€2.2bn German scheme to decarbonise industrial sector secures EU approval

The European Commission has granted approval for Germany's proposal to allocate €2.2 billion ($2.37 billion) in direct grants to assist investments aimed at decarbonizing industrial manufacturing processes within small and medium-sized enterprises (SMEs). These grants are specifically targeted towards companies currently reliant on fossil fuels for energy or as a feedstock in their production processes.

According to a press release from the Commission, eligible decarbonization efforts must involve either electrification or investments facilitating the substitution of fossil fuels with renewable hydrogen or its derivatives. Each beneficiary could receive aid of up to €200 million, with disbursements expected by the end of 2025.

This initiative forms part of Germany's new Bundesförderung Industrie und Klimaschutz (BIK) funding guidelines, which aim to support industrial sectors in reducing CO2 emissions by at least 40% compared to previous levels through the conversion of processes from fossil fuels to electricity or renewable hydrogen.

The BIK funding will extend across all industrial sectors, with federal states required to co-finance 30% of grants exceeding €15 million. While the BIK funding is pending national procedures, it is slated for launch shortly after federal adoption.

Germany's €4 billion Carbon Contracts for Difference (CCfD) program, initiated last month, incentivizes heavy industry to transition to low-carbon processes, including those utilizing green hydrogen, as an alternative to fossil fuels. The €2.2 billion scheme is intended to complement the CCfD program by addressing smaller-scale decarbonization projects.

The Commission's assessment concluded that the German scheme is essential, suitable, and proportionate to expedite the green transition, aligning with the REPowerEU Plan and the Green Deal Industrial Plan. Margrethe Vestager, the Commission’s executive vice-president overseeing competition policy, emphasized that the scheme will facilitate Germany's faster reduction of dependence on imported fossil fuels.