The Climate and Transformation Fund (KTF) is the federal government's largest investment instrument. It is also the most consistently criticised. In its report to the Bundestag's budget committee on the 2026 economic plan, the Federal Audit Office repeated a finding it has presented every year since the fund was set up in 2011: since the special fund came into existence, an average of one third of the money budgeted has gone unspent[1]. That is not merely a budgetary footnote. It is a structural statement about how the Federal Republic finances its large industrial policy projects — and about the gap between the funding politically agreed and the spending actually achieved.
What the KTF is
The KTF is a federal special fund without legal personality, established by the Act creating the "Energy and Climate Fund" special fund (EKFG), which came into force on 1 January 2011[4]. With effect from 22 July 2022 the fund was renamed the "Climate and Transformation Fund"; EKFG became KTFG[4]. Its statutory purpose is drawn broadly: financing measures that serve the national climate targets, the transformation of the economy towards climate neutrality, and security of supply.
Since the EEG subsidy was moved into the federal budget in 2025, the KTF has been financed essentially from three sources: revenue from the EU Emissions Trading System (EU ETS), from national emissions trading (nEHS/BEHG), and from federal contributions[7]. Revenue tied to the carbon price fluctuates considerably: the ETS certificate price moved around €83/t in 2023, fell back to €50–70/t in the first half of 2024 and thus sits well below the assumptions in the fund's economic plans.
The spending side is dominated by the two largest funding items: the federal funding for efficient buildings (BEG), budgeted at around €12.0bn in the 2026 economic plan, and — in the government draft of September 2025 — funding for the build-out of refuelling and charging infrastructure for electric vehicles at €1.7bn plus €2.4bn in commitment appropriations for later years[9]. Added to these are programmes for decarbonising industry, carbon contracts for difference under section 5 KTFG, hydrogen flagship projects, microelectronics Important Projects of Common European Interest (IPCEI) and — at varying levels — compensation for energy-intensive companies (the electricity price compensation).
The 2026 economic plan provides for total spending of €34.8bn, after a government draft of €33.1bn that the budget committee raised by €1.73bn[8]. The difference is financed, on the committee's reasoning, out of expected underspend in 2025. So the structural design of the budget already shows what the Federal Audit Office has been pointing out for years: money not spent in one year is planned into later years as an arithmetical reserve — without anyone examining why it did not flow in the year in question.
The Audit Office's findings in detail
The Federal Audit Office's report on the 2026 economic plan names three findings that carry the audit[1]. First: spending systematically falls short of the plan. As at the end of September 2025, only €11.8bn of the programme spending budgeted in the 2025 economic plan had actually been spent, a rate of 32.2 per cent[1]. The Finance Ministry's provisional annual result for 2025 shows investment spending by the KTF of €17.4bn — €8.3bn less than planned[7].
Second: the spending rates differ sharply between individual programmes. For the 2023 financial year the Federal Audit Office had already documented that the federal funding for efficient buildings used around 65 per cent of its budgeted funds, while funding for decarbonising industry reached 2 per cent: €36m out of a €2.2bn allocation[2]. Spending remained comparably low on natural climate protection (around 2 per cent) and on building electric charging infrastructure (around 10 per cent)[2]. In aggregate, more than half the money stayed in the fund in 2022, and around 40 per cent in 2023[2][10].
Third: the Federal Audit Office criticises the management of spending and the information available to parliament. The Finance Ministry's annual monitoring, in the form of the KTF report, does give the budget committee figures on spending, but no robust evaluation of the effect of the individual programmes[2]. The Audit Office states in so many words that the Bundestag receives too little information on the effectiveness and economy of the measures funded to be able to adopt the economic plan properly[1][3]. This is not a procedural quibble. It is a statement about democratic oversight of an instrument that moves a good tenth of federal investment.
Fourteen years of structural problems
The Federal Audit Office's criticism is not new. It is as old as the fund itself. Since the then Energy and Climate Fund was established in January 2011, the Audit Office has repeatedly called for the special fund's spending to be integrated into the federal core budget[3]. The reasoning has been consistent over the years: the special fund circumvents the principles of budgetary accuracy, clarity and completeness, and it removes the spending bundled within it from the annual parliamentary appropriation in a departmental budget.
In its 2023 cross-cutting report on special funds, the Federal Audit Office stated explicitly that neither better performance of tasks nor higher efficiency could be demonstrated as a result of moving spending off-budget[3]. The argument that special funds are necessary because of multi-year investment horizons does not hold: section 15(2) of the Federal Budget Code permits carrying forward unspent investment appropriations within the core budget too. In budgetary law, "multi-annuality" is not a sufficient reason for a special fund of its own.
On the Audit Office's analysis, the causes of the low spending lie at several levels[2][11]. At programme level, directive changes decided at short notice, shifting political priorities and state aid approval procedures at the European Commission delay the start of funding. Carbon contracts for difference, large hydrogen projects and IPCEI projects typically need two to three years from launching the programme to the first payments, because state aid notification, the tender architecture and contractual implementation all have to be brought into line.
At administrative level, the limited capacity of project management agencies and approval bodies compounds the problem. In its 2024 audit of the federal funding for efficient buildings, the Federal Audit Office already documented backlogs of approvals, inconsistent evidence requirements between the BAFA- and KfW-run parts of the programme, and inadequately digitised application processing[11]. On the applicants' side — and this is the finding that matters most for funding practice — draw-downs often fail not for lack of interest but because of the documentation and evidence obligations meant to prove that funds were used properly as against the federal budget.
A fourth structural problem is the revenue side. The KTF is fed to a considerable extent from carbon price revenue that fluctuates by 30 to 40 per cent from year to year. The Federal Audit Office points out that the fund's economic plans for 2024 and 2025 assumed certificate prices that the market did not validate[2]. That produces uncertainty on two fronts: revenue risk on the financing side, spending risk on the outlay side — both in an instrument meant to underwrite long-term industrial policy decisions.
The Constitutional Court's ruling of 15 November 2023
The second major intervention in the KTF's architecture came not from the auditors but from Karlsruhe. In its ruling of 15 November 2023 (2 BvF 1/22), the Second Senate of the Federal Constitutional Court declared the Second Supplementary Budget Act 2021 void[5][6]. With that act, the federal legislature had retroactively reallocated a pandemic-related borrowing authorisation of €60bn, granted in 2021, to the then Energy and Climate Fund. The court declared the reallocation unconstitutional on three independently sufficient grounds.
"The Second Supplementary Budget Act 2021 is incompatible with Article 109(3) and Article 115(2) of the Basic Law and void."— Federal Constitutional Court, ruling of 15 November 2023 — 2 BvF 1/22, operative part[5]
The first ground: the causal connection required for emergency borrowing under Article 115(2) sentence 6 of the Basic Law, between the exceptional emergency and the measures financed by the borrowing, had not been sufficiently demonstrated. The funds were to finance long-term transformation tasks, not the immediate consequences of the pandemic[6]. The second ground: the budgetary principle of annuality (Article 110(2) of the Basic Law) rules out "parking" one financial year's borrowing authorisations in a special fund and spending them across later years[5]. The third ground: the principle of priority (Article 110(2) of the Basic Law) was breached, because the act was brought into force only after the end of the 2021 financial year concerned[5].
The immediate consequence: the KTF lost a borrowing authorisation of €60bn, roughly two thirds of the fund's volume at the time[6]. The indirect consequences reach further. The ruling makes precise the conditions under which federal special funds may take on borrowing authorisations beyond the core budget. On that basis, future reallocations of unused authorisations are permissible only within narrow limits; the budget legislature has to appropriate and use emergency borrowing on an annual basis, not perpetuate it in special funds.
For the KTF this meant, concretely: programmes already budgeted on the basis of the cancelled €60bn — among them the federal funding for efficient buildings, the decarbonisation of industry and the hydrogen ramp-up — had to be re-financed in the 2023 supplementary budget and the 2024 draft budget. The fund's budgetary room for manoeuvre has been tighter ever since; its revenue base is bound more closely to emissions trading and to general federal contributions.
What this means for applicants
For companies, universities and municipal bodies applying for, or planning to apply for, KTF funds, the report and the ruling have three operational consequences. They bear less on the formal application procedure than on the reliability of the funding, the speed of approval and how far cash flow can be planned across several financial years.
First — funding levels and directive stability: the KTF economic plan is not a guaranteed payout envelope. It is a budget allocation whose realisation depends on the carbon price level, the state of the economy and political priorities. The revision of the 2024 economic plan after the Karlsruhe ruling showed that programmes can be suspended, cut or restructured within a few weeks[6]. For applicants the consequence is: funding is binding only with a final grant notice. Before that date, projects should not be sized so that they are not economically viable without the grant.
Second — speed of approval and the documentation burden: the low spending rates for industrial decarbonisation (2 per cent in 2023), for charging infrastructure (around 10 per cent) and for natural climate protection (2 per cent) also arise from evidence obligations that applicants frequently underestimate[2]. Grant law under sections 23 and 44 of the Federal Budget Code demands a complete proof of use: technical attribution of expenditure to the funded project, time recording for staff costs, tender documentation for contracts awarded, separate accounting by the type and scale of the funded measure. The Federal Audit Office's 2024 audit of the BEG names documentation gaps as the most common reason for reductions at the proof-of-use stage[11]. For a project's liquidity planning that means: the critical date is not the approval, but the acceptance of the proof of use — which regularly falls twelve to twenty-four months later.
Third — risks from recovery and state aid review: several of the KTF's large programmes, among them the carbon contracts for difference, the hydrogen ramp-up and IPCEI projects, require state aid notification or exemption by the European Commission. The Federal Audit Office has pointed out that individual programmes in 2023 and 2024 could only start after approval procedures lasting several months[2]. Recovery under Article 108 TFEU comes into play where aid was granted without notification; the risk lies in principle with the member state, but can be passed on to the recipient through ancillary provisions in the grant notice. Before a project starts, check whether the specific funding rests on an exempted legal basis — GBER, de minimis, the Climate, Environmental protection and Energy Aid Guidelines (CEEAG) — or on a case-by-case notification.
The conclusion for operational funding planning is sober: the KTF remains the largest available financing reservoir for climate investment in Germany. It is not a reliable instrument in the sense of a budget secured over several years — that is in fact the wording the Federal Audit Office chooses in its report to the budget committee, when it speaks of "considerable risks for the KTF as a reliable financing instrument"[1].
Outlook and open questions
The structural questions the Federal Audit Office has been raising for fourteen years are not answered in 2026. First — integration into the core budget: the demand to move KTF spending into the budget of whichever ministry leads on it was not taken up in the coalition negotiations of the 20th parliamentary term and does not appear in the government draft for 2026 either[3][8]. The political justification — multi-year planning certainty for transformation projects — was expressly not accepted as sound in budgetary constitutional law by the Constitutional Court in 2023. Whether the KTF endures in its present form remains on the agenda.
Second — evaluating the effect: the annual KTF monitoring supplies spending data, not a systematic analysis of the effect of individual measures[10]. Since its 2023 report, the Audit Office has been calling for evaluations under section 7 of the Federal Budget Code to be applied consistently to KTF programmes; a comparable set of indicators for the effectiveness of individual funding lines is so far not publicly available[3]. Parliament and applicants therefore lack any basis for judging which programmes actually have a climate effect — and which spend the money formally without delivering the intended contribution to the transformation.
Third — carbon price risks: the dependence of KTF revenue on the EU ETS and national emissions trading is not reduced by the priced-in increase in the national certificate price from 2027. Quite the opposite: moving road transport and buildings into EU ETS 2 from 2027 shifts part of what has so far been national revenue into European mechanisms whose distribution between the federal government, the states and the EU Social Climate Fund is not yet finally settled. The Federal Audit Office has published no conclusive assessment of this so far.
Fourth — consolidating the programme architecture: the 2026 economic plan contains between twenty-five and thirty individually costed items; on the Federal Audit Office's assessment, the sheer number of programmes overtaxes both the approval bodies and the addressees[1]. Whether the legislature will bundle them in the negotiations on the 2027 economic plan — and on what criteria — is open.
For operational funding management, then, the KTF in 2026 becomes a stress test. It moves €34.8bn and, alongside that, multi-year commitment appropriations of around €89bn for later years[8]. At that scale, a considerable share of public transformation financing is decided. Whether a third of it stays in the fund again, or whether the money agreed in 2026 actually reaches the real economy in industry and buildings, will be shown by the Federal Audit Office's next report. upsmart accompanies the full chain of the procedure — from diagnosing the programme through application, approval and proof of use to drawing down the funds. Every change of status, every deadline, every query from the approval body stays traceable in one place. That is the work a fund of this size demands of its recipients, without taking it off their hands.
- [1]Report under section 88(2) of the Federal Budget Code to the budget committee of the German Bundestag — deliberations on the draft 2026 economic plan for the Climate and Transformation Fund (KTF)Federal Audit Office · 2025Open source
- [2]Report under section 88(2) of the Federal Budget Code to the budget committee — deliberations on the draft 2025 economic plan for the Climate and Transformation Fund (KTF)Federal Audit Office · 2024Open source
- [3]Report under section 88(2) of the Federal Budget Code to the Federal Ministry of Finance — special funds and their significance for the federal budgetFederal Audit Office · 2023Open source
- [4]Act establishing the "Climate and Transformation Fund" special fund (KTFG, formerly EKFG, in force since 1 January 2011)Federal Ministry of Justice, gesetze-im-internet.de · 2023Open source
- [5]Ruling of the Second Senate of 15 November 2023 — 2 BvF 1/22: the Second Supplementary Budget Act 2021 is voidFederal Constitutional Court · 2023Open source
- [6]Press release no. 101/2023 on ruling 2 BvF 1/22: the Second Supplementary Budget Act 2021 is voidFederal Constitutional Court · 2023Open source
- [7]Provisional closing of the federal budget, KTF and SVIK for 2025 (Finance Ministry monthly report January 2026, chapter 2.1)Federal Ministry of Finance · 2026Open source
- [8]Budget 2026: Climate and Transformation Fund — budget committee decision on the KTF economic plan 2026 (hib 1127334)German Bundestag, heute im Bundestag · 2025Open source
- [9]The KTF economic plan 2026 in the government draft — first deliberations on departmental budget 60 (hib 1111618)German Bundestag, heute im Bundestag · 2025Open source
- [10]13th KTF report by the federal government to the German Bundestag (reporting year 2023)Federal Ministry of Finance · 2024Open source
- [11]Audit of the federal funding for efficient buildings (BEG) — report to the budget committeeFederal Audit Office · 2024Open source
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