Germany: Best Governed Country In Environment

Germany ranks 13th, but it was quick to turn its economy green.

It is hard to imagine that not so long ago, Germany was one of Europe's worst environmental laggards. In the 1970s, the river Rhine was a stinking cesspool, poisoned by heavy industry. German negotiators said nein to all efforts by the United States and the Scandinavian countries to cut sulfur-dioxide emissions or ban ozone-depleting hydrochlorofluorocarbons. Industry lobbyists and labor unions argued that regulation would kill jobs—and called for yet more research to prove the effects of pollution. (Sound familiar?) It took a series of big environmental disasters in the 1980s—acid rain, Chernobyl, toxic spills in the Rhine—plus a burgeoning environmental movement and the world's first major Green party to put the heat on Germany's leaders. Amid a rapid change in the national mood, the country cleaned up its act.

Today, Germany may be the world's greenest country—and not just because salmon once again return to spawn in the Rhine. A few nations score better overall on Yale and Columbia's Environmental Performance Index (EPI), and Germany still lags in protecting habitat and in curbing gas-guzzling cars. But "among countries making themselves green by design, Germany is No. 1," says Yale's Daniel Esty.

Germany's massive turnaround goes far beyond its environmental cleanup, its decoupling of energy use from economic growth, and a surge in renewable power. More important, because of the weight of its economy and international clout, Germany has been setting standards in policy and technology that are making the world greener beyond its borders. As climate change and energy continue to drive the global economy, no country now seems better poised to profit.

The Germans' success at pushing a green agenda—first at home, then in the European Union, and now worldwide—stems from the decision to work in tandem with industry from the start, not against it. The country's first Environment minister—Klaus Töpfer, a conservative, no less—formulated a blueprint in the 1980s that still holds today. Cleaner technology, Töpfer saw, was a way to modernize Germany's metal-bending economy. "The idea was to create markets and businesses that profit from higher environmental standards," says Andreas Kraemer, director of the Ecologic Institute, a think tank in Berlin. "Another key was to plan long-term and give industry time to adapt." In time, steadily tightening standards on pollution, waste and recycling would add up to a radical overhaul of industry and the economy. The effect was massive pressure on German companies to use less energy and fewer resources. They became more competitive as a result.

The Germans also offer an object lesson in how to mainstream green policy. Töpfer's current successor, Sigmar Gabriel, says that green policy is merely good industrial policy—aimed at putting German companies at the heart of what he says is a "third industrial revolution," driven by green tech and clean energy. Much of Germany's government is behind the program: the Research Ministry funds R&D, while the Economics Ministry markets German green-tech exporters abroad. The Finance Ministry, through the state-owned Reconstruction Credit Agency, finances German renewable-energy projects around the world, while the Development Ministry introduces German green tech to China, India and Africa. "It's green policy, but it's also driven by German economic interests," says Sascha Müller-Kraenner, director of the Nature Conservancy in Berlin.

From the start, the Germans pushed their European Union partners to adopt similar standards—not least to level the playing field for German firms. For example, when in 1983 the government of the then Chancellor Helmut Kohl forced power companies to phase out sulfur emissions from their coal-fired plants; the Germans pressed Brussels to pass a similar EU-wide directive only one year later. Unlike the still-greener Scandinavians, Germany is big enough to set the agenda for its neighbors, says Miranda Schreurs, an environmental-policy expert at Berlin's Free University. Take the feed-in tariff, a scheme that forces power companies to buy up renewable energy at marked-up rates from anyone who wants to generate it. The Danes invented it, but Germany adopted it and almost overnight created the world's biggest market for wind and solar power. Dozens of other countries from Brazil to Indonesia have since passed similar measures. Thanks to these feed-in tariffs modeled around the world on the German example, the global market has expanded and prices are coming down.

The ripple effects of Germany's leadership role are felt far and wide—and dispute the conventional wisdom that higher environmental standards just send dirty production offshore. In 2007 China adopted the EU's directives that prohibit hazardous substances and mandate recycling of household appliances and consumer electronics. For China, says Schreurs, the idea was not only to clean up its own companies, notorious for ignoring product safety, but also to ensure that Chinese products could be exported to the European Union's 490 million consumers (compared with America's 300 million). Since it's usually more efficient to manufacture to a single standard, Asian companies often choose the stricter German or EU regulations.

Not incidentally, Germany's pioneering role has given its firms a head start in developing the technology to meet the environmental standards that are often copied later by others. When the EU adopted Germany's sulfur-dioxide standards in the 1980s, companies like Siemens already had the cleanup technology ready to install on the continent's coal-fired power plants. Today, German companies are leaders in photovoltaics, wind turbines, waste management and recycling. According to a 2007 study by the Roland Berger consulting group, German companies specializing in ecofriendly tech already have a turnover of €150 billion a year, with growth averaging 8 percent a year. Green tech, the study says, will pass cars to become the country's biggest industry by 2020 and account for 16 percent of German GDP by 2030. Study author Torsten Henzelmann sees Germany on the verge of a "green economic miracle."

Just recently, Germany has stepped up its efforts to take its environmental leadership beyond Europe. At the Bali climate conference last December, Chancellor Angela Merkel promised a unilateral reduction of German carbon emissions by 36 percent below 1990 levels by 2020. Merkle also pushed the EU as a whole to cut by 20 percent, to be raised to 30 percent if an international agreement was reached. In May, Germany pledged €500 million a year to help developing countries protect forests and habitats. When the EU this year began allowing member states to auction off emissions certificates (instead of giving them away free), Germany was the only country to specify that the windfall would not go into the general budget but to pay for specific green-tech projects. Of that, one third—€120 million this year, but rising sharply as the auctions gear up—will go to renewable-energy projects in developing countries.

There are some serious blotches on the Germans' record. It scores badly on the EPI on biodiversity, and its highly subsidized farmers and fishermen have done more than their share of harm. Germans are great, it seems, in telling the Brazilians to protect their indigenous species, but last year, when a wild bear returned to the German Alps after an absence of nearly a century, a nationwide hysteria broke out, and rangers shot the "intruder." A similar hypocrisy has so far let Germany cling to an old agreement to phase out nuclear power by 2030, despite the reappraisal of nukes as a carbon-free energy source.

Critics also say German policies don't always promote effectiveness and efficiency, especially if costs can be handed down to taxpayers and consumers. Some policies are outright nutty. Households are required to sort their trash into six different containers—even though modern recycling plants sort garbage with greater efficiency and precision, and running parallel collection systems is a tremendous waste of energy and resources.

Despite occasional overzealousness, however, Germany's great contribution is to show that environmental progress and economic development need not be mutually exclusive. A bit of it, of course, is luck—the country wouldn't be at this sweet spot today if energy and commodity prices had stayed low. But for deciding early on that green is an opportunity, not a threat, Germany ranks first.