Germany announced the launch of Carbon Contracts for Difference (CCfD), a 15-year subsidy program aimed at helping companies in energy intensive industries to invest in low carbon production processes and technologies.
According to Economy and Climate Action Minister Robert Habeck, the budget for the new scheme is anticipated to reach the “mid double-digit billion” euro range, in line with industry estimates of up to €50 billion.
In a presentation marking the opening of the program, Germany’s Ministry of Economy and Climate Protection (BMWK) said that industrial transformation will be required in order for the country to hit its 2045 climate neutrality goal, with industry responsible for more than 20% of Germany’s carbon emissions.
The new program aims to address the high costs and investment risks preventing companies from investing in decarbonized manufacturing. The program will provide “climate protection agreements,” designed to shield companies from the “price risk” of operating the low carbon facilities compared to competitors utilizing conventional fossil-based operations, while the company is responsible for capital investment and operational costs outside of the price gap.
The program is based on an auction system, in which companies submit a bid based on the amount of government support they calculate is needed to avoid a ton of CO2 emissions based on the price gap. If the bid is selected, the company will be paid a variable subsidy, based on the actual additional cost relative to the bid value, with the gap expected to close over time as clean energy technologies become more competitive and the carbon price under the EU Emissions Trading System (ETS) increases.
If the low-carbon production process ultimately becomes cheaper than the conventional method during the program’s timeframe, the company would be required to repay the difference.
The program was designed to include mid-sized enterprises, with eligible bidders including companies with emissions greater than 10 kilotons per year. Additional criteria include belonging to an emissions-intensive industry, such as steel, chemicals and cement, and investing in a system with at least 90% lower emissions than current systems.
In addition to helping companies fund decarbonization initiatives, the program also acts as a response by Germany growing international competition as major economies worldwide gear up to capitalize on the opportunities to participate in the global transition to cleaner energy systems and industries, with massive energy transition investment plans recently unveiled by the U.S., the EU and Canada.