Carbon Contracts for Difference could kickstart German industry decarbonisation – think tank

Contracts refunding companies for investments in low-emissions technologies could be a key tool to ensure industry starts the transition to  climate-neutral production, a study by energy policy think tank Agora Energiewende has found. With so-called Carbon Contracts for Difference (CCfD), basic material industries such as steel, cement or chemicals could reduce CO2 emissions by about 20 million tonnes per year. This amounts to roughly one third of the industry sector’s required reductions by 2030 under Germany’s Climate Action Law. These “climate action contracts” provide companies state-backed refunding for climate-friendly production in the basic material industries, which employ about 280,000 people in Germany and provide the foundation for a low-carbon economy. Agora says that CCfDs should have a runtime of ten years and should apply in cases where refunding cannot be achieved under market conditions. The think tank estimates this would cost the state up to 43 billion euros, depending on factors including the price development in the European emissions trading system (ETS). The final figure could be lowered significantly if parallel political reforms at national and European level take place and if the CCfD model is applied consistently.
Frank Peter, head of Agora Industrie, said the government ought to quickly present a concept of how CCfDs can mobilise fresh capital from the budget and kick-off comprehensive decarbonisation in the industry sector. “That’s the only way for Germany to prepare for a globally growing market for climate-friendly products and maintain competitiveness as an industry location,” Peter said. 

CO2 reductions in basic material industries such as steel, cement and chemicals are particularly difficult because deep emission cuts can't be achieved simply by replacing fossil fuels with renewable power. Instead, entirely new production methods are required. Many companies have tabled plans on how to slash CO2 output, but insist that substantial financial support will have to trigger the necessary investments.