KfW Research: Germany has a strong position in key markets for green technologies

• Germany is major producer of green technologies and world’s second largest exporter of environmental and climate-smart goods
• Environmental technologies are one of the strengths of the German innovation system
• Future success requires R&D promotion and support for market introduction and diffusion

Green technologies and green innovations are not just important for climate action. They also bolster a country’s technological capabilities and thereby secure opportunities for future growth and employment. KfW Research has undertaken a new analysis to explore how Germany is positioned with regard to green technologies of the future. The findings are pleasing. First, Germany currently has a large share of the fast-growing lead markets for green technology. In 2020, 8.5% of the total output of the global market for green technologies came from German production locations, and that share rises to 14% if we count German businesses and their foreign locations. Both percentages significantly exceed Germany’s share in global economic output, which was only 4.5% in 2020.

Second, Germany’s market position is also reflected in exports. With a share of 12% of global trade, it is the world’s second largest exporter of environmental and climate-smart goods after China (15%). In 2018 German businesses exported environmental and climate-smart goods worth EUR 68 billion. Ecologically sustainable mobility accounted for 25% of that volume, energy efficiency 12% and sustainable energy generation 10%.

Another plus for Germany is that along with its traditional strengths such as production technologies (mechanical engineering) and automotive technologies, environmental technologies have also evolved to become one of the strengths of the German innovation system. In a study commissioned by KfW Research, the Fraunhofer Institute for System and Innovation Research (ISI) in Karlsruhe examined how well Germany is positioned in the development of technologies that can be expected to achieve high market relevance in the medium term. It found that by and large, German enterprises focus precisely on those technologies that promise the highest growth markets: from battery technology through more efficient solar cells and drive technologies for electric mobility to hydrogen production and energy storage. The conditions for advancing environmental and climate technology expertise as a promising avenue particularly for Germany are therefore exceptionally favourable.

“Germany currently has a strong position in the field of green technologies”, said Dr Fritzi Köhler-Geib, Chief Economist of KfW. “Now it needs to secure and further expand that position for the future. After all, the competition never sleeps.” The analysis by KfW Research indicates three starting points from which Germany can continue to defend its top position in green technologies into the future:

• Research and development (R&D): R&D efforts need to be ramped up to achieve the target of becoming a net zero emissions economy and society – and to secure Germany’s strong competitive position for green technologies. This applies to negative emission technologies and the development of green fuels, for example. This will above all require broad and technologically open innovation support.
• Market introduction: The continuing development of market-relevant technologies of the future that are on the brink of a commercial breakthrough must be further promoted. This applies in particular to the hydrogen economy, including the provision of distribution and import infrastructures as well as the next generations of (where possible, green) batteries. Promoting industrial-scale demonstration facilities is particularly important here.
• Diffusion: Enabling conditions must be created that make available technologies economically attractive enough for broad application. Examples include broader use of photovoltaic solar power and wind power, electric vehicles and technologies for increasing the energy efficiency of buildings, industry and trade. The expansion of electricity and charging infrastructure, as well as of local and district heating networks must also be driven forward.

“The commitment of many countries to net zero emissions will lead to a significant increase in global demand for low-emissions technologies. For German businesses that will generate substantial opportunities for future growth and employment as the transition to a net zero economy involves high amounts of investment. Germany alone will have to mobilise around EUR 5 trillion. There is potential for Germany as a leading provider of environmental and climate-smart technology to participate in the transition on the supply side as well. Politicians and business must now seize this opportunity. The current decade leading up to 2030 is likely to be critical – for the climate outcome and for Germany’s future prosperity”, added Köhler-Geib.

The study can be downloaded from
www.kfw.de/fokus.