Germany, historically seen as a leader in the fight against climate change, now finds itself at a crossroads. While responsible for only 1.5% of global CO2 emissions, German policymakers aspired to position the nation as a global role model in climate initiatives. However, the country is increasingly viewed not as an example to emulate but as a cautionary tale of overreaching policies and unintended consequences.
Economic Decline: Bureaucracy and Energy Costs
Germany’s economy is faltering, with growth trailing behind most OECD countries. Major corporations like BASF and ThyssenKrupp are cutting thousands of jobs and redirecting investments abroad. ThyssenKrupp, for example, announced 11,000 layoffs after receiving €2 billion in subsidies to produce “green steel” via hydrogen—a technology still economically unfeasible. Similarly, BASF cited high energy costs and excessive bureaucracy as reasons for moving investments to China.
Compounding this crisis is a rise in insolvencies, with October’s rate 66% higher than pre-pandemic levels. Foreign direct investment (FDI) is also waning, with EY reporting a 12% year-on-year decline in greenfield projects and expansions—the lowest level since 2013. Germany’s energy policy, high labor costs, and regulatory hurdles are major deterrents for industrial investors.
The Cost of Climate Ambitions
Estimates of the total cost of Germany’s energy transition range from €1.8 trillion (ifo Institute) to €6 trillion (McKinsey). Beyond direct expenses, the ripple effects are significant. The EU’s ban on internal combustion engine vehicles by 2035 has plunged Germany’s automotive sector into crisis. Volkswagen plans to close several plants and lay off tens of thousands of workers. Automotive suppliers like ZF, Continental, and Bosch have announced similar reductions. Once a global leader, Germany’s automotive industry now struggles to adapt to the mandatory shift to electric vehicles, undermining its economic backbone.
Housing Crisis and Migration Challenges
Germany’s housing sector is also in turmoil. Rising immigration, combined with a lack of affordable housing, has exacerbated the issue. Over 20,000 building regulations aimed at making construction “climate-friendly” have rendered housing projects prohibitively expensive. Meanwhile, 64% of recipients of Germany’s Bürgergeld (“citizenship income”) have a migration background, placing immense strain on the social welfare system. Crime rates are also on the rise, creating further public discontent.
Energy Policy: Contradictions and Inefficiencies
Germany’s closure of nuclear power plants has forced reliance on imported nuclear energy and coal-generated electricity from abroad. At the same time, despite banning domestic fracking, Germany imports fracked LNG gas from the US. This inconsistent approach undermines its credibility as a climate champion. While Germany ranks third globally on the Environmental Performance Index, its climate protection efforts lag, placing it seventh—behind countries like the UK.
Europe’s Renewable Energy Dilemma
Germany is not alone in grappling with the challenges of renewable energy. Across Europe, the wind energy sector is hitting limits. Countries like Denmark and Sweden, pioneers in wind power, are struggling with rising costs and declining incentives. Denmark’s largest offshore wind tender recently attracted no bids due to unappealing investment conditions. Similarly, Sweden’s oversupply of wind power has depressed returns, stalling future projects.
The wind sector’s reliance on fluctuating conditions often leads to oversupply and negative electricity prices. Unlike solar, where falling panel costs mitigate some challenges, wind energy faces rising costs for steel and labor. Experts like Brian Vad Mathiesen of Aalborg University warn that a grid reliant solely on wind and solar is neither technically nor economically sustainable.
Lessons from Germany’s Planned Economy Approach
Germany’s shift toward a planned economy—where policymakers dictate production and energy consumption—has revealed its pitfalls. By prioritizing ideological goals over market-driven solutions, Germany has stifled innovation and competitiveness. This approach contrasts sharply with market economies, where consumer demand and entrepreneurial ingenuity drive progress.
A Wake-Up Call for the World
Germany’s experience underscores the risks of pursuing aggressive climate and social policies without fully accounting for economic and practical implications. Instead of setting a global standard, Germany now serves as a cautionary example of what not to do. The country’s struggles highlight the importance of balancing environmental goals with economic viability, market adaptability, and energy reliability. For other nations, Germany’s lessons offer a sobering reminder: ambition must be tempered by realism.