German industry faces an unprecedented crisis, with growing global competition and pressure to go greener. How are companies like Volkswagen, RWE, and BASF navigating the transition, and will it pay off in the long run?
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00:00German industry is facing unprecedented challenges
00:04and the longest period of economic malaise in the modern republic's 75-year history.
00:09With even established giants like Volkswagen in dire straits,
00:13companies need to go greener, become more innovative.
00:16There are companies who have set extremely ambitious targets
00:20and are now realizing that this is harder than they thought.
00:24Might climate protection pose a threat to the German economy?
00:27And is it actually affordable?
00:33Some major corporations have reduced their emissions.
00:36Energy company RWE, Mercedes-Benz, industrial conglomerate Siemens
00:41and cement manufacturer Heidelberg Materials.
00:45Staying with RWE, the energy supplier wants to phase out coal-fired power generation over the next five years.
00:52In the course of its transition to renewables through 2030, the company will be investing 55 billion euros.
00:59Together with compensatory measures, the plan is to further cut emissions and by 2040 hit the target of net zero.
01:07We're coming out of a few years in which climate protection has been one of the key topics in global media.
01:16In almost every boardroom conversation we know this was one of the three top priorities.
01:23Industry consultant Jens Borchardt is very familiar with their corporations and their green strategies.
01:29Have those conversations borne any concrete results?
01:32Very many companies have set targets and because that has been the case,
01:37it has become something that companies competed on in their respective sectors
01:43and no one wanted to be substantially less ambitious than their major competitors were.
01:49If you pollute a lot, you also have to reduce a lot.
01:52RWE has made progress but remains the second biggest CO2 emitter in Germany.
01:58We'll get to the top polluter shortly, as well as further examples of positive news in the green transition.
02:05First, let's take a look at the German economy, which has been in recession for two years straight.
02:10And the signs for 2025 are not good.
02:13There are at least three main reasons for this unparalleled situation.
02:17First, China. German car sales there are down and Chinese electric vehicles are relatively cheap.
02:25So now the likes of BYD are currently conquering European markets.
02:30Second, wage levels. VW, for example, pays above average wages, making its products more expensive.
02:37The company has plans to close factories and slash 35,000 jobs.
02:41Third, high energy costs.
02:44In Germany, one megawatt hour of electricity costs carmakers 190 euros.
02:50Compare that with 132 euros in Spain, 89 in China and just 69 euros in the US.
02:59The price of energy might go up or down from one day to the next, but the general pattern of disparity is clear.
03:06Three industries produce particularly high amounts of CO2 and now have to invest in green technologies.
03:12Cement, chemicals and steel.
03:15Cement is a serious polluter, currently the biggest by carbon emissions in Germany.
03:20Its production generates a lot of CO2 while consuming enormous quantities of energy.
03:26Globally, cement makers emit more greenhouse gases than even the aviation industry.
03:33Heidelberg Materials is among the world's top five cement suppliers and has ambitious plans for the future.
03:40Becoming carbon neutral by 2050.
03:43In recent years, producers have been under growing pressure on this front from investment funds.
03:49The CEO of Heidelberg Materials has himself pointed to potential investors demanding a green commitment.
03:57Many want to see innovative, future-oriented technologies as opposed to fossil fuels.
04:09Sabine Nalinger heads a foundation bringing together almost 30 major companies to promote market-based and sustainable solutions.
04:26There is no money left in the financial market if you invest in fossil fuels.
04:30Companies have no chance of actually investing in hydrogen, green electricity and converting their production.
04:40Next up, the chemicals industry.
04:43BASF has invested in a demonstration plant for electric steam cracking.
04:48Steam cracking is essential for the production of light plastics and cosmetics.
04:53By using electricity from renewable energy sources, the new technology has the potential to cut CO2 emissions from steam cracking by 90%.
05:02The world's largest chemicals producer has made a big commitment to its green transition between now and 2028, totalling 2.4 billion euros.
05:12It's unusual for companies to publish such specific figures due to widespread reluctance to make solid commitments.
05:20I assume that you don't like to publish such figures so that the competitors can see how stringent the strategy is and how large the financial volumes are.
05:32Of course, this often has a background.
05:35And then I think it's hard to calculate what exactly you count as a green transformation.
05:42Plenty of companies want to move away from outdated production methods, including in the steel sector.
05:48ThyssenKrupp is another big CO2 emitter.
05:51Instead of environmentally harmful coal, Germany's biggest steel producer plans to fuel its plants with green hydrogen.
05:59But financial help is at hand for transitioning production with a range of subsidies and grants available in Germany.
06:06ThyssenKrupp has negotiated a total of at least 2 billion euros, while also profiting from a new tool, a climate protection agreement with the German government.
06:16Example, a steel beam costs 100 euros, rising by a further 25 due to production with green technology.
06:24The government covers the difference in order to keep its companies competitive.
06:30There is substantial interest in industry.
06:32The money pledged is performance-related, i.e. dependent on the required emissions reductions being made.
06:38But are companies taking those goals seriously enough?
06:44German companies are actually among the most sensitive, especially to environmental goals.
06:51They have, in general, moved relatively rapidly compared to other countries to try to understand what it means to succeed in a business, to create profit and returns for shareholders.
07:12Maurizio Zollo is a professor of strategy and sustainability in London.
07:18Companies have set themselves binding climate targets.
07:21Some of this is, of course, down to greenwashing, where PR supersedes genuine progress.
07:28But many companies are taking concrete action.
07:32There are many companies who have quite a significant reputation to maintain.
07:38It's quite a big step for companies to take back targets that they have set.
07:42Right now, they still try to achieve both economic success and bring down emissions.
07:49Some corporations have even increased their CO2 emissions, such as Adidas, drugmaker Merck, financial services firm Deutsche Börse, as well as DHL and electricity provider E.ON.
08:00Critical voices say not enough companies are committed for the Paris Climate Agreement goals to be reached.
08:06German airline Lufthansa plans to be climate neutral by 2050, which means phasing out kerosene.
08:14Synthetic aircraft fuel is a green alternative.
08:17SAF accounts for 0.3 percent of global jet fuel, while one billion liters of kerosene are burned in aircraft engines every day, 12,000 liters per second.
08:28A real solution has yet to be seen anywhere in the commercial aviation industry, including Lufthansa.
08:35Meanwhile, there's the lack of zero-emissions aircraft.
08:39In a setback, Airbus recently abandoned plans to launch the world's first hydrogen-powered commercial airliner.
08:48Then there is Mercedes.
08:50The CEO wants to continue making combustion engine cars well into the next decade, effectively postponing the target for making the brand all-electric.
08:59German carmakers have been accused of lacking credibility and publishing vague climate strategies.
09:05What is certain is that companies are under pressure from the state to innovate.
09:10The goals that were set up at the Paris Agreement in 2015 were all signed by governments.
09:20And they have committed to deliver their targets by 2030 and then eventually to 2050.
09:29Germany has pledged to go climate neutral by 2045.
09:32The European Union's target is not quite as ambitious, setting a date of 2050.
09:38Either way, the challenge ahead is deep and above all pricey.
09:42That German climate commitment primarily means German industry, with its small and medium-sized businesses as well as big corporations having to make the target a reality.
09:53From the total cake of investments, maybe a maximum of 20% comes from the state.
09:59The remaining 80% must come from the private sector.
10:03And the state now has to make smart moves to mobilize the 80% from the private sector.
10:10Do investments in climate protection pay off in the long term?
10:15Committing a higher proportion of GDP globally would generate a dividend of up to 5 euros for every year.
10:21Also due to the subsequent reduction in costly environmental damage.
10:26Another new finding, at companies where executives do not receive bonuses for going greener, the transition progresses more slowly and climate targets are less likely to be achieved.
10:38DHL, for example, has actually increased its CO2 emissions recently with no significant climate-related bonuses for board members.
10:46Whereas at RWE they make up 13% of executives' pay as the transition is making significant progress.
10:54So does climate protection pose a threat to the German economy?
10:59Companies have to pay for every ton of carbon they produce and those costs are rising.
11:05The climate crisis means they have to transition, even if that's a very difficult move for some.
11:11And where is the clean power going to come from and the urgently needed green hydrogen?
11:17Can industry overcome these daunting challenges?
11:20Tell us what you think in the comments.