The German Federal Constitutional Court Orders the German Legislator to Set Clear CO2 Emission Reduction Goals Beyond 2030
On 29 April 2021, the German Federal Constitutional Court published a groundbreaking order it already released on 24 March 2021. Following a complaint brought by young climate activists, the Constitutional Court held the 2019 German Federal Climate Change Act as partially unconstitutional.
The Court argued that the Climate Change Act's provisions on national climate targets and annual emission amounts allowed until 2030 are incompatible with the fundamental freedom rights of the plaintiffs. Further, the existing provisions also lack sufficient specifications for further emission reductions from 2031 onwards. The German legislator1 will need to amend the Climate Change Act by 31 December 2022, introducing more specific provisions on how the reduction targets for CO2 emissions shall be adjusted beyond 2030.
This decision will have an unprecedented impact on German climate change regulations and far-reaching ramifications for virtually all industries in the German economy.
The German Federal Climate Change Act and the Plaintiff's Constitutional Complaint
The German Federal Climate Change Act dated 12 December 2019 aims at implementing the obligations of the Federal Republic of Germany under the Paris Agreement, which entered into force on 4 November 2016. The Climate Change Act's main objectives are:
- to limit the increase in the global average temperature to well below 2°C and preferably to 1.5°C above pre-industrial levels; and
- to pursue the long-term goal of greenhouse gas neutrality by 2050.
To achieve these goals, the Climate Change Act requires that greenhouse gas emissions be gradually reduced by the target year 2030 by at least 55% relative to 1990 levels.2 To that end, the Climate Change Act sets out the annual allowable emission amounts for various industry sectors3 in line with the reduction quota for the target year 2030. The Climate Change Act, however, does not contain provisions applicable beyond 2030. Instead, it only provides that in 2025 the Federal Government shall set annually decreasing emission amounts for further periods after 2030.4
In the eyes of the plaintiffs – mostly young people from Germany, but also including certain individuals living in Bangladesh and Nepal –, this was not sufficient.
They claimed that the German Federal Republic has failed to introduce a legal framework sufficient for swiftly reducing greenhouse gases, especially carbon dioxide (CO2), which would allow not exceeding the CO2 budget equivalent to a temperature increase of 1.5°C. The plaintiffs deem that a temperature increase above 1.5°C would place millions of lives in danger and risk the crossing of tipping points with unforeseeable consequences for the climate system. Because of such a failure, the plaintiffs argued that the German State failed to comply with its constitutional duties of protecting their lives and health5 and properties,6 and violated their fundamental rights to a future in accordance with human dignity and fundamental rights to an ecological minimum standard of living (ökologisches Existenzminimum).7 With regard to future burdens arising from the obligations to reduce emissions beyond 2030, the plaintiffs argued this would impair their fundamental freedom rights in general.8
On 24 March 2021, the German Federal Constitutional Court decided by order over the joint complaints of the several plaintiffs.9
While the German Federal Constitutional Court denied the standing of the non-individual plaintiffs10 and rejected most of the remaining plaintiffs' arguments, it held that the current version of the Climate Change Act violates the fundamental freedom rights of the individual plaintiffs residing in Germany. The Constitutional Court's central finding is that the existing provisions are unconstitutional because they irreversibly offload major emission reduction burdens onto periods after 2030, thereby violating the plaintiffs' fundamental freedom rights in the future.
The Constitutional Court argued that every amount of CO2 that is allowed today narrows the remaining options for reducing emissions in compliance with the obligations to limit the increase in the global average temperature to well below 2°C and preferably to 1.5°C above pre-industrial levels. Thus, the more permissible the Climate Change Act is today, the more it reduces the options for future generations. The reduction of options in turn affects the exercise of every type of freedom rights because virtually all aspects of human life involve the emission of greenhouse gases and are thus potentially threatened by far more drastic restrictions after 2030. Therefore, the legislator should have taken precautionary steps to mitigate these major burdens in order to safeguard the individual plaintiffs' fundamental freedom rights. To that end, the existing statutory provisions on adjusting the reduction pathway for CO2 emissions from 2031 onwards are insufficient to ensure that the necessary transition to climate neutrality is achieved in time.
What Consequences to Expect?
While it will take some time for the German federal legislator to amend its Climate Change Act, the consequences are already tangible: the provisions needing amendment affect virtually every industry of the German economy: the energy sector, heavy industry, buildings, transportation, agriculture, land use, and waste management, as well as other undefined sectors.11 From the perspective of the single industry players, business models may need a revision. At least, they may need to revisit their own ESG12 guidelines. Accordingly, a variety of long-term agreements may need to be adapted, renegotiated, or terminated. German law generally permits doing so: if the underlying circumstances of a contract have changed in an unpredicted and unforeseeable manner and the parties would not have concluded the contract as it is, they may seek contract adaptation.13 If contract adjustment is not possible, termination may be an option.14 A change in legislation may qualify as such change of underlying circumstances.15
In addition, some companies may also consider lodging complaints against the amended Climate Change Act once released. Potentially, those companies could claim violation of their rights for protection of property or at least seek compensation for expropriation.16 Also, foreign investors may look at the upcoming developments in German climate change legislation with interest. Depending on the outcome of the amendments to the German Federal Climate Change Act, foreign investors may wonder whether they are still treated fairly and equitably, especially if the post-2030 restrictions posed on them may turn out to be more severe than expected. This could lead to a scenario similar to the Vattenfall et al. v. Germany ICSID17 case18 or the ICSID cases brought by German energy companies against The Netherlands19 following the latter's new climate change legislation. Having said this, both domestic companies and foreign investors will need to bear in mind that any of their rights will have to be carefully weighed against the future freedom rights of individuals that are otherwise affected by insufficiently defined CO2 targets beyond 2030. At the same time, they will also need to evaluate whether actions against the revised Climate Change Act are in line with their own ESG guidelines.
Finally, while the German Federal Constitutional Court's decision is not binding outside Germany, it may nevertheless be taken note of by foreign decision-making bodies.
1 Fn. Considering the elections on 26 September 2021, the Court's order will affect the new parliament.
2 Sections 3(1), 4(1) in connection with Annex 2.
3 The energy sector, heavy industry, buildings, transportation, agriculture, land use, and waste management and others, cf. Section 4(1) in connection with Annex 1.
4 Section 4(6).
5 Article 2(2), 1st sentence, of the German Constitution.
6 Article 14(1) of the German Constitution.
7 The plaintiffs based their claims on Article 2(1) of the German Constitution in conjunction with Articles 20a GG and Art. 1(1), 1st sentence, of the German Constitution.
8 Art. 2(1) of the German Constitution.
9 Cases no. BvR 2656/18, 1 BvR 78/20, 1 BvR 96/20, and 1 BvR 288/20.
10 Two environmental associations were part of the group of plaintiffs, but were ultimately denied standing. By contrast, the foreign plaintiffs were granted standing, but could ultimately not succeed as their fundamental freedom rights are not directly affected by the German Federal Climate Change Act.
11 Cf. Annex 1 to the German Federal Climate Change Act.
12 Environmental Social Governance.
13 Section 313(1) of the German Civil Code.
14 Section 313(3) of the German Civil Code.
15 See examples in Finkenauer, in: Münchener Kommentar zur ZPO, 8th edition 2019, Section 313 paras. 232-237.
16 As did energy companies following the German ban on nuclear energy in 2011, cf. https://www.handelsblatt.com/unternehmen/energie/energiewirtschaft-entschaedigung-fuer-atomausstieg-konzerne-erhalten-2-4-milliarden-euro/26977850.html?ticket=ST-196356-NwaZQpPjaI7PgNz7jJwD-ap2 (last visited on 6 May 2021).
17 International Centre for the Settlement of Investment Disputes.
18 https://www.italaw.com/cases/1654 (last visited on 6 May 2021).
19 https://globalarbitrationreview.com/climate-change/netherlands-faces-first-icsid-claim-over-coal-plant-ban (last visited on 6 May 2021); https://globalarbitrationreview.com/uniper-poised-file-ect-claim-over-dutch-coal-ban (last visited on 6 May 2021).