Germany awards first climate subsidies aimed at cutting industrial emissions

Germany has introduced a pioneering system of “climate contracts” to help its industry achieve climate neutrality. In the first round, 15 companies in the chemical, steel and cement industries received support.

The Climate Contracts for Difference system (Climate Contracts for Difference, CCfD) is designed to cover the additional costs companies incur when switching to more sustainable production methods. Germany aims to be a pioneer in this area and awarded the first subsidies in October, as reported by Clean Energy Wire.

Economy Minister Robert Habeck said the programme is the first in the EU (although other EU countries are already using this instrument) and gives businesses the certainty they need to plan long-term green investments. The contracts will provide support to businesses for 15 years and promote both decarbonisation and technological innovation. Habeck stressed that the programme also aims to prevent companies from moving abroad because of high production costs.

Germany’s Ministry of Economic Affairs launched the programme last year. Its main goal is to prepare industries for the target of climate neutrality by 2045. The support is paid as compensation: the state compensates companies for the price difference between production based on fossil fuels and production using more sustainable, climate-neutral processes. German agrochemical company BASF, one of the companies awarded support, backs the programme and has called it a key tool for advancing climate goals.

Flexibility in technology choices and financial relief for industry

An advantage of CCfD contracts is that they give companies flexibility in choosing the technologies and methods they use to achieve climate goals. As production costs rise for companies covered by the EU Emissions Trading System (EU ETS), CCfD contracts also help mitigate the associated financial risks.

Germany’s ministry expects the first round of support to help companies save up to 17 million tonnes of CO2 over 15 years. The scheme also responds to the US scheme supporting sustainable technologies, and aims to support only German technologies. Habeck also noted that the programme could help counter industrial stagnation in the country and provide new incentives for domestic investment.

The ministry says the second round of support is due to begin soon. Around 130 companies have reportedly already expressed interest.