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Starting signal for carbon contracts for difference
Transforming the industrial sector is a mammoth task on the road to reaching climate neutrality. To make industrial plants and production processes climate-friendly, new technologies, value chains and infrastructure need to be deployed so that Germany’s large heavy industry segment can become climate neutral.
Germany is the first EU Member State to take a major step forward here though the launch of its carbon contracts for difference (CCfDs). CCfDs are designed to protect companies in transition against price risks and offset additional costs in order to create secure investment and operating conditions. They enable selected energy-intensive companies to start investing in climate-friendly production facilities that would otherwise not yet pay off – for example companies in the paper, glass, steel and chemical industries.
CCfDs to accelerate the transformation of industry
Carbon contracts for difference are modelled on private-sector hedging contracts (risk-hedging instruments). The companies that receive funding are guaranteed a fixed price for energy sources such as hydrogen as well as for carbon emission allowances.
The level of this state funding varies depending on the actual market price and the additional cost of equipping and operating the climate-friendly plant compared with the conventional one. Once the cost of climate-friendly production falls below that of conventional manufacturing, the payment flow is to be reversed and the state to receive money from the companies.
Carbon contracts for difference ensure that the technologies, infrastructure and markets needed to transform the industrial sector along the entire value chain and the relevant expertise are already being developed – including production facilities and a hydrogen infrastructure. This not only helps combat climate change, but also promotes innovation and competitiveness in German industry and provides sustainable jobs. The more climate-friendly infrastructure and expertise created, the greater number of companies that will be able to switch to climate-friendly technologies at low cost. These technologies can then be exported, helping industrial companies around the world to adopt climate-friendly production as well.
Up to 20 megatonnes of carbon could be saved each year
The new funding schemes will help beneficiary companies to avoid large quantities of greenhouse gas emissions. It is estimated that, overall, up to 350 million tonnes of carbon emissions could be saved up to 2045. This corresponds to up to 20 megatonnes of greenhouse gas reductions a year, i.e. around one-third of the industrial sector’s 2030 target. Further emissions savings will also be made at companies that benefit indirectly from the new technologies and infrastructure.
Companies can now apply for funding
By implementing carbon contracts for difference, Germany is setting new national and international standards in promoting the green transformation. Numerous EU and non-EU countries are planning to launch similar funding instruments in the near future.
The first bidding process for the four billion euro funding programme was launched on 12 March. Companies from energy-intensive industries that successfully participated in the preparatory procedure in summer 2023 can now apply for 15 years of funding in the next four months. Bids should be submitted via the Federation’s easy-Online funding website. Companies can send any questions to fragen@klimaschutzvertraege.info. Further bidding rounds are to follow.