The so-called climate package, which includes plans to reduce rail prices and increase taxes on air travel, will take effect on January 1st after months of wrangling.
Previously blocked by a dispute over costing, the bill was passed by the upper house after MPs reached a compromise on a higher carbon price earlier this week.
“We have achieved a national consensus on climate that will give us fresh momentum to reach our climate goals,” said Economy Minister and close Merkel ally Peter Altmaier.
The package is intended to help Europe's largest economy reduce greenhouse gas emissions by 55 percent by 2030 compared to 1990 levels.
That promises to be a huge challenge in a country that despite its green reputation abroad remains heavily dependent on polluting coal power and has a fondness for gas-guzzling cars.
The climate package has already attracted criticism from environmentalists and business lobbies, but the government was keen to show it was taking global warming seriously after months of massive “Friday for Future” protests.
The bill's approval also comes hot on the heels of European Commission chief Ursula Von Der Leyen's ambitious “Green Deal” unveiled earlier this month, aimed at making the bloc carbon neutral by 2050.
Holger Lösch, deputy director of the Federation of German Industry (BDI) said Germany faced higher gas and electricity prices as a result of the climate package that would undermine the country's businesses.
By Kit Holden