KfW Research
Energy and EnvironmentThe current KfW Climate Barometer for download:
Heat pumps are a key technology for decarbonising domestic heat. In the past 10 years, sales of heat pumps have grown considerably in Germany and Europe. There are regional differences and heat pumps already have a very high market share particularly in northern Europe. This study examines the factors in play and analyses the influence of the relative electricity price on the diffusion of heat pumps. The empirical findings suggest that the electricity-to-gas price ratio is a relevant lever for strengthening the diffusion of heat pumps in Germany and Europe. Survey data from the KfW Energy Transition Barometer support this result, as households themselves also mention cost-effectiveness as a major factor for their use. This opens up options – particularly for a country like Germany, which also manufactures heat pumps.
Heat pumps are gaining ground in Europe – electricity prices matter(PDF, 3 MB, accessible)
Further information on Germany's pursuit of climate neutrality
The business sector in Germany increased climate-positive investment by 5% in real terms to EUR 85 billion in 2023. These are the findings of the 2024 KfW Climate Barometer. This growth was driven by large enterprises. They expanded their climate investments again considerably on the previous year (+19% in real terms). At the same time, the generally higher price level, rising financing costs and the economic slowdown have put the brakes on SMEs’ investment. Climate investment activity by SMEs decreased by 10% overall on an inflation-adjusted basis last year. Even in challenging times, many enterprises continue to have climate action on their agenda, with 51% having taken climate action into account in their business strategy. Eighty per cent of large enterprises and 24% of larger SMEs aspire to become climate neutral.
KfW Climate Barometer 2024(PDF, 879 KB, accessible)
Further information of the KfW Climate Barometer
Papers and proceedings on economics
In view of the continued rise in global carbon dioxide (CO2) emissions and insufficient efforts to reduce fossil fuels, there is a threat of significant economic losses, which could lead to an estimated 19% decline in global income by 2050. Carbon dioxide removal (CDR), as a new pillar of climate policy alongside traditional strategies – adaptation and mitigation – is crucial to address the temporary temperature overshoot. However, the financial requirements for scaling up CDR technologies are enormous and must be addressed promptly. Against the backdrop of COP29, KfW Research and the Potsdam Institute for Climate Impact Research outline five key areas of action to drive market adaptation, innovation and international cooperation in the field of CO2 removal.
Further informations on COP29
Further informations on climate neutrality
The energy transition is making progress: around 13 million households in Germany now use at least one energy transition technology – e.g. an electric car, a photovoltaic system or a heat pump. That is over 1 million more households than the previous year. A further 6% of households are planning to purchase one of the technologies in the next 12 months. This is especially pleasing as approval of the energy transition has fallen in the current survey. Around 82% of households stated that they consider the energy transition to be very important or important – compared to 88% a year earlier. This indicates a certain degree of uncertainty among the population. The KfW Energy Transition Barometer, which is representative of households, continues to show that the focus lies on the economic viability of technologies. In fact, scientific life cycle assessments are now often more positive than those of many households.
KfW Energy Transition Barometer 2024(PDF, 881 KB, accessible)
Further information of the KfW Energy Transition Barometer
Private capital is an important factor for financing the green transformation. As long as the carbon price remains well below the social cost and additional regulatory or financial incentives are lacking, investors and financiers must build climate-friendly projects on other motives. A special analysis on the basis of the KfW Energy Transition Barometer provides important insights and shows that roughly half of households in Germany (44%) are open to green financial investments and that some (14%) are already using them. The survey data also shows that the majority of these households are even willing to accept lower returns on capital if it helps the climate. In order to achieve lasting success, it is crucial that the climate impacts of the investment projects are coherently and transparently reflected.
Focus on Economis
A recent analysis of the KfW Climate Barometer revealed that in the year 2022, 4.3% or approx. 160,000 private-sector firms in Germany invested in the generation and storage of electricity or heat from renewable energy sources. That was significantly more than in the previous year. The increase in fossil fuel prices caused by Russia's war of aggression against Ukraine has made investment in renewables more attractive.
More than half of firms (54%) in Germany were already using electricity from renewables. But only one in ten businesses was using heat from renewable energy. Both electricity and heat from renewables are more common in larger enterprises than in smaller firms. The provision of heat in industry and commerce is still largely based on burning fossil fuels. That is why it is now necessary to place a stronger focus on the decarbonisation of industrial process heat supply.
Focus on Economis
This study describes the regional diffusion of household photovoltaic systems in Germany. By the end of 2023, one in eight residential buildings was equipped with such a rooftop solar system. Germany needs to continue accelerating the increase in installed capacity to meet the climate targets. This is important because, among other things, household photovoltaics (PV) generate electricity on site and households can consume it right away, easing the load on the power grid. However, not all regions are equally suitable for PV.
Global radiation determines how much electricity a PV system can generate. Considering the regional global radiation, the following regions currently hold great potential for household PV: Bremen, Hamburg, the Saarland, Mecklenburg-Western Pomerania, the region around Dresden, Schleswig-Holstein, the regions around Lüneburg and Trier, parts of Upper Bavaria, Thuringia and southern Hessen.
Information offerings and advertising campaigns by suppliers of PV can be particularly promising to speed up diffusion in these regions.
The potential for household photovoltaics in Germany(PDF, 3 MB, accessible)
Further analyses on the topic of climate neutrality
How Development Finance Institutions Can Build Bridges to Unlock Private Capital
Global decarbonization and climate adaptation requires trillions of dollars of annual investment, most of it from the private sector. To achieve the goal of limiting global warming global climate protection investments must increase by at least 30% annually – three times faster than before. Development finance institutions (DFIs) are seen as key mobilizers of these flows, catalysing private financing in particular. A joint paper by BCG and KfW provides a big-picture perspective on how DFIs are innovating and evolving in sync with their ambitious climate financing goals. Along several dimensions – from the business and operating models to the necessary regulatory and policy framework – this paper explores how development and promotional banks globally can make a valuable contribution to closing the looming financing gap.
Focus on Economics
Risks to Germany’s gas supplies as a result of Russia’s war of aggression against Ukraine and the changed price path of natural gas have raised the urgency of the green transformation in Germany. The climate policy measures introduced by the government after the beginning of the energy crisis are likely to accelerate the decrease in natural gas consumption in Germany. Natural gas will thus become a much narrower bridge on the path to climate neutrality but it will not be eliminated. This is the finding of a study conducted by Prognos AG on behalf of KfW Research. Natural gas will remain a transitional solution for the substitution of more carbon-intensive fossil fuels, especially in the electricity sector and basic industries such as steel, until sufficient quantities of electricity from renewables and green hydrogen are available.
Natural gas as a bridge to climate neutrality in Germany – a reassessment(PDF, 411 KB, accessible)
Further informations on our Dossier Climate Neutrality
Economics in Brief
At the 28th UN Climate Change Conference (COP28) at the end of November, the first Global Stocktake (GST) process will assess progress made on climate action that was established in the Paris Agreement. Efforts to date have not been sufficient to achieve the global climate targets but there are promising approaches as to how a course correction can be made. These include the expansion of renewable energies on a broad basis, technological progress and innovation. Funding for the global target of adapting to climate change is also falling short of requirements. Here, an increase in international adaptation financing, more effective use of funds and the mobilisation of private capital are necessary building blocks for closing the gap. Finally, the urgently needed boost in international climate financing in emerging and developing countries has a decisive role to play. Transparency and global coordination are the unifying elements of all these issues.
COP28 Climate Conference: High time for a course correction and new avenues(PDF, 203 KB, accessible)
Despite the economic uncertainties caused by the energy crisis, investment by German enterprises in domestic climate action grew by a sizeable 18% in real terms in 2022, reaching EUR 72 billion. These are the findings of the 2023 KfW Climate Barometer. Investment in climate action is likely to have been boosted not only by the sharp rises in fossil fuel prices, which made investments in energy efficiency and the use of renewables more attractive, but by pull-forward effects resulting from the foreseeable increases in the cost of debt capital and rising prices for capital goods, particularly in the first half of 2022. The growth in climate protection investments last year was attributable to larger companies and SMEs with 10 or more employees. The findings also show that nearly two thirds of German companies have at least partly enshrined climate action in their business strategy. However, there is still upside potential for operationalisation. So far, 70% of businesses have not yet developed any concrete plans to reduce greenhouse gas emissions.This applies to small and medium SMEs in particular.
KfW Climate Barometer 2023(PDF, 540 KB, accessible)
Further information of the KfW Climate Barometer
Reducing energy consumption and using zero-emission technologies are key to achieving both climate neutrality and energy supply security. Households also need to play a role in this. The findings of the representative KfW Energy Transition Barometer 2023 are therefore encouraging as they demonstrate that households continue to back the energy transition project. Just under one third (32%) of all households are currently using technologies such as photovoltaic systems or heat pumps, 3 percentage points or 1.2 million households more than in the previous year. A further 7% plan to acquire such technologies this year. This increase is evident across almost all groups of society. The majority of households that do not use energy transition technologies (60%) can now imagine using them. In order to further advance the energy transition, it is now necessary to eliminate financial and logistical barriers to modernisation in a targeted manner.
KfW Energy Transition Barometer 2023(PDF, 961 KB, accessible)
Focus on Economics
In this year’s special survey topic, the KfW Municipal Panel addresses climate change mitigation and adaptation as probably the largest transformative task municipalities currently face. The responses returned by cities, communities and districts show that climate action accounts for nearly EUR 3 billion in the core budget and a further EUR 2 billion in outsourced operations, making up around 15% of planned investments. With around EUR 1 billion in the core budget and half a billion in outsourced operations, municipalities are dedicating less than 4% of planned investments to climate change adaptation measures. More than half the municipalities expect climate change mitigation and adaptation investments to rise in the future. However, there are signs that this investment growth will not be sufficient to achieve the climate targets. Furthermore, 51% of municipal treasuries believe the existing funding mix will not be suitable for meeting the higher investment needs. municipalities are making it hard to increase public investment systematically and vigorously.
Economics in Brief
Time is running out. After faltering for many years, the expansion of renewables must finally gather pace. The targets of the German Federal Government provide for an additional 28 GW capacity on average each year over the next eight years alone. That is four times as much as in the past eight years. A recent supplementary survey to the KfW Energy Transition Barometer has revealed: The population is ready for a corresponding acceleration, with 92 per cent of respondents regarding a faster expansion of renewables as important. So it is now important to put the legally enshrined prioritisation of renewables and the intended shortening of planning and approval procedures into practice with determination.
Germans show broad support for the expansion of renewable energy(PDF, 168 KB, accessible)
Focus on Economics
Putting a price on carbon is the most (cost-)efficient policy instrument for directing private investment away from fossil fuel energy to climate-friendly alternatives and thereby set an economically sound and long-term framework for the the necessary clean energy transformation. The introduction of national carbon prices has recently gathered momentum around the world, although there is still great heterogeneity in the pricing levels and coverage of particular sectors. Implementing carbon prices remains a challenge particularly in emerging economies. Bilateral partnerships can have a strong leverage effect on climate policy if they motivate and empower other countries to implement national carbon pricing systems. The urgently needed global coordination of climate policy could then be achievable through a consensus on a minimum price of carbon that is supported by as many countries as possible. The G7 climate club could provide a suitable framework to step up action.
Businesses in Germany invested around EUR 55 billion in climate action last year. However, annual investment volume will need to more than double in order for Germany to reach net zero by 2045. This was revealed by the KfW Climate Barometer, a new business survey which collects data on climate action investments for the entire business sector in Germany for the first time and provides insights into the attitudes and activities of businesses around the implementation of the energy transition. The findings also show that so far, few business leaders have adopted specific greenhouse gas reduction targets and know the carbon footprint of their business. Large enterprises have taken the lead here. Only one in ten businesses so far aims to become climate-neutral. Economic incentives and streamlined planning and approval procedures are major control levers that make the greening of the economy possible.
KfW Research Position paper
Russia’s war of aggression against Ukraine and the COVID-19 pandemic have shaken the foundations of a rules-based world order and the German economic model. Even amid the necessary short-term crisis management, investments are key to successful adaptation to the changed environment. They make restructuring energy supplies and the green and digital transformation possible – and demand a joint effort by government, the business community and private households. The lion’s share of necessary investment will have to come from the private sector. The current burdens from high energy costs and uncertainties act as additional roadblocks. So it is all the more important to encourage and provide intelligent support for private investment. Government therefore has a key role to play: first, by formulating targets and setting frameworks and incentives and second, by investing in infrastructure and human capital, both of which are required for the productive realisation of private-sector activity.
A boost in investment for the transformation – what exactly is needed?(PDF, 220 KB, accessible)
Further information The coronavirus crisis and its impact
Focus on Economics
The transition to net zero and the digitalisation drive will significantly increase global demand not just for bulk metals such as copper but also for special metals such as lithium, rare earths and cobalt. Germany and Europe are heavily dependent on imports of these resources. Extraction and processing of special metals is subject to high supply concentration in individual countries, which for some is higher than for oil and gas production. For the positioning of European businesses in the area of strategic technologies such as lithium-ion batteries and solar technology, China’s strong market power is a particular challenge for the supply of raw materials and for Europe as a technology location in general. Pushing ahead with the circular economy, expanding resource extraction in Europe itself and diversifying international procurement sources are key to increasing the continent’s resource security.
Securing critical raw materials for the net zero and digital transformation(PDF, 295 KB, accessible)
The current gas crisis and the increasingly visible impact of climate change both underscore the need for a more sustainable energy supply. The KfW Energy Transition Barometer 2022 shows that around 90% of households in Germany believe the energy transition is important. At the same time, many have serious doubts as to whether it can be achieved with a fair distribution of burdens between all groups of society. These reservations negatively impact on households' willingness to take action. Nonetheless, around 29% of households are already using energy transition technologies, while a further 13% plan to do so sometime this year. Existing buildings hold particular potential for reducing the consumption of fossil fuels. As lower-income households are most likely to reside in poorly insulated buildings with high potential for savings, financial barriers to modernisation and relevant information deficits must be eliminated here in particular.
KfW Energy Transition Barometer 2022(PDF, 648 KB, non-accessible)
Focus on Economics
The public sector will need to invest nearly EUR 500 billion in order for Germany to become climate neutral by 2045 – or around EUR 20 billion in climate investment each year. The highest amounts to be invested by the public sector will be in energy (EUR 297 billion), transport (EUR 137 billion) and buildings (EUR 47 billion). These amounts can definitely be funded from the public budgets, but even so, they represent a sixfold increase on the current investment level. Unless the responsibilities, financial flows and competences between the federal, state and local government levels are systematically realigned, it will hardly be possible to launch a sustained increase in necessary climate action investments.
Public investment required to achieve climate neutrality in Germany(PDF, 396 KB, accessible)
Focus on Economics
The influence of a rising carbon price on the inflation rate is crucially determined by the amount of avoidance responses in favour of less carbon-intensive goods. The stronger the (intended) avoidance response to fossil price increases, the lower the general inflationary pressure. How inflation will evolve in the course of the climate transition therefore crucially depends on its implementation. Policymakers can contribute significantly to making the transition to a climate neutral economy succeed while maintaining a steady price level overall in the medium to long term, particularly by designing economic and climate policies consistently, efficiently and for the long run.
Green inflation? Between climate action and price stability(PDF, 299 KB, accessible)
Focus on Economics
Germany’s transition to climate neutrality by the middle of the century is a key challenge. As a crucial element of the business ecosystem, SMEs have a particular responsibility. Now for the first time SMEs’ climate action investments can be quantified on the basis of the KfW SME Panel. In 2020, around 460,000 SMEs invested a total of EUR 22 billion in measures that also serve to protect the climate. In other words, roughly one in ten euros invested by SMEs went to climate action projects. Furthermore, three in ten enterprises are planning to increasingly invest in climate change adaptation measures in order to improve their crisis resilience to climate impacts. Larger enterprises and manufacturers generally exhibit greater commitment. This is where the potential for reducing greenhouse gas emissions is greatest. But the services sector will also be crucial for achieving climate neutrality.
The picture of a green economy is becoming increasingly real – ever since China and the US committed to the goal of climate neutrality last year. In future, entrepreneurial success will be possible only on the basis of climate-friendly processes and technologies. Whether Germany will emerge from the imminent upheavals stronger or weaker as an economic hub is as yet unclear. But there are various indicators that can be used for an estimate. Germany continues to be a market leader of green products but international competitors are catching up, particularly in Asia. Targeted measures that support green technologies and address the relevant stage of the innovation process remain important.
Focus on Economics
COP26 is already the 26th attempt by the international community to agree on a global response to climate change. The successes of the past mainly consisted in the joint definition of targets. But the resulting efforts are not sufficient to avoid significant global warming. One lever that can be used to finally make tangible progress is to strengthen the mechanisms of international cooperation on climate action. COP26 provides three key opportunities for this, which have been analysed in a new publication by KfW Research.
COP26 – three opportunities for global cooperation on climate action(PDF, 169 KB, non-accessible)
Focus on Economics
Germany will have to invest around EUR 5 trillion to achieve climate neutrality by the middle of the century. This is the finding of a study conducted by KfW Research. It is an ambitious goal but falls into perspective when we take into account that much of it involves investments that are necessary anyway and now need to move towards a sustainable path. In order for us to meet this challenge, public investment funds must be used in a targeted manner and complementary private investment must be mobilised. If we succeed, we have the opportunity to make Germany more competitive and prosperous and enable it to emerge stronger from the transition to climate neutrality.
Focus on Economics
In the context of the Green Deal, the EU Commission is planning to introduce an import-side Carbon Border Adjustment Mechanism (CBAM) and presented a corresponding draft regulation in July 2021. Its implementation will need to take into consideration the legal framework, implications for trade policy and administrative feasibility. If the EU manages to skilfully take into account the expected impact patterns outside the union and minimise political risks, the CBAM can leverage its international orientation as a strength. Ideally, it would pave the way towards a globally coordinated climate policy.
Focus on Economics
Digitalisation is a double-edged sword when it comes to climate action. On the one hand, digital technologies play an important role in the energy, transport and heating transition – for example by integrating weather-dependent renewable power into the electricity market. On the other hand, growing digitalisation itself is causing higher energy and resource consumption and, hence, greenhouse gas emissions. This is the finding of a study conducted on behalf of KfW Research, which analysed in detail the reciprocal effects between the two megatrends of digitalisation and climate neutrality. Policy guidelines are required both for harnessing the opportunities of digitalisation for climate action and for limiting harmful environmental effects.
Focus on Economics
Electric vehicle uptake in Germany is growing fast. Last year, electric cars already accounted for nearly 14% of all newly registered vehicles and the trend is rising. A special survey conducted as part of the KfW Energy Transition Barometer shows that high-income households in detached single-family homes are currently the main users of electric vehicles. The primary motives for buying an electric car are concerns about climate change and the innovative nature of the technology. The main reasons not to buy one – besides the high price – are reservations about practicability but also doubts about the climate footprint of electric vehicles. In order for the mobility transition to succeed, it will be important to mainstream electric mobility as an attractive option in all groups of society. The relative cost-efficiency of electric vehicles must be further improved, an efficient charging infrastructure developed and information deficits eliminated.
Focus on Economics
With Germany and Europe aiming for climate neutrality, German industry needs to undergo a structural transformation to become greenhouse gas-neutral by 2050. The transformation is technically feasible. But implementation is a great challenge given the need for investment in new production processes and the additional renewable energy and green hydrogen production capacities that have to be created. At the same time, the greening of the economy provides considerable opportunities for future value creation and employment. In order for the technologies required for the decarbonisation of industry to achieve broad market penetration, policy frameworks and financial incentives need to be put in place. Compensation mechanisms for energy-intensive businesses that compete internationally (protection from carbon leakage) will increase acceptance of the transformation.
Focus on Economics
The COVID-19 pandemic has deeply affected and unsettled Germany’s enterprises. To be sure, most enterprises rest on a solid financial foundation. The current situation, however, is making it difficult for businesses to make the necessary investments to tap into growth areas in the transition to a digital and climate-neutral economy. But such investments are very important for them to grow out of debt and secure prosperity in the future. The coronavirus crisis has already thwarted the investment plans of many small and medium-sized enterprises. Companies expect to invest almost EUR 40 billion less than last year. That is why economic policy must also seize the moment to create the framework, provide incentives for investment and lead the way with start-up finance to make future growth possible in these two key areas.
Economics in Brief
Greenhouse gas emissions in the building sector have already dropped by more than 40% since 1990. But under the Climate Protection Act, today’s emissions must fall by another 43% by 2030. That will not just require a sharper increase than in the energy, manufacturing and transport sectors. It also means that the annual reduction rates have to more than double again. The sector therefore continues to face major challenges and must focus even more strongly on the existing building stock and non-residential buildings. In addition to targeted support, a rising CO2 price in particular can help make greenhouse gas emission reduction measures more economically attractive.
Climate neutrality: Energy efficiency of buildings remains crucial!(PDF, 102 KB, non-accessible)
Economics in Brief
Climate action scenarios for Germany show that the goal of reducing greenhouse gas emissions by 95% and more will require the use of green hydrogen and its derivatives. However, the challenges for broad market penetration are still huge.
Focus on Economics
International shipping releases more CO2 emissions than all of Germany. Already today, however, there are enough viable technological solutions to prevent this. Many stakeholders are also aware of the problem and going new ways. But many conditions pose a challenge, such as inadequate legal frameworks. Still, the momentum that can be observed in some segments of maritime shipping can teach very valuable lessons.
Climate action in shipping is very similar to global climate action but the stage is much less complex. In this sense, maritime shipping can be seen as a laboratory in which new solutions are developed and trialled. This Focus puts a spotlight on this aspect and discusses selected strategies for new avenues.
Sustainable maritime shipping and climate action(PDF, 225 KB, non-accessible)
Focus on Economics
The analysis of the current state of SDG reporting by banks shows:
- Most of the analysed banks are now involved with the topic of SDGs (Sustainable Development Goals)
- However, so far less than one third of the analysed banks have created actual transparency across their portfolio.
- Fewer than 10% of the analysed banks are already applying SDG-related KPIs (key performance indicators) and reorienting part of their business activity towards sustainable financing
The Sustainable Development Goals – SDG reporting by banks(PDF, 547 KB, non-accessible)
Focus on Economics
The unabated growth of global resource consumption is the main cause of global climate change and biodiversity loss. At the same time, competition for scarce commodities is intensifying. In the face of these challenges, the shift to a circular economy is expected to help make economic management sustainable and competitive. The aim is to design entire production systems in the form of closed-loop cycles that minimise waste and emissions. Under the ‘EU Action Plan for the Circular Economy’ of 2015, the European Union provides clear impetus for advancing the transition to a more circular economy in Europe. Germany is one of the recycling pioneers in the EU. But with respect to waste avoidance, recycling-friendly product design and material efficiency, Germany still has great development potential – as does all of Europe.
The circular economy – pivotal to sustainability and resource security(PDF, 404 KB, non-accessible)
Focus on Economics
The energy price system is in urgent need of reform to enable an efficient energy transition in Germany. Adequate incentives for low-emission technologies cannot be set without uniform CO2 pricing in all sectors. The price distortion is hampering the sector coupling and integration of renewables.
Experts have engaged in a multi-year discourse that has now led to a very broad consensus. The common objective is to adopt a CO2-oriented reform of energy price components set by the state that takes into account redistribution effects. A number of robust expert opinions are now available that outline clear recommendations for action. However, implementing these recommendations requires a strong political will and commitment to climate action.
Focus on Economics
Although measures have been initiated and progress has been made in individual areas, the necessary trend reversal in biodiversity loss has not yet been achieved – neither globally nor in Germany. This development poses a threat to the economies, food security and quality of life of people all over the world. Humankind depends on well-functioning ecosystems. Nature makes numerous ecosystem services available, such as fertile soils, food, natural medicines, drinking water and clean air. It regulates the climate and provides recreational opportunities for humans. The economic benefits of an intact natural environment are often not sufficiently recognised. In order to be able to stop the loss of biodiversity, more nature conservation areas are necessary. Crucially, however, production, consumption and agriculture also need to be made sustainable.
Biological diversity – why it is so important(PDF, 327 KB, non-accessible)
Publications from previous years can be found in our Download Centre or by using our Search.
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