State subsidies for industry: Brussels greenlights €4bn German initiative

The European Commission has approved Germany’s €4 billion scheme to green industrial production by deliberately inflating carbon prices, although the sum is a far cry from Berlin’s initial vision.

For every tonne of CO2 emitted, European companies have to purchase ‘CO2 certificates’, under a scheme known as the Emissions Trading Scheme (ETS) – with the extra cost set aside to drive investment in green production. However, because of low CO2 market prices today and long lead times in industry, few of the necessary investments are taking place. 

In 2023, Germany announced a scheme to address the issue. Using binding contracts, the government wanted to incentivise investments by offering companies to pay inflated carbon prices, a scheme known as “Carbon Contracts for Difference” (CCfDs). Since that amounts to distorting subsidies, Brussels had to give its OK. 

“This €4 billion aid scheme will support ambitious projects that will significantly reduce the greenhouse gas emissions of industrial production processes in Germany,” explained Competition Commissioner Margrethe Vestager on Friday afternoon (16 February).

Germany’s economy minister, Robert Habeck, called it a “pioneering decision for energy-intensive industry”.

The scheme will officially open its call for bids in the Spring of 2024. When it is officially launched, companies must present a fictional carbon price and a timeline for emission savings they can reasonably achieve.

Contracts run for 15 years and could return money to taxpayers when carbon prices exceed initial bids.

Companies that can decarbonise their entire production at carbon prices of €160 per tonne – prices currently sit below €60 – within three years would beat out companies requiring a price of €200 per tonne to achieve climate-neutrality in the same time frame. 

Competition is expected to be fierce, although Germany’s big steelmakers are likely exempted from the programme due to receiving tailor-made separate subsidies ranging in the billions.

This matters because the scheme is much slimmed down from the initial plan. In 2023, when announcing the scheme, Habeck spoke of a “mid-double-digit billion amount” that had been reserved to pay out the CCfDs. Instead, companies must fight for a share of €4 billion. 

However, it is understood that the €4 billion represents a first tranche of that sum, with another to follow in 2024. Multiple rounds are expected to bring the scheme closer to its initial heft.

The ministry of economy “will announce the budget funds that will be made available for the respective bidding rounds during the bidding process,” a spokesperson told Euractiv.

[Edited by Nathalie Weatherald]

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