Keywords: EU subsidies decarbonization action renewable energy
In accordance with EU state aid regulations, the European Commission approved a German subsidy plan totaling 4 billion euros. Partly derived from the Recovery and Recovery Fund (RRF), the program aims to assist companies subject to the EU Emissions Trading System (ETS) to decarbonize their industrial production processes to promote the realization of Germany and the EU's Green Deal strategic goals. Germany has set a goal of reaching climate neutrality by 2045. However, carbon dioxide emission reductions in basic materials industries such as steel, cement, paper, glass and chemicals face challenges. It is difficult to achieve significant emission reductions solely by replacing fossil fuels with renewable energy. . To do this, new and often costly production processes are required, which in many cases are not yet competitive.
The core goal of the plan is to help German industry reduce greenhouse gas emissions in the production process. Projects supported by the program include the construction of furnaces to produce glass using electricity and the replacement of traditional steel production processes with direct reduction hydrogen-powered plants. The beneficiaries are enterprises in the chemical, metal, glass or paper industries operating under the EU ETS. To ensure subsidy eligibility, projects need to achieve 60% emission reductions over the best conventional technology based on the ETS benchmark within three years, and 90% emission reductions within 15 years.
Projects scheduled to benefit will be selected through an open competitive bidding process and ranked based on two criteria: (i) the minimum amount of assistance required per ton of carbon dioxide (CO2) emissions avoided (the main criterion), and (ii) project achievement Significant rate of CO2 emission reduction.
The subsidies will be issued in the form of two-way carbon contracts for difference (CCfD), so-called "climate protection contracts" with a term of 15 years. Compared to conventional technologies, beneficiaries receive a payment or pay the state annually based on changes in bids and relevant market prices (such as carbon or energy inputs). This measure only covers the actual additional costs associated with the new production process. If the project cost of operational support is reduced, the beneficiary is required to repay the difference to the German authorities. Therefore, the total amount of subsidies actually paid is likely to be well below the maximum budgeted €4 billion.
German Economy Minister Robert Habeck praised the EU's decision as an "innovative decision in an energy-intensive industry" and said that the Difference Contract "ensures that Germany's economic development through innovative, environmentally friendly technologies and sustainable Job opportunities create sustainable value". It is expected that by the expiration of the plan in 2045, Germany will reduce carbon dioxide emissions by a total of approximately 350 million tons.