Factsheet for measure
DE-2024-11/3895
– measures in Germany
Carbon Contracts for Difference
Klimaschutzverträge
Background information
As stipulated in the Federal Climate Protection Act, Germany aims to achieve climate neutrality by 2045. To achieve this goal, different funding programmes were made available for citizens and companies alike. As companies often face high costs and price risks when switching to climate-friendly production processes, the federal government introduced the so-called 'Carbon Contracts for Differences' . The funding programme became available in 2024 and specifically targets companies in emission-intensive industries, e.g. in in the paper, chemical, metal, or glass industries. By introducing carbon contracts, the federal government wants to speed up the introduction of climate-friendly production methods.
Content of measure
Carbon contracts use a competitive bidding process: such contracts are awarded to companies that prevail over their competitors in a bidding round. Companies submit a bid indicating the cost at which they can reduce carbon emissions when manufacturing a product. Those with the most cost-effective plans receive funding for investing into more climate-friendly production processes. Based on the bid price, the individually required funding amount is calculated.
Funding is only made available for new production facility under certain circumstances. For example, the new production site must emit less carbon emission intensive. By the third year of running the new production facility, carbon emissions must be lowered by at least 60%. By the time the contract comes to its end, emissions must be reduced by at least 90%.
Whilst funding is made available in invest into climate-friendly production facilities, awarded companies also agree to repay the state at a later time. As soon as the udpated production process becomes more cost-effective than conventional methods, the payment obligation established by the carbon contract is reversed into a claim by the state for surplus payments. Such carbon contracts can be concluded for a running time of 15 years.
Use of measure
At the start of the programme in October 2024, 15 projects were awarded with a carbon contract to receive a maximum total funding of €2.8 billion. The selected companies come from different industries, such as the glass, ceramics, paper, pulp, and chemical industries. Awarded companies plan to switch from fossil fuels to renewable energy sources. In the preliminary phase of the first bidding round, which took place between June and August 2023, 80 companies participated with a varying number of project proposals.
Target groups
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Workers
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Businesses
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Citizens
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Does not apply to workers
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Applies to all businesses
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Does not apply to citizens
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Actors and funding
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Actors
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Funding
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National government
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European Funds
National funds
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Social partners
Social partners' role in
designing the measure
and form of involvement:
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Trade unions
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Employers' organisations
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Role
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Consulted
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Consulted
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Form
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Direct consultation outside a formal body
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Direct consultation outside a formal body
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Social partners' role in the
implementation, monitoring and assessment phase:
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Unknown
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Main level of involvement: Peak or cross-sectoral level
Involvement
The Confederation of German Trade Unions (DGB) states on its website that it shaped the funding guideline on carbon contracts in a way that employment aspects were also taken up by the Federal Government. In addition, the Federal Ministry for Economic Affairs and Energy invited companies, organisations and other actors for a public consultation round on the carbon contracts funding guideline.
Views and reactions
The Confederation of German Trade Unions (DGB) welcomed the introduction of the carbon contracts for difference. The umbrella organisation highlights that the design of the carbon contracts were fair towards companies and the state. Moreover, investing into climate-friendly technologies helped safeguard employment in Germany, provided greater planning and financial security and facilitated investments. The Federation of German Industries (BDI) similarly welcomed the introduction of carbon contracts as financial support for companies and incentives to invest into climate-friendly production were needed.
Sectors and occupations
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This case is sector-specific
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Economic area
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Sector (NACE level 2)
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C - Manufacturing
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C17 Manufacture of paper and paper products
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C20 Manufacture of chemicals and chemical products
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C24 Manufacture of basic metals
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This case is not occupation-specific.
Sources
