The Legal Mess

"Germany will still have no straightforward, transparent and unbureaucratic environmental law in one piece," Environment Minister Sigmar Gabriel said in a statement on Sunday. "The existing fragmentation will remain in place."

Each of Germany's 16 states has its own set of regulations on issues such as pollution, which makes the approval process for firms planning new projects like roads or factories highly bureaucratic and complex.

The environment minister, of the center-left Social Democrats (SPD), was critical of the internal political wranglings inherent to the process by which individual state approval is sought for proposals to pass.

Bavaria, led by the conservative Christian Social Union (CSU) sister party of Chancellor Merkel's Christian Democrats (CDU), ultimately didn't approve the draft law, criticizing it for adding another layer of bureaucracy for companies seeking environmental certification.

The project failed "due to a hollow lack of reform and blind blocking policies of the union," Gabriel said.

States are in charge

In the 1980s, a decision was made to try and simplify the country's environmental regulations. In 1997, then environment minister Angela Merkel -- now chancellor -- proposed a new, one-size-fits-all set of regulations to speed things up.

When Merkel's conservatives and the Social Democrats formed the ruling "grand coalition" in 2005, it was something both parties promised they would make happen.

The government was also hoping that less red tape would help speed up the billions of euros worth of infrastructure projects with which Berlin aims to pull Europe's biggest economy out of its worst post-war recession.

Party politics

With seven months to go before general elections -- when both parties aim to ditch the other and form a coalition with another party -- Gabriel said that the agreement was impossible in the current legislative period.

Gabriel, who is from the SPD, said that with a lack of readiness to compromise the CDU/CSU -- which in turn blamed Gabriel -- was "damaging the economy and the environment at the same time."

The German branch of Friends of the Earth, BUND, said there was now a danger of a "race to the bottom" among German states to relax environmental regulations in order to attract investment.