Back to the project overview

climate protection investments

Green Finance's contribution on the way to climate neutrality

Client

Kreditanstalt für Wiederaufbau (KfW)

Year

2021


The transformation required to achieve the climate targets is possible with technologies known today. However, it requires positive efforts and significant private and public investment – especially in climate-friendly technologies that reduce greenhouse gas emissions. Two decisive factors for private and commercial investments in climate protection measures are the financing options and conditions. The financial sector and especially Green Finance play an important role in directing capital flows towards sustainable investments and their financing.

For the Kreditanstalt für Wiederaufbau (KfW) Prognos quantifies the investment volume that is required for the transformation of the German economy by 2050 and therefore generally eligible for Green Financing – as well as identifying the relevant stakeholders and economic sectors where investments will be allocated.

Around 5 trillion Euro investment requirement, much of it in the transport sector

It is not easy to distinguish the green finance market in Germany, as the data situation is insufficient and definition issues are unresolved. It is therefore difficult to analyse this market. However, there is every indication that the current market volume is (too) small in relation to investment needs. Yet policymakers have now recognised the importance of green finance and are pushing its development.

Prognos estimates that climate protection investments totalling around 4.5 trillion Euro will be required over the period from 2020 to 2050 in order to reduce greenhouse gas emissions by 87 percent (compared to 1990). This corresponds to an average of about 153 billion Euro or 3.8 percent of GDP per year. Almost half of this will go into in the transport sector (48 %). The other half will be directed to the energy sector (19 %), while the remainder is divided among the other sectors industry and household sectors (14 % each) and commerce (5 %).

Achieving complete climate neutrality, i.e., reducing greenhouse gas emissions by 100 percent in all sectors, will require additional climate protection investments of an estimated 506 billion euros by 2050 (upper limit). Thus, total climate protection investments required until 2050 amount to around 5.0 trillion euros.

The climate protection investments calculated represent practically everything that needs to be financed for the transformation and is thus in principle eligible for green finance. Many of these investments would have been made anyway by 2050, but are now directed into climate-friendly objects, e.g., the purchase of new cars (now electric cars). This issue is reflected by the share of climate protection related investments in total investments: Across all four sectors mentioned above, the share of climate-related investments in total investments is around 23 percent. However, the estimates are fraught with uncertainty due to methodological and data limitations as well as due to definitional questions as to which investments are classified as "green".

Government should stimulate investments

Due to investment rationalities of the stakeholders the necessary investments are often not made to the necessary extent and within the adequate timeframe, or in some cases not made at all. The government is needed to stimulate investment: On the one hand, the public sector should act as a role model and lead the way by conducting the necessary investments (e.g., energy-efficient renovation of public buildings, electrification conversion of the public vehicle fleet). On the other hand, the government must set a favourable framework for the transformation process (e.g., with regard to providing flexibility potentials in the energy supply or infrastructure development). This also includes the creation of favourable financing conditions – especially with regard to Green Finance.

This encompasses, among other things, funding instruments such as reduced interest rates, subsidies or liability exemptions to investment constraints. However, due to the specificity of the investment objects as well as due to the heterogeneity of the stakeholders (family businesses, corporations, private individuals), a uniform approach does not seem appropriate.

Crisis as an opportunity - setting the course for green finance

Although the Corona crisis pushed Germany into a recession likely to become the second worst economic slump of the post-war period, longer-term changes in investment needs and investment spending are not foreseeable. Instead, the stimulus package by EU and Germany, the persistently low interest rates and increased liquidity provision by the ECB are rather likely to continue to ensure attractive financing conditions for investments. The German Sustainable Finance Strategy and further political projects such as the development of a European taxonomy for green activities and financial products as well as considerations by the ECB to deviate from the principle of market neutrality in favour of green bonds could further drive the development of the green finance market.

Overall, the strong increase in the volume of climate investments in the upcoming years and decades indicates that in the future, significantly larger sums will need to be available for financing green investments than today. The financial sector – especially in the area of Green Finance –will play an important role in steering capital flows towards financing “green” investments. The current economic crisis can therefore also be seen as a chance for the sector to develop “green” products and establish Germany as a (leading) location for Green Finance.


To the study (website KfW, in German)

To the press release (website KfW, in German)

Authors: Dr Almut Kirchner, Dr Heiko Burret, Sven Kreidelmeyer, Thorsten Spillmann, Jakob Ambros, Jan Limbers, Andreas Brutsche (all Prognos) Dr Martin Granzow (Nextra Consulting) und Rolf D. Häßler (NKI)

Do you have questions?

Your contact at Prognos

Dr Almut Kirchner

Director, Partner

View profile

Our work on this topic

Take a look at our latest projects and activities.

Resilient supply chains in the EU

2022
| Project

What are possible solutions when supply chains are disrupted due to external shocks? A survey conducted for the European Commission as part of the European Cluster Collaboration Platform provides answers.

Just Transition Platform: Meeting of the Working Group on Chemicals

| Event

At the meeting of the JTP Working Group on Chemicals, proposals will be discussed to help EU regions with a strong chemical industry make a just transition to climate neutrality.

Poland and Hungary in the EU – an economic success story in danger?

2022
| Project

A study of the economic ties between Poland and Hungary with Germany and Bavaria for the vbw.

Impact of counterfeit products on global value added

2022
| Project

How high are the losses to global value added caused by product and brand piracy? We calculated this as a contribution to a study.

No generational conflict: Young and old are primarily looking for security.

2022
| Project

Study compares “boomers” and Generation Z: high need for security for young and old alike.

Blockchain in the creative industry

2022
| Project

Technology enables new business models for creative professionals. And offers solutions for key industry challenges.

Ecological transformation and the labour market in Schleswig-Holstein

ongoing
| Project

How many experts will be required for Schleswig-Holstein to implement climate protection measures? What are the key professions for successful implementation?

Green finance's contribution to achieving climate neutrality in Germany

2022
| Project

What is the public share of climate protection investment? An investigation for the KfW.

Status of the gas supply

2022
| News

What is the latest on the gas supply in Germany? How high is demand? How high are gas storage levels? What would the damage be to the German economy if delivery failed completely?

Estimation of costs resulting from climate change in Germany

2022
| Project

Heatwave, drought, floods – for the BMWK and BMUV we have systematically combined the quantifiable costs of extreme weather events in Germany since 2000 and supplemented them with detailed studies.

About us

Prognos – Providing Orientation.

Prognos is one of the oldest economic research centres in Europe. Founded at the University of Basel, Prognos experts have been conducting research for a wide range of clients from the public and private sectors since 1959 – politically independent, scientifically sound.

Learn more