EC clears €5-bn German state aid to back decarbonisation of industry

The scheme will contribute to achieving Germany’s energy and climate targets, as well as the EU’s sustainable prosperity and competitiveness objectives.

The European Commission has cleared a €5-billion German scheme to help companies in industrial sectors decarbonise production processes.
The scheme will contribute to achieving Germany’s energy and climate targets, as well as the EU’s sustainable prosperity and competitiveness objectives.
Projects must involve fundamental tech changes and replace fossil fuels or raw materials with low-carbon alternatives.

Eligible projects must involve fundamental technological changes and replace fossil fuels or raw materials with low-carbon alternatives like electrification, hydrogen, carbon capture and storage (CCS), carbon capture and use (CCU), the use of biomethane, as well as heat recovery and storage.

Projects will be selected through a competitive bidding process based on their cost efficiency, measured as the aid requested per tonne of avoided carbon dioxide emissions.

Projects must deliver substantial emission reductions, including at least 50 per cent within four years and 85 per cent by the end of the contract period in 15 years. Such reductions will be assessed against reference systems reflecting the most efficient conventional production technologies in the relevant sectors, a release from the Commission said.

The aid will take the form of two-way carbon contracts for difference with a duration of 15 years. Beneficiaries will receive annual payments linked to market developments, such as EU Emissions Trading System (ETS) allowances or energy input prices, compared to conventional technologies.

The measure only covers the additional costs of cleaner production processes. If these become cheaper to operate, beneficiaries will have to reimburse the difference.

The projects supported under the scheme will be in sectors covered under the ETS, including steel and other metals, plaster, glass and ceramics, paper and pulp, cement, lime or chemicals.

The measure follows a scheme approved by the Commission in February 2024 and replaces a scheme approved in March 2025, which the German authorities decided not to implement in that form and to redesign instead.

After an assessment, the Commission found that the scheme is necessary and appropriate to support decarbonisation in sectors covered by the ETS, in line with European and national environmental targets.

The scheme has an incentive effect, as the beneficiaries would not carry out such investments in decarbonisation without the public support.

The scheme has a limited impact on competition and trade within the EU. In addition, it is proportionate and any negative effect on competition and trade in the EU will be limited in view of the design of the competitive bidding process, which will ensure that the amount of aid is kept to the minimum.

Finally, Germany committed to ensure that the aid delivers overall carbon dioxide reductions and that it does not merely displace the emissions from one sector to another.

Fibre2Fashion News Desk (DS)