonizing electricity, Germany is working on broader final energy consumption, including heating and transportation.
• Industrial shifts: Germany’s advanced manufacturing sector is also undergoing major changes to adopt low-carbon technologies, particularly in steel and chemical production. This transition presents far greater challenges than shifting to renewable electricity alone, but Germany’s government and industries are actively working on these difficult transformations.

The Role of Carbon Pricing

One of the stark differences between the U.S. and Germany—and indeed much of Europe—is the approach to carbon pricing. The European Union’s Emissions Trading System (ETS), established in 2005, puts a direct price on carbon emissions. Although the system faced early challenges, the average price of a ton of CO2 in the EU now stands at around 70 euros. This is a significant market-based mechanism for driving decarbonization across sectors, beyond the electricity grid.

In contrast, the U.S. has no national carbon pricing system, relying instead on a patchwork of state-level initiatives and tax incentives like those in the IRA. Without a carbon pricing mechanism, the U.S. lacks a key tool for targeting fossil fuel consumption in areas beyond electricity generation. Germany’s involvement in the EU’s carbon pricing scheme shows how far ahead Europe is in addressing climate change through market-based solutions.

Political Realities and Perception Gaps

The perception that Germany’s climate policy has lagged behind the U.S. is largely a public relations issue, influenced by the excitement around the IRA and the German Green Party’s struggles in navigating domestic politics. The reality on the ground is far more nuanced.

1. Ukraine War and Energy Security: Germany’s energy transition faced unprecedented challenges with the war in Ukraine, which triggered a gas price spike and concerns about energy security. Vice Chancellor Robert Habeck, a key figure in Germany’s Green Party, navigated these crises while maintaining public support, even managing to avoid blackouts and stabilize energy supplies.
2. Domestic Policy Missteps: Germany’s Green Party has faced backlash for some of its more ambitious climate policies, particularly around domestic heating. The proposal to replace oil and gas heating systems was met with resistance, and the Greens have struggled to balance their activist base with broader public support. This has led to political backlash, with opposition parties and media outlets like the Bild newspaper using these issues to undermine the Green Party’s credibility.
3. Media and Political Landscape: The U.S. has dominated the climate narrative in recent years, with President Biden’s administration promoting the IRA as a signature achievement. In Germany, however, political opposition and a polarized media landscape have hindered public perception of the government’s climate successes.

The Bottom Line: Germany’s Steady Progress

While the U.S. has made significant strides with the IRA, Germany remains a leader in climate action. Its long-standing commitment to renewable energy, the progress it has made in electrifying its grid, and its engagement with carbon pricing put it ahead of the U.S. in several key areas. Moreover, Germany’s tougher political and regulatory battles, especially in domestic energy consumption, reflect the advanced stage of its energy transition compared to the U.S.

So while the IRA represents a positive step forward for the U.S., it is important not to overlook Germany’s sustained progress and leadership in climate policy. The narrative of German failure compared to the U.S. is overstated and rooted more in political perceptions than in the realities of each country’s energy transition. As both countries continue to tackle climate change, they offer valuable lessons on how to balance ambition with political feasibility.

H/t again to Ones and Tooze for the wonderful analysis and facts.