Industrial polluters in Germany could be in line to receive vast subsidies to switch to decarbonising technologies — including those requiring hydrogen, such as green steel — under new Carbon Contracts for Difference (CCfD) plans unveiled by Germany’s government today (Monday).

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The proposed CCfD scheme, dubbed “climate protection contracts” by the federal ministry of economics and climate protection (BMWK), will have a budget running to the “mid double-digit billion [euro] range”.

This means that industries such as steel manufacturing can bid for a share of a pot of somewhere around €50bn ($53.5bn) to switch to more expensive hydrogen-based technologies such as direct reduced iron (DRI), a type of “sponge iron” made with H2, to replace the current fossil fuel-based method of iron production mostly used today.

Under the CCfD proposal, companies would bid for funding based on how much they say they would save in carbon emissions by switching to a new technology and how much funding they would need per tonne of saved carbon emissions, versus the cost of using cheaper fossil-fuel equivalents.

Winning bidders, selected on their promise to save the most carbon at the lowest price, would be guaranteed a “strike price” for using the lower-carbon option, which would come in the form of a government “top up” payment based on the prevailing cost of the higher-carbon option, including any existing price on carbon under the EU's Emissions Trading Scheme.

Essentially, this top-up subsidy would make the low-carbon option the same price for the end-user as the high-carbon option.

But if the greener option becomes cheaper, the situation is reversed. “Additional income from the subsidised companies then flows back to the state,” the government explains.

Crucially, all hydrogen used in projects benefitting from the proposal must be compliant with the EU's hydrogen taxonomy, ie made with 70% fewer lifetime greenhouse gas emissions than fossil fuel equivalents.

This means that green hydrogen made with renewable energy, compliant with the EU's delegated acts, pink hydrogen made with nuclear and blue hydrogen made with fossil gas carbon capture and storage, will all qualify.

However, the German government specified that those using green hydrogen would receive more money than those using blue.

Robert Habeck, Germany’s minister for economic affairs and climate protection, invited industrial players to participate in the preparatory process for the scheme.

“With the climate protection agreements [CCfDs], we are heralding the transformation of Germany as an industrial location on a broad scale,” he said. “With this modern funding instrument, we set international standards and ensure that the funds flow to where they are needed for the transformation of the industry and bring the greatest benefit. It is a funding program for climate protection as well as for our industrial and innovation location.”

The German government is now awaiting the go-ahead from the European Commission’s competition regulators, which must review and rubber stamp any member state-level subsidy under the bloc’s state aid rules.

Moreover, it warned, if the Commission objects to the size of the fund, it could be reduced.