Commission approves €5 billion German State aid scheme to support decarbonisation of industry

The European Commission has approved, under EU State aid rules, a €5 billion German scheme to help companies in industrial sectors decarbonise their production processes. The scheme contributes to achieving Germany's energy and climate targets, as well as the EU's sustainable prosperity and competitiveness objectives.

The German scheme

Eligible projects must involve fundamental technological changes and replace fossil fuels or raw materials with low-carbon alternatives such as 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 CO₂ emissions. Projects must deliver substantial emission reductions, including at least 50% within four years and 85% 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.

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.

This 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.

The Commission's assessment

The Commission assessed the scheme under EU State aid rules, in particular Article 107(3)(c) of the Treaty on the Functioning of the EU (TFEU), which enables Member States to support the development of certain economic activities subject to certain conditions, and the Guidelines on State aid for climate, environmental protection and energy ('CEEAG'), which allow Member States to support measures reducing or removing CO₂ emissions.

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 CO₂ reductions and that it does not merely displace the emissions from one sector to another. For example, the scheme requires that any hydrogen to be used complies with EU legislation on renewable or low-carbon hydrogen. In addition, the German authorities have verified that indirect CO₂ emissions from electricity to be used will be limited in comparison to the overall reductions to be achieved.

On this basis, the Commission approved the German scheme under EU State aid rules.

Background

The 2022 CEEAG provide guidance on how the Commission will assess the compatibility of environmental protection, including climate protection, and energy aid measures which are subject to the notification requirement under Article 107(3)(c) TFEU.

The EU ETS is a key tool of EU policy for reducing greenhouse gas emissions cost-effectively in the Union and fighting against climate change. It is the world's first major carbon market and remains the biggest one. The review of the EU ETS Directive, under the Fit for 55 legislation and now in force, has strengthened the existing system and extended carbon pricing to new sectors.

For more information

More information will be made available under the case number SA.122980 in the State aid register on the Commission's competition website once any confidentiality issues have been resolved. New publications of State aid decisions on the internet and in the Official Journal are listed in the Competition Weekly e-News.