The European Commission has approved the €5 billion German scheme to assist companies in decarbonizing production processes within the EU Emission Trading System (ETS). This scheme supports Germany in achieving its energy and climate targets and contributes to the EUs sustainable prosperity and competitiveness objectives.
The German scheme
With a budget of €5 billion, this scheme helps the German industry reduce CO2 emissions through technologies such as electrification, hydrogen, and energy efficiency measures. It follows a previously approved scheme in February 2024.
Supported projects include fuel switches in the cement and lime sector and electrification in the chemical sector. Companies must achieve a 60% emission reduction within three years and 90% by the end of the project according to ETS benchmarks.
Projects will be selected via an open bidding process and ranked based on the lowest aid requested per ton of avoided CO2 emissions.
The aid consists of 15-year climate protection contracts, where beneficiaries receive annual grants based on their bids and market developments such as ETS allowances. The aid covers only the additional costs of new production processes compared to conventional methods. If projects become cheaper, beneficiaries must repay the difference to the German authorities.
Commissions assessment
The Commission assessed the scheme under EU State aid rules, particularly Article 107(3)(c) of the Treaty on the Functioning of the EU, which allows Member States to support certain economic activities. The Guidelines on State aid for climate, environmental protection and energy support measures that reduce CO2 emissions.
The Commission concluded:
- The scheme is necessary and appropriate to support decarbonization in ETS sectors, aligning with European and national environmental targets.
- The scheme has an incentive effect as beneficiaries would not invest in decarbonization to the same extent without public support.
- The scheme has a limited impact on competition and trade within the EU. The aid is necessary for Germany to contribute to European and national environmental targets and is proportionate. Any negative effects on competition and trade in the EU are limited by the design of the bidding process, ensuring that aid is minimized.
- Finally, Germany has committed to ensuring that the aid results in overall CO2 reductions and does not merely shift emissions from one sector to another.
On this basis, the Commission approved the German scheme under EU State aid rules.
Background
The 2022 CEEAG provide guidelines on how the Commission will assess the compatibility of environmental protection, including climate protection, and energy aid measures that 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 combating climate change. It is the worlds first major carbon market and remains the largest. 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.
More information will be made available under the case number SA.116065 in the State aid register on the Commissions 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.