Seemingly, climate change and capitalism have an incompatible relationship. One seeks to preserve life on Earth while the other is a profit-driven system that delivers consumer goods but also exploits the Earth beyond its capacity to sustain it. 

To make matters worse, the camouflaging ideology of the free market assures corporations that they can receive handsome subsidies from the government. These are monetary benefits and other assistance provided by a government – the German government, for example – to businesses, industries, companies and corporations.

According to one of Germany’s main corporate lobbying associations – in this case represented by the Institut der deutschen Wirtschaft – Germany’s state supports capitalism rather generously. In October 2025, the IWD noted that Germany’s conservative Merz government plans to spend around €78 billion on financial aid and tax breaks for capital in 2026. €78bn looks like this: 78.000.000.000. It also means that everyone, including babies, hands over €1,000 to companies and corporate bosses.

Besides the sheer, almost unimaginable number of 78.000.000.000 Euro, the mere fact that a government hands out so much dosh to corporate bosses should make the apostles of the free market wonder: why? Why is this needed when the free market is supposed to do it all? 

Yet, the state looks like an institution that is bitterly needed by free market capitalism. At least German capitalism has 78 billion very good reasons to love the state – while carrying on with its neoliberal ideology of a free market.

But wait, it gets worse. Not only does German capital treat the state as a supermarket without a checkout, it also cashes in when it comes to subsidies – many of them will destroy Earth – and, most likely, us with it.

Given this level of state support for polluting industries, there is no reduction of environmentally harmful subsidies (EHS). The opposite is the case. There is a ramping up of such subsidies. Worse, environmentally damaging economic practices are still rewarded in Germany. Year after year, billions in incentives and subsidies flow into the consumption of oil, gas and coal. Still more worryingly, Germany’s current conservative-social-democratic coalition government is significantly increasing the cash handed out to counterproductive industries.

To camouflage all this, terms like “sustainability” and “a sustainable future” have featured heavily in the Sunday speeches of German politicians – year after year. It might follow the proven propaganda model of repeating it often enough until everyone believes it! Mass marketing has known this since the 1930s.

Yet, neatly hidden behind the Orwellian double-speak of politicians, unsustainable and environmentally damaging economic practices continue to be “re”-warded, if not “a”-warded in Germany. In the past, such climate-damaging subsidies have, at times, amounted to as much as €65bn per year, as calculated by Germany’s own Umweltbundesamt.

It gets worse. There are also hidden subsidies tucked away deep inside Germany’s annual budget. For example, the figure above doesn’t even include the billions of euros in agricultural subsidies received by Germany’s monoculture-pushing agro-monsters – via the EU budget. Here is the trick. Germany gives money to the EU. The EU returns it as subsidies to industrial-style farmers. And the German state can claim that the money came from the EU.

Meanwhile, many of these subsidies – hidden or otherwise – are environmentally harmful. In 2026, Germany’s conservative government implemented measures that “promote” (!) oil and gas consumption. The generous state support for capital amounted to a whopping eleven billion euros ($12.5bn), according to calculations by Germany’s Forum Ökologisch-Soziale Marktwirtschaft (FÖS). And where is the free market in all this? Nowhere to be seen. It only turns up when ideological justifications are needed.

Germany’s state subsidies include, for example, the abolished gas storage levy [Gasspeicherumlage]. This is a zero-sum game. The government loses €3bn. Companies cash in. Similarly, the fuel discount to limit the impact of oil corporations cranking up prices in the wake of the USA’s attack on Iran, which was limited to two months, “cost” the federal government €1.6 billion. This supports petrol cars – not electric cars. Yet, what is framed as a “cost” actually lowers the government’s tax revenue – less money for hospitals, roads, schools etc.

With goodies like these handed out to petro-guzzling motorists and corporations, no wonder the coalition is under considerable pressure to close the gaps in its budget planning. Merz’s conservative coalition is desperately searching for ways to save money – usually health and education, not the military – while, simultaneously, squandering billions on ever more climate-damaging subsidies generously handed over to businesses. This is not only a haphazard and directionless fiscal policy, it is also extremely damaging to the environment.

Meanwhile, the USA-Iran war and the resulting price shocks for oil and gas are causing clean alternatives like heat pumps, electric cars and public transportation to boom in Germany. These are huge opportunities to make Germans less dependent on oil and gas.

The German government should utilise this momentum by fostering a smart combination of financial incentives and targeted support for those hardest hit, instead of artificially making oil and gas cheaper. The money for this is available if harmful subsidies like the increased commuter allowance or exemptions for agricultural diesel are eliminated. This is not to be expected from a government that calls itself conservative but has next to no interest in conserving the environment.

This comes despite the fact that – as early as 2016 – all seven major industrialized nations (the G7) decided in Japan to reduce harmful subsidies, such as those for coal, oil, and gas. Above all, they set a date for phasing out subsidies. This was a minor sensation. The G7’s 2016 final declaration said: we remain committed to eliminating inefficient subsidies for fossil fuels and encourage all countries to follow our lead by 2025.

In 2025, it was time to know what had happened since then. Is Germany – together with other G7 countries – on track to fulfil the G7 promise? The devastating answer is: they are not. This is supported by a study of the Forum Ökologisch-Soziale Marktwirtschaft (FÖS).

The opposite is the case. These were “empty promises.” In fact, the total amount of fossil fuel subsidies has increased by 15% since 2016. This is the exact opposite of the G7’s promise to eliminate inefficient subsidies for fossil fuels. 

It gets worse as the underlying figures from the – otherwise rather neoliberal – International Monetary Fund recorded $1.4 trillion of subsidies for 2023 alone. In other words, despite or perhaps because of the G7’s 2016 promise, the seven richest countries hand over cash to polluting industries – big time.

Even more worryingly. In Germany, tax breaks for fossil fuels increased by a staggering 49% during this period – paying half the tax they paid before. This cranks up pollution, moving us ever faster towards what Mr Guterres (UN) calls “climate hell”.

On the way to climate hell, Germany’s conservative government has, in the course of its first year in office, adopted a number of environmentally damaging subsidies and incentives amounting to around €11 billion in the year 2026. In the face of scarce public resources, this measure will cause damage to Germany’s climate policy.

In spite of numerous briefings, there has been insufficient progress in the reform of environmentally harmful subsidies. In many cases, these have a regressive structure. They disproportionately favour wealthy households. 

At the same time, their removal would open up considerable potential for a social (less inequality creating) and climate (less damaging to the environment) consolidation directed towards a balanced transition towards a socially acceptable and sustainable future.

In view of the foreseeable funding gaps and savings constraints, Germany’s next budget is currently under intensive discussion by the government with the goal of either targeting subsidies even better or, alternatively, a lawnmower-style reduction [Rasenmäher-Ansatz] – a tiny reduction of subsidies for each and every company.

Worse, the CDU-SPD agreement for their coalition government contains a number of measures to escalate already existing environmentally harmful subsidies or even to expand them. Since taking office, the government has already pushed several such projects. This includes the re-introduction of an agricultural diesel subsidy; the expansion of the commuter tax that supports car use; the reduction in the air transport tax; and additional tax relief for energy companies and energy-intensive companies. Germany’s government has already adopted three key measures that are environmentally damaging and harmful to the climate:

1. Increases or the introduction of direct financial assistance to lower energy costs for companies.

2. Increases or the introduction of tax reductions for companies.

3. Withdrawals or reductions of existing (or already adopted) instruments to reduce environmental costs for companies.

Interestingly, the government uses the word “Umweltkosten“, indicating that it sees the environment [Umwelt] merely as a cost [Kosten]. This further implies, as it does in corporate financing, a reduction of such costs. This is done in a two-step process. Firstly, the environment is reduced to a cost and secondly this “cost” is reduced.

As mentioned, the financial impact of all this for the year 2026 is around €11 billion. Worse, Germany’s conservative government spends more money on subsidies than the €10 billion it spends on investing in climate protection and into what Germans call the “Klima- und Transformationsfonds (KTF)” – funding the transition towards a sustainable future. Seemingly, this is something of a low priority for the Merz government.

If one divides Germany’s corporate subsidies into companies engaged in transportation, energy companies, manufacturing industry and agriculture, the biggest support goes to energy corporations (€6bn). This is followed by transport (€3bn), manufacturing (€2.2bn), and agriculture (€320 million).

Despite all these rather grim illustrations, there are, however, ten avenues to reduce the harmful impact of state subsidies for German corporations. The first three measures alone would save the German government approximately 73 million tons of CO₂ and €18 billion in lost taxes annually. Ranked according to where the greatest tax savings could be achieved, the list starts with:

1. The elimination of the tax exemption for kerosene used to fuel aircrafts.

2. The reduction of electricity subsidies for industry.

3. The abolition of tax breaks for polluting electricity generation.

4. No VAT exemptions for international flights.

5. Cancellation of the commuter allowance that pushes petrol cars.

6. A reduction of the VAT on animal products (for example, cow’s milk is taxed at 7% in Germany while oat milk is taxed at 19%).

7. The abolition of the diesel tax privilege that allows diesel vehicles to be refuelled more cheaply.

8. Cutting down on subsidies for company car tax breaks.

9. Eliminating tax breaks for polluting energy industries.

10. Ending tax breaks for agricultural diesel.

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