German econ min pledges state support for industry transformation

The German government will use whatever state funds necessary to support the transition of the country’s industry to climate neutrality through so-called carbon contracts for difference (CCfD), economy and climate minister Robert Habeck said at the Handelsblatt Energy Summit 2022. Asked about the total volume of state funds available for these CCfDs, Habeck said: “The volume shall not be the limit. […] We agreed in the coalition talks that what is needed will be funded. There should be no lack of state support, but of course we don't want to overfund either.” Habeck added that building up a CO2-free value chain is “the best chance we have” as a business location. “The companies, industrial production, small and medium-sized enterprises, the skilled trades, they will all benefit from this.” With the CCfDs and other government support initiatives for the transformation, Germany is “racing against time in a highly competitive international environment.”

In its pursuit of climate neutrality by 2045, Germany has set its sights on extending the energy transition to its famed heavy industry. CCfDs are intended to provide companies – especially those in CO2-intensive industries like metals, chemicals or construction materials – with the planning security they need to switch to climate-neutral production. The state would set up long-term contracts in which it promises companies to bear the additional costs of CO2 emission reductions that exceed the level of the current price for CO2 allowances in EU emissions trading (EU ETS). CCfDs pay out the difference between the price of emissions allowances in the ETS and the contract price, thus effectively ensuring a guaranteed carbon price for the project. In exchange for this insurance, especially in earlier years, investors are liable for payment if the carbon price exceeds the contract’s strike price.