Are EU Member States on the Path to Climate Neutrality? Introducing the Net-Zero Navigator

In late 2023, the Sustainable Social Market Economy project at the Bertelsmann Stiftung published the focus paper Growth or shrinkage in the socio-ecological transformation: a question of decoupling. It examines possible transition paths Germany could take to achieve the goal of climate neutrality by 2045.

The paper shows that if we want to guarantee an appropriate level of future prosperity in our sustainable social market economy while achieving this goal, the concept of decoupling plays a decisive role. In short, Germany must succeed in decoupling resource consumption and greenhouse gas emissions from the maintenance or growth of its own gross domestic product (GDP) at a significantly higher rate than it has managed so far.

But how does Germany’s decoupling path compare to other countries in the EU and beyond? What targets have the different countries set, which countries are decoupling the most – and least – effectively? What paths are still available to countries to achieve their climate targets? The new Net-Zero Navigator, a freely accessible online tool, allows anyone who is interested to easily compare the decoupling progress of individual countries and visualise individual decoupling paths into the future.

The question of decoupling

The focus paper that started this investigation, Growth or shrinkage in the socio-ecological transformation: a question of decoupling, summarised the debate between economic growth and de-growth within the framework of socio-ecological transformation. In other words, whether countries, specifically Germany, need to curb growth to meet emissions reduction targets, or if they can grow and meet green goals. Can economic output be separated from negative environmental impact, particularly resource consumption and greenhouse gas emissions?

The authors argue that technological and structural innovations are essential for achieving decoupling, allowing for economic growth without exceeding ecological limits. They emphasise that weak decoupling may lead to a shrinking economy, while strong decoupling can enable sustained growth with reduced emissions.

The paper underscores the importance of maintaining public acceptance for climate policies – such as France’s Yellow Vest protests against fuel taxes – by finding a convincing plan to not sacrifice economic wellbeing for environmental wellbeing.

In conclusion, the focus paper outlines two potential scenarios for achieving climate neutrality in Germany by 2045. One scenario – strong decoupling – involves significant technological advances leading to a reduction in emissions intensity. This would allow economic growth to continue.

The alternative scenario – slow, weak decoupling – would require a substantial GDP decrease to meet climate goals. The authors argue that technological innovation, combined with a shift in societal values toward sustainable consumption, offers the best chance for reconciling economic growth with environmental sustainability.

From this consideration of possible scenarios came the idea to monitor decoupling, leading to the Net-Zero Navigator.

What does the Net-Zero Navigator show us?

Country comparisons in the Net-Zero Navigator reveal that many countries have struggled with decoupling so far. If we look at current economic activity within the available data, we see that if all countries were to continue to produce and decouple as they did in 2022 (the current data horizon within the tool), only Luxembourg and Latvia would achieve climate neutrality by the EU-set goal of 2050. But the trend towards faster decoupling of prosperity and emissions is moving in the right direction for 19 of the 27 EU countries.

Looking at the long-term decoupling efforts of individual EU member states, Estonia is leading the way. Between 1991 and 2022, emissions intensity here fell by almost 84 percent, followed by Ireland with an 82 percent reduction and Lithuania with an 80 percent drop. Additionally, Estonia ranks first among the EU27 in absolute terms. So far, Cyprus and Portugal have decoupled the least in the EU. Here, emissions intensity has been reduced by around 35 percent. The average reduction across EU member states is 56 percent.

What this means for the future efforts required by individual countries to achieve climate targets is more difficult to compare directly. For example, some countries have set themselves very different target years for achieving climate neutrality. Finland has set itself the most ambitious target year of 2035, but India does not plan to reduce its own net emissions to zero until 2070.

At the same time, different countries allow themselves different residual emissions to achieve climate neutrality. Such residual emissions are permissible as long as the emissions can be stored elsewhere and net emissions do not exceed zero.

While scientists assume permissible residual emissions for Germany of approximately 65 million tons CO₂-equivalent, less densely populated countries with large areas of forest and moorland can afford significantly higher residual emissions. For example, Russia’s current greenhouse gas reduction plan assumes 1,200 million tons CO₂-equivalent permissible residual emissions, so the pressure to decouple is correspondingly lower.

Can Germany decouple and achieve climate neutrality by 2045?

This will depend on reducing the emissions intensity of its economic activity. The volume of emissions created in Germany in one year depends on two factors – the quantity of goods and services produced (GDP) and the emissions intensity of that production.

Emissions intensity indicates how many tons of greenhouse gas emissions are generated during the production of one unit of GDP, which equates to goods and services worth $1 billion. These correlations can be used to determine whether achieving certain climate protection targets will still allow GDP growth or whether a country’s economy would have to shrink to achieve this.

Looking at Germany in our tool, one thing quickly becomes clear – Germany’s challenges are significant. Let’s take the example of the German government’s declared goal of achieving climate neutrality by 2045. If we want to achieve this goal while maintaining our usual economic growth – on average around 1.25 percent annually since 1991 – the calculator shows us that emissions intensity would have to fall by an average of 11.5 percent each year in the coming years.

This is a huge difference compared to the annual reduction of just under 2.6 percent achieved in previous years. Conversely, if we want to maintain the previous decoupling speed with an annual decoupling rate of -2.61 percent, the tool calculates that an annual GDP shrinkage of 7.6 percent would be necessary to achieve the government’s climate target. In other words, to reduce emissions in the status quo fast enough to reach our these goals, economic shrinkage would be required.

What does this mean for Germany’s economy, society and politics?

A contraction in economic output would be counterproductive. This would have a negative impact on every individual’s non-material standard of living, especially in the areas of health and education, and on the opportunities to achieve a fair distribution of prosperity.

Ultimately, this could reduce acceptance of climate protection – and the willingness to achieve it – as we have already seen in Germany and other countries. This means a rapid and significant increase in the degree of decoupling is becoming unavoidable. Either Germany must find a different path for fast decoupling – or achieving climate neutrality goals will rely heavily on a shrinking economy.

A positive path forward for decoupling relies on implementing new technologies. In terms of technological innovation, measures to increase resource and energy efficiency are ideal for this. As a result, a certain quantity of goods and services can be produced using fewer natural raw materials. In turn, this can reduce greenhouse gas emissions. In this context, for example, the intensification of digitalisation should be considered.

But technological advances alone will hardly be enough to tackle the mammoth task of decoupling. Structural innovations, such as the establishment of a circular economy with strong investment and greater sharing instead of ownership of goods, are necessary. Ultimately, all this requires a broader understanding of prosperity that encompasses ecological and social dimensions, as well as economic ones.

For this transformation to succeed – and for Germany to prove itself  as a credible climate protection pioneer and an economic beneficiary of going green – economic policy change is required. The central instrument should be the strict limitation of emissions via an emissions trading system that sets an upper limit for emissions. In this way, the investment and consumption decisions of all economic players can be efficiently influenced in favour of climate-friendly activities.

Notably, this task needs to be implemented, watched and enforced at the EU level, instead of individual states. A strict advancement and implementation of the carbon-pricing models at the heart of the European Green Deal and the EU-ETS is paramount.

However, the correspondingly high CO₂ price resulting from such a system will have to be flanked by suitable social and industrial policy change, as well as foreign trade in the form of a carbon border adjustment tax to prevent domestic industry from moving away, ensuring a fair distribution of the burden during the transformation.

Take a look for yourself

With the Net-Zero Navigator, we want to draw attention to the massive challenges that a successful decoupling of economic performance from greenhouse gas emissions is posing for Germany and other countries. To get an idea of these challenges for yourself, we invite you to try out the Navigator for yourself and experiment with the possible variables and decoupling paths.

You can find the Net-Zero Navigator here.

About the author

Fritz Putzhammer has been working as project manager for the Bertelsmann Stiftung’s Sustainable Economy Project since 2022. As an economist, he deals with questions of how an economic policy framework for a successful sustainability transformation can be shaped in Germany, and how the transformation of companies towards more sustainable business models can be driven forward.

Read more about the green transition

Energising EU Cohesion: The Renewable Energy Transition Powers Up Lagging Regions 

Digital and Green Transition Threatens to Widen the Gap between EU Regions

How STEP Investment in Strategic Technologies Could Help EU Regions Catch Up