How the coalition is exploiting the climate and transformation fund

In order to get out of its financial dilemma, the federal government resorted to a trick that it has been using more and more in recent months: instead of the regular budget, the money should flow from a shadow budget called the Climate and Transformation Fund (KTF). It is being examined “whether and to what extent the KTF can make a contribution of 15 billion euros over the next two years to cover investment needs,” says the draft budget that the cabinet passed on Wednesday.

Whether the additional subsidies for the plant of the US chip company Intel in Magdeburg or financial aid worth billions for the conversion to heat pumps or now 15 billion euros for the railways – whenever money is needed, the traffic light coalition wants to tap into the KTF.

What is this financial all-purpose weapon that the government can use to finance seemingly unlimited desires? And how long will that be good? A government representative warns that a lot of money in the fund has now been earmarked twice.

The KTF was launched in 2010 by the black and yellow federal government to help finance the energy transition. At that time it was still called the Energy and Climate Fund and started off relatively modestly with a budget of 780 million euros. For a long time, it led a shadowy existence among the many federal funds.

The climate fund became the central financing vehicle

That changed with the traffic light coalition, which chose the KTF right from the start as a central financing vehicle for their many wishes. Finance Minister Lindner shifted 60 billion euros of unused corona emergency loans to the KTF. Together with existing reserves, the fund had reserves of around 90 billion euros at the end of last year, according to a report by the Ministry of Finance to the Budget Committee.

>> Read here: Subsidies for the Intel plant in Magdeburg are to rise to 9.9 billion euros

In addition, the income from emissions trading and from CO2 pricing flows into the fund. Last year, this was a good six billion euros. If you add up the income and reserves, the KTF will have over 177 billion euros at its disposal in the years 2023 to 2026. The volume of the KTF even exceeds the 100 billion euro special fund for the Bundeswehr, which Chancellor Scholz set up after the Russian attack on Ukraine.

The only difficulty is that the traffic light’s spending ideas for the KTF are growing even faster than the income. At the beginning of the year, the Ministry of Finance warned the other departments in an internal presentation that the KTF would be missing 25 to 30 billion euros in the period from 2024 to 2027.

In the meantime, the KTF is likely to be even more overbooked. Because in the past few weeks, more new editions have been added. When the indignation about the heating law grew and the traffic light had to be refilled with the help for the conversion to heat pumps, it quickly became clear where the money had to come from: from the KTF. That should add up to ten billion euros.

Semiconductor Manufacturing

The additional billions in subsidies for Intel also come from the KTF.

(Photo: dpa)

The good three billion euros in additional subsidies for the Intel plant in Magdeburg should also come from the KTF, since there is no money in the regular federal budget. The situation is similar with the 15 billion euros for the railways, which have not been decided, but are now at least being examined.

In addition, any support for the field of microelectronics is now to be financed from the KTF. This affects 31 smaller projects with a total volume of four billion euros and probably further billions for the settlement of the Taiwanese chip giant TSMC in Dresden.

The money for the expansion of the hydrogen infrastructure should also come from the KTF in the future. According to government circles, Habeck’s planned fund to support raw materials projects – an expected volume of one billion euros – is to be fed at least to a small extent with funds from the KTF.

>> Read here: Lindner saves on the railway network

In addition to these new tasks, the fund has other things to finance. Last year, 6.5 billion euros flowed from the KTF as federal funding for efficient building renovation, around 3.4 billion euros went to the purchase premium for e-cars and 500 million euros to the development of the charging infrastructure.

A lot of money in the KTF is planned twice

The KTF should actually continue to finance many of these tasks. How that should work is unclear given the new burdens. The federal government is currently working on an economic plan for the KTF for the coming year and a financial plan up to 2027.

Economics Minister Habeck is in charge of the climate fund. By the end of July, the new economic plan should show how much money is being spent on what. In the Habeck house, everyone is optimistic. The funds are sufficient for the planned projects, according to ministry circles. The new heating subsidy will hardly be more expensive than the old one. It is foreseeable that the funds for existing projects will flow out more slowly than planned, which creates freedom.

Robert Habeck

The Green Economics Minister is in charge of the administration of the KTF.

(Photo: IMAGO/Chris Emil Janssen)

In other parts of the traffic light, however, there is less optimism. “There will have to be major shifts,” says a government official. In other words, the federal government may have to drop some subsidy programs to free up billions for the new projects.

The FDP is urging that, in addition to the climate, the second task of the fund, digital transformation, is not forgotten during the readjustment. “As the responsible minister, Robert Habeck has to find the balance between climate protection and digitization of the economy in the KTF,” says FDP parliamentary group leader Christoph Meyer.

After all, the energy transition also requires high-tech chips. In other words: In addition to the already ongoing semiconductor projects from the KTF, it should also be possible to finance further semiconductor projects from the fund. “Robert Habeck has to prioritize in this sense and design the KTF,” says Meyer.

Habeck knows that he faces a difficult task. That’s why he doesn’t want to move any more expensive large-scale projects to the KTF for the time being. The Economics Minister is fighting for an industrial electricity price from the climate fund and can the multi-billion dollar subsidy should not be paid under any circumstances. The Greens would prefer to use unused billions in aid from the Economic Stabilization Fund (WSF), which Finance Minister Lindner strictly rejects.

Union sees violation of the debt brake

Even if the traffic light coalition restructures the economic plan for the KTF in such a way that income and expenditure are reconciled, a financial risk remains. The Union has complained to the Federal Constitutional Court that Lindner has shifted the 60 billion unused Corona credit authorizations in 2021 to the KTF as a reserve. CDU and CSU see a violation of the debt brake anchored in the Basic Law.

>> Read here: Constitutional Court decides on 60 billion traffic light trick

In the traffic light coalition, it is assumed that Karlsruhe will not demand that the rededication be reversed. It is conceivable, however, that the judges will impose conditions on the government to align the expenditure from the KTF more closely with its purpose of “climate and transformation”.

Should Karlsruhe tip over the 60 billion, says a government representative, “then we would have a real problem”.

More: Draft budget is available – which ministries have to save particularly

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