Climate Protection Contracts (Carbon Contracts for Difference, CCfD) are a policy instrument developed by the former “Ampel” coalition to support industrial transformation. They aim to make climate-friendly production processes economically attractive and to accelerate the decarbonization of industry. The use of hydrogen is often one aspect of these climate-friendly alternative technologies.
How It Works
The program is based on a 15-year subsidy mechanism between the government and companies. Under this arrangement, the government compensates for the additional costs incurred by using climate-friendly technologies compared to conventional methods. As soon as climate-friendly production becomes more profitable than conventional methods, the subsidies must be repaid to the government. The subsidy amount is designed to adjust dynamically in response to changes in energy and CO₂ prices.
The contracts will be awarded through a competitive bidding process conducted by the Federal Ministry of Economics. After reviewing the submitted project proposals, the projects offering the best cost-benefit ratio for CO₂ reduction will be awarded the contracts. The process consists of six steps:
- Call for Proposals: The Federal Ministry of Economics has issued a call for proposals for climate protection contracts. It includes details on the eligible sectors, the total funding amount, and the eligibility requirements.
- Application Phase: Interested companies submit their project proposals. These must include detailed information on the planned CO₂ reductions, the investment costs, and the amount of funding required.
- Review: Submitted proposals will be reviewed for eligibility and technical feasibility.
- Auction Process: Qualified projects participate in an auction, where they compete for the available funding. The main criterion is the efficiency of CO₂ reduction, measured in euros per metric ton of CO₂ saved.
- Award: The projects with the best cost-benefit ratio will be awarded funding until the available funding has been exhausted.
- Conclusion of a Contract: Climate protection agreements with a term of 15 years will be signed with the selected companies.
How Climate Protection Agreements Work (© BMWK)
Developments to Date
In March 2024, the first round of auctions began with a total volume of 4 billion euros. Funding was focused on the emission-intensive sectors of steel and ammonia production. Of the 17 applicants, 15 companies received funding commitments totaling 2.8 billion euros in October 2024. The funded projects are expected to reduce CO₂ equivalents by up to 17 million metric tons over the term of the contract.
Companies from the first bidding round that have signed a climate protection agreement:
- BASF SE
- DREWSEN SPEZIALPAPIERE GmbH & Co. KG
- H&R Chemical and Pharmaceutical Specialties, LLC
- Kimberley-Clark GmbH
- Knauf Insulation GmbH
- Nordenham Metall, LLC
- Adolf Jass Paper Mill, LLC & Co. KG
- Saint-Gobain Glass Deutschland GmbH
- Saint-Gobain ISOVER G+H AG
- Schmiedewerke Gröditz, LLC
- Schumacher Packaging GmbH
- Südzucker AG
- tesa Werk Hamburg GmbH
- Wienerberger GmbH
- Janinhoff GmbH & Co. KG Brick and Clinker Works
In parallel with the evaluation of the first round, the process for the second round began on July 29, 2024. Companies had until September 30, 2024, to submit project proposals. The second round of bidding was scheduled to begin in 2024. In addition to the sectors covered previously, other industries—such as cement and lime production—were now included. The BMWK plans to allocate a low double-digit billion amount for the projects that prevail over other proposals in this second round.
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