Germany will allocate €5 billion for the decarbonization of heavy industry

Funding for CO2 capture and storage technologies has been proposed for the first time

Germany will allocate €5 billion ($5.8 billion) in financial aid to energy-intensive industries to help them adopt low-carbon technologies. Bloomberg reported this, citing a statement from the German Ministry of Economics.

Although the amount available for this year is less than the €6 billion previously allocated, it is crucial to helping Europe’s largest economy reduce emissions by two-thirds by 2030 (compared to 1990 levels). It will also allow German manufacturers to remain competitive compared to industrial sectors in China and the U.S. For the first time, the funding program will include carbon capture and storage (CCS) technologies.

The ministry’s announcement came after a period of uncertainty regarding whether Chancellor Friedrich Merz’s conservative government (which had promised to review environmental subsidies) would proceed with the next round of payments as planned. The initial €23 billion funding proposal was rejected after the previous government collapsed over a budget dispute, delaying the launch of the second round.

The new aid package targets companies in the steel, cement, paper, and chemical sectors. The support mechanism is based on so-called Carbon Contracts for Difference (CCfD). These agreements provide compensation to companies for the additional costs incurred during the transition to green technologies (such as using hydrogen instead of fossil fuels) compared to traditional production methods.

Germany launched the first auction under this program in 2024. At that time, 15 projects in the chemical, steel industry, cement, and glass industries received subsidies totaling €2.8 billion.

Climate contracts (renamed “CO2 price difference contracts”) are designed to help energy-intensive companies, which are required to purchase carbon allowances, transition to cleaner processes. The funding will cover the additional costs of low-carbon production over a 15-year period.

In this round, less stringent targets are set for companies: they must reduce emissions by 50% in four years (the previous round required a 60% reduction in three years). Additionally, under certain conditions, companies will have to repay less to the state, and it will be easier to terminate contracts in the event of “critical external factors.”

As reported by GMK Center, in late April, the European Commission approved a new temporary state aid mechanism in response to the escalating energy crisis caused by the conflict in the Middle East. The new approach expands opportunities for compensating electricity costs for companies most affected by rising prices. In particular, for the first time, it allows combining the electricity cost compensation mechanism with the industrial electricity tariff, which was previously restricted by national regulations.