Germany reviews “climate contract” industry transition support scheme, CCS still focus for next round

The German government is currently reviewing the “climate contract” support scheme for industry decarbonisation, with carbon capture and storage (CCS) or utilisation (CCU) projects able to participate for the first time, the economy ministry told Clean Energy Wire.

“The architecture of the funding programme 'climate contracts' is currently being reviewed with a view to making it unbureaucratic, technology-neutral, efficient and effective in preparation for a second round,” the ministry said. As planned under the last government, CCS and CCU projects would be eligible in this second auction round, it said. The ministry would “soon” communicate next steps regarding state support for industry decarbonisation.

Germany aims to become climate neutral by 2045, but CO2 reductions in basic material industries such as steel, cement, paper, glass and chemicals are difficult, and entirely new and often expensive production methods are often required.

At the start of their term, the governing parties had agreed to continue the pioneering ‘climate contracts’ programme of the previous German coalition government. With the help of so-called Carbon Contracts for Difference (CCfD), the government aims to promote the emergence of more climate-friendly manufacturing processes 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. In a first round, fifteen companies were successful in October 2024. 

The previous government had launched the preparatory phase for a second round of auctions in summer 2024, but the scheme had hung in the balance following the collapse of the coalition. Earlier this year, the European Commission gave the green light for the scheme based on state aid rules.