2024-03-13 18:39:55
The German government has launched an unprecedented subsidy program for the decarbonization of industry, a flagship initiative with a budget of 23 billion euros and which will be spread over 15 years.
Berlin intends to finance the decarbonization of large industrial emitters thanks to a new auction system, called “climate protection contracts” or “compensatory gap contract” – which favors the most efficient companies in this area.
Thanks to this new system, “we encourage modern, climate-friendly industrial installations of tomorrow”explained Robert Habeck, German Minister of Economy and Climate Action, on Tuesday (March 12).
Since Tuesday, companies in Germany, the EU’s leading industrial nation, which emit more than 10,000 tonnes of CO2 per year can compete for the first tranche of 4 billion euros, paid over 15 years.
A second call for tenders of 19 billion euros will follow in the fall. The selected companies will ultimately have to reduce their emissions by 90%.
Most of the country’s industrial production, whether paper, chemicals or cement, requires fossil fuels. And even if companies can technically reduce their consumption of these resources, the cost is sometimes too high.
The system chosen by Berlin therefore allows companies to offer a fictitious carbon price that would allow them to remain competitive while adopting cleaner production methods.
These offers can range from several hundred euros for the most difficult to decarbonize sectors, such as steel or cement, to double-digit amounts in production sectors that are easier to decarbonize, such as the production of paper, confectionery or glassware.
A window manufacturer could, for example, calculate that by adopting a hydrogen-powered electric oven, it would be on the right path to achieving carbon neutrality. But such an oven can be twice as expensive as those running on natural gas used by the competition. Therefore, climate neutrality would only be profitable with a CO2 price of at least 150 euros per tonne, which would represent the company’s minimum offer.
As long as the price of CO2 on the EU carbon market is lower than the price offered, companies will receive funding from the government. However, if the shadow price exceeds the CO2 price, companies must reimburse the difference, which encourages them to make offers as high as possible while remaining realistic in their estimates.
The contracts have a duration of 15 years and no company offer can exceed 1 billion euros in total cost to the government. A ceiling of 1.3 billion euros exists for each industry, such as paper.
From research to development
The scientists developed this project in response to the chicken-and-egg problem in the industry: when CO2 prices are high enough, it will be too late for the industry to make a smooth transition.
“From theoretical proposal to climate political reality in seven years”commented Jörn Richstein, one of the researchers who has proposed approach in 2017.
Robert Habeck pointed out that to date, no other industrial country has adopted a similar approach — although many were interested.
“We hope that this initiative will kick-start the much-needed transition to clean industry, lead to technological progress and avoid several hundred million tonnes of CO2 emissions »Mr. Richstein said.
According to Mr Habeck’s ministry, 350 million tonnes of CO2 thanks to the entire initiative.
In four months, the results of the auction will be made public. Companies will then have three years to begin their decarbonization process.
During the first three years after the official start of the contract, they will have to reduce their emissions by 60% and reach 90% in the last year.
After this multi-billion euro pilot auction, a second sale will see companies compete for €19 billion — with no cap on bids and carbon capture and storage (CCS) methods will be permitted.
Companies in the cement and steel sectors, for which the investment volumes necessary for decarbonization are high, could then benefit from a new chance to obtain state subsidies. The second round of public subsidies to industry must still be approved by Brussels.
Previously, Germany pledged 7 billion euros to help the big four steel companies, namely Thyssenkrupp, Arcelor Mittal, Salzgitter and Saarstahl.
Contrary to expectations, these companies can benefit from the climate protection contract program for their current coal-fired blast furnaces, but not for the recently built hydrogen blast furnaces.
Additional tranches of subsidies are expected for 2025 — ultimately, the total amount allocated to the program is around 50 billion euros.
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