Greens’ Baerbock refines proposal for carbon contracts for difference to support industry

The German Green Party’s chancellor candidate, Annalena Baerbock, has refined her party’s proposal to introduce so-called Carbon Contracts for Difference (CCfD) to help industrial companies switch to climate-friendly production. These contracts would be the key element of a “pact between industry and politics,” writes Baerbock in a position paper. “In the future, it will not be enough to 'just' develop the best cars, the best power plants or the best robots in the traditional sense," she writes. “Central to inventions, new products and services are their contribution on the path to climate neutrality.” The party has already included the call for CCfDs in its election programme, which was decided last week.

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 15-20-year contracts, writes Baerbock, in which it promises companies to bear the additional costs of CO2 emissions 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, investors are liable for payment if the carbon price exceeds the contract’s strike price.