Hydrogen in industry | Germany opens first €4bn bidding round for Carbon Contracts for Difference

Germany’s government has launched the first €4bn ($4.4bn) bidding round of its estimated €50bn Carbon Contracts for Difference (CCfD) programme, which will see heavy industry paid to switch to low-carbon processes — including those that use green hydrogen — instead of polluting fossil fuels.

Dubbed “climate protection contracts” by the federal ministry for economic affairs and climate protection (BMWK), the CCfDs offer payments for 15 years to industrial players such as steel or chemicals producers to switch to using green H₂ (for example in iron-making for steel, or as a chemical feedstock), carbon capture and storage or other low-emissions methods of production.

But the scheme will also indirectly incentivise investment in production of green H₂ infrastructure, such as hydrogen production plants and pipelines, the BMWK said.

Companies who pre-applied to the scheme in the summer of 2023 can now 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.

This bidding round, launched on Tuesday, will last for the next four months, implying that winners would be announced in July or August.

“Today is a good day for Germany as an industrial location, for climate protection and for sustainable jobs in our country,” said minister for economics and climate protection Robert Habeck. “With the climate protection agreements, we arepromoting modern, climate-friendly industrial plants of tomorrow. This creates new technologies, value chains and infrastructures.

The first €4bn tranche forms part of a wider CCfD funding programme which was initially announced in June as a “mid double-digit billion [euro]” scheme, implying a budget of around €50bn.

However, since then, a German court has ruled that the federal government cannot use leftover Covid recovery funds to finance its climate initiatives, which has thrown a number of its earlier funding announcements into disarray.