Germany’s industry to get billions in subsidies to decarbonize

Germany has launched an unprecedented subsidy scheme to encourage energy-intensive industries to switch to cleaner, more climate-friendly production processes, making EUR 23 billion available in the first two rounds of bidding.

The auction scheme for climate protection contracts or carbon contracts for difference (CCfDs) is designed to help companies stay competitive even as they transition from fossil-fuel-based production to cleaner – and more expensive – processes.

In the pilot round, launched this week, companies emitting more than 10,000 tons of CO2 a year can compete for a total of EUR 4 billion in subsidies. The second round, of EUR 19 billion, will follow in the fall.

The government has received the green light for the scheme from the European Union, and is ready to disburse a “medium double-digit billion figure” over the coming years, according to reports.

The ministry hopes the scheme could help avoid 350 million tons of CO2 emissions

The entire mechanism, geared towards industries such as paper, steel, chemicals and cement, is expected to help avoid 350 million tons of CO2 emissions by 2045, according to projections by Germany’s Federal Ministry for Economic Affairs and Climate Action.

Bridging the cost gap between clean and conventional production

Successful bidders will sign 15-year contracts and will be required to start decarbonizing within three years. The two-way carbon contracts for difference will bridge the cost gap between conventional and cleaner solutions, but once clean production becomes cheaper than conventional processes, companies will have to pay the difference to the government.

More precisely, companies submit a proposed CO2 price that would allow them to stay in business while switching to cleaner production methods. As long as the EU’s CO2 price is below the submitted figure, the companies get funding from the government. Once the price exceeds the bid, companies have to pay back the money.

Beneficiaries can use the funds to implement solutions such as renewable power sources, hydrogen, or carbon capture and storage (CCS)  to make their products climate-friendly.

Greenpeace fears subsidies could support “dangerous” solutions

Vice Chancellor and Federal Minister for Economic Affairs and Climate Action Robert Habeck has said that with the new scheme Germany is “promoting modern, climate-friendly industrial plants of tomorrow.”

However, environmental NGO Greenpeace called for restricting the subsidies to companies that already avoid emitting CO2, noting that steel production with green hydrogen or chemicals production with renewable energy already are established procedures and that subsidies could help modernize those industries.

On the other hand, Greenpeace fears that companies might receive support for “dangerous and superficial solutions” such as carbon capture or blue hydrogen, arguing it would prevent Germany from abandoning outdated and climate-damaging technologies.