Germany to Provide $2.3B Aid for Decarbonization of Industrial Sectors

The German government has received clearance from the European Commission for EUR 2.2 billion ($2.3 billion) in state support for projects to migrate industrial sectors from fossil fuels to renewable hydrogen, as well as projects to electrify industrial processes.

To qualify for the aid, which takes the form of direct grants, “companies need to either electrify their production processes, or switch from the use of fossil fuels to renewable hydrogen or renewable hydrogen-derived fuels”, said a press release by the European Commission announcing the granting of approval under European Union market competition rules.

“Eligible projects must lead to a reduction of greenhouse gas emissions from production processes of at least 40 percent, compared to today”, the announcement stated.

It added, “For investments relating to activities covered by the EU Emission Trading System (‘ETS'), the emissions reduction must go below the relevant ETS benchmarks in force at the time of granting the aid”. The ETS is a cross-border carbon price adjustment mechanism that requires companies emitting global warming-causing gases to cut emissions by 62 percent over this decade compared to 2005 levels.

“In addition, the beneficiaries will not be able to increase their production capacity beyond 2 percent,” the Commission said.

Projects can qualify for up to EUR 200 million ($212.2 million) each. The grants will be awarded by December 2025, according to the announcement.

The aid was approved under fair competition rules of the 27-member EU. “The Commission concluded that the German scheme is necessary, appropriate and proportionate to accelerate the green transition and facilitate the development of certain economic activities, which are of importance for the implementation of the REPowerEU Plan and the Green Deal Industrial Plan, in line with Article 107(3)(c) TFEU [Treaty on the Functioning of the European Union] and the conditions set out in the Temporary Crisis and Transition Framework”, the Commission said.

REPowerEU, launched May 18, 2022, is the EU’s strategic plan toward independence from Russian fossil fuels.

The Green Deal refers to the package of policies for a climate-neutral EU by 2050, including the "Fit for 55" set of laws toward achieving a regional reduction in greenhouse gas emissions of at least 55 percent by 2030 relative to 1990.

The Temporary Crisis and Transition Framework meanwhile allows EU countries to use the flexibility provided by the bloc's state aid rules to cushion the economic impacts of the Russia-Ukraine war, including by providing aid in the energy sector, as well as the sectors of agriculture, aquaculture and fisheries.

Margrethe Vestager, executive vice president for competition policy at the Commission, said in a statement, “The measure will also help Germany to reduce its dependence on imported fossil fuels faster, in line with the REPowerEU Plan, while ensuring that potential competition distortions are kept to the minimum”.

Germany, the biggest economy and top emitter in the EU, aims to become net zero by 2045, as set out in the country’s amended Climate Change Act, adopted June 25, 2021.

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