EU approves German green industry state aid, implementation up to next gov't

[UPDATES article to include support for scheme in coalition talks.]

The European Commission has approved a support scheme worth five billion euros to help decarbonise industrial processes in Germany. The funding is intended for the second auction round of the country's landmark Carbon Contracts for Difference programme, which would compensate energy-intensive companies for the extra costs of transitioning to climate-friendly methods of production. Germany awarded 15 companies with support guarantees in the first round, but the second round of auctions envisioned for the scheme has hung in the balance ever since Germany's coalition government under Olaf Scholz collapsed.

"A new federal government will decide on the launch of a second call for funding," said the economy ministry (BMWK) in a press release. The ministry had amended the funding guidelines based on experience from the first round of auctions in 2024, including making the scheme more accessible to medium-sized companies.

Documents from the negotiations by the prospective next government coalition of conservative CDU/CSU alliance and the Social Democrats (SPD), leaked by Table Media, show that the two camps aim to continue this so-called "climate contract" scheme. However, these documents do not represent a final agreement.

Technologies designed to use or capture and store carbon dioxide emitted from industrial processes (CCS) were intended to be a key focus of the second round of auctions, but Germany has yet to adopt relevant legislation to allow the technologies. Around 130 companies showed interest in the preparatory phase, which ended in September 2024, the economy ministry said.

Climate contracts are supposed to promote the emergence of more climate-friendly manufacturing processes for products such as paper, glass, steel or chemicals by bridging the price gap to current carbon-intensive procedures, allowing the companies to compete in international markets. Once climate-friendly production is cheaper than conventional procedures, however, companies will have to pay the difference to the state.