New infrastructure fund of EUR 500 billion - investments in (at best climate-neutral) energy infrastructure, transport, digitalization and social infrastructure

Following the resolution of the 20th German Bundestag on 18 March, 2025, the upper house of the German parliament also approved the amendment to the German constitution on the special fund for infrastructure and investments to achieve climate neutrality on 21 March, 2025. This paves the way for investments in German infrastructure amounting to EUR 500 billion over the next twelve years.

The draft bill originally drawn up by the CDU/CSU and SPD (see also our article from 6 March 2025) has been significantly adapted in the direction of achieving climate neutrality by 2045 following an agreement with Bündnis 90/Die Grünen. The Federal Constitutional Court recently rejected several urgent motions against the planned vote in the lame duck Bundestag. In addition to the relaxation of the debt brake for defense spending, civil defense and civil protection, intelligence services, the protection of information technology systems and aid for states attacked in violation of international law, a special fund of EUR 500 billion was also set up for infrastructure and the achievement of climate neutrality by 2045.

For the infrastructure sector, the new Article 143h of the German constitution in the form now adopted by the Bundestag opens up numerous investment opportunities in the coming years. The debt brake that normally applies to Germany's new borrowing will be lifted for additional investments in infrastructure and for additional investments to achieve climate neutrality by 2045 with a volume of up to EUR 500 billion.

Additionality criterion for investments and extended investment opportunities for the federal states

The law now expressly stipulates (unlike in the original draft) that investments in infrastructure and investments to achieve climate neutrality are to be "additional". Additionality only exists "if an appropriate investment ratio is achieved in the federal budget in the respective financial year". According to the explanatory memorandum, this is the case if the planned share of investments in the respective financial year exceeds 10% of expenditure in the federal budget excluding special funds and financial transactions. This is intended to ensure that the additional billions actually benefit new infrastructure projects and investments to achieve climate neutrality, and are not used to cross-finance other expenditure.

In addition, the amendment to the German constitution now also provides for a softening of the debt brake for the federal states, which can now also make investments to a greater extent. EUR 100 billion from the special fund is available for investments by the federal states in their infrastructure. According to the explanatory memorandum, the funds are to be used in particular to co-finance heating and energy networks.

The details of the special infrastructure fund remain to be seen, at least EUR 100 billion of the EUR 500 billion for climate and transformation fund

The details of the special infrastructure fund are to be set out in a federal law yet to be passed. In addition, the parliament in its capacity as budget legislator must approve the use of the funds. This remains the responsibility of the future federal government.

Initial insights into what a coalition of CDU/CSU and SPD envisages for infrastructure may already be available in the outcome paper of the exploratory talks (see also our article from 11 March 2025). It states that special funds for infrastructure are to be used in particular (and therefore not conclusively) for the following areas:

“a special federal/state/municipal infrastructure fund is created, which will have a volume of 500 billion euros and a term of 10 years. This special fund is to be used for investments in infrastructure. This includes, in particular, civil protection and civil defense, transport infra structure, hospital investments, investments in the energy infrastructure, in the education, care and science infrastructure, in research and development, in development and digitization. 100 billion euros of this is to be allocated to the municipalities and shall be available for the above-mentioned areas.”

Initial measures are specified in various sub-items on the economy in the outcome paper of the exploratory talks. According to this:

• The transmission grid fees shall be halved and the electricity tax shall be halved to the European minimum.
• The electricity price compensation regulations shall be extended to other energy-intensive sectors and the compensation shall be extended in order to ensure globally competitive energy costs (keyword: industrial electricity price).
• The construction of reserve power plants (20 GW gas-fired power plant capacity) for the base load and these will also be used to stabilize the electricity price. In addition, renewables (solar, wind, bioenergy, hydropower, geothermal energy and storage) are to be further expanded (to support the grid).
• CCS/CCU shall be enabled for emissions that are difficult to avoid.
• Industrial centers throughout Germany shall be connected to the hydrogen core network.
• Strategically important sectors are to be located in Germany, e.g. the semiconductor industry, battery production, hydrogen or pharmaceuticals.
• E-mobility shall be promoted through purchase incentives and an increase in the commuter allowance in order to maintain the car industry as a leading industry.
• Investment funds (through the combination of public guarantees and private capital) shall be installed to leverage investments, e.g. for venture capital, housing and energy infrastructure.

Of particular interest to the energy infrastructure sector, especially in the areas of hydrogen, renewable energies and energy grids, will be which additional investments to achieve climate neutrality by 2045 will ultimately be supported by the financial increase in the climate and transformation Fund. EUR 100 billion of the EUR 500 billion has been earmarked for the climate and transformation fund. This means that the financing of the climate and transformation fund now appears to be secured again after the Federal Constitutional Court ruled that the reallocation of EUR 60 billion initially intended to combat the effects of the coronavirus pandemic to the climate and transformation fund was unconstitutional. The climate and transformation fund will is used in particular to promote the energy-efficient refurbishment of buildings and conversion to climate-friendly heating systems, the decarbonization of the industry, the expansion of renewable energies, electromobility and charging infrastructure as well as the development of a hydrogen economy, which are urgently needed to achieve climate neutrality.

Wishes and ideas for the use of the additional funds are plentiful. The national German railway company Deutsche Bahn, for example, has already submitted a request for EUR 148 billion from the special fund to the likely future coalition partners. Deutsche Bahn anticipates a total investment requirement of EUR 290 billion by 2034. However, there is also a considerable need for funding in the area of highways and federal roads. In the healthcare sector, a hospital reform is pending, half of which were supposed to be financed by the statutory health insurance funds. Here, money could flow from the special fund instead. In the education sector, the money could be used in particular for the digitalization of schools and for the renovation and new construction of school buildings. With regard to the EUR 100 billion earmarked for the federal states, representatives of the municipalities are advocating that a large proportion should flow directly to the municipalities in the least bureaucratic way possible.

However, the new federal government can set different priorities here than those previously planned by the former coalition of SPD, Bündnis 90/Die Grünen and FDP. In particular, the areas mentioned in the exploratory paper will certainly be taken into account. According to media reports, the CDU would like to subject the existing funding programs of the climate and transformation fund to an efficiency review. This could, for example, affect the program for the energy-efficient refurbishment of buildings and the installation of climate-friendly heating systems. The funds could then possibly be used more for investments in electricity, heat, hydrogen and CO2 networks. The specific use of the funds therefore remains to be seen, even if a possible coalition agreement between the CDU/CSU and SPD will certainly provide further indications.