May 19, 2024

Energy-intensive companies in Germany can now apply for new state energy subsidies potentially worth billions of euros.

Under the climate contracts, the German government will finance investments to convert industries to new, more climate-friendly production processes and initially cover additional costs incurred.

The companies are expected to pay the money back once those new production processes become cheaper to operate and more competitive on the open market.

Germany’s Economy Ministry announced the first round of bids for the contracts, worth €4 billion ($4.36 million) and carrying terms of up to 15 years, on Tuesday.

Vice Chancellor Robert Habeck said the state aid would help insure companies against price fluctuations for alternative fuels like hydrogen, which may be initially expensive.

Habeck said that more climate-friendly technologies are becoming cheaper and cheaper, and he expects progress to take off rapidly once new technologies are adapted.

“My forecast is that everything will become cheaper faster than we expect,” Habeck said.

The programme is part of a broader effort by Germany to shift to a more climate-friendly economy without undermining the global competitiveness of the country’s large industrial manufacturing sector.

Habeck described keeping traditional heavy industries such as steel and cement in Germany as an important goal, even as they face higher energy costs than abroad.

Some economists have criticized those efforts as wasteful subsidies that are preventing necessary structural changes by artificially keeping industries in the country.

“In my view, the ‘necessary structural change’ is just a lot of fine words for loss of workers, loss of energy security and loss of economic competence,” Habeck said.

Companies that took part in initial proceedings for the programme last summer have four months to submit a bid. The ministry said the contracts will be awarded to the most cost-effective proposals.

Manufacturers in the paper, glass, steel and chemical sectors are among the industries that will be considered for funding under the programme.

According to the ministry, the contracts are intended to avoid a total of around 350 million tons of carbon dioxide emissions by 2045.

The IG Metall industrial trade union welcomed the start of the tendering process, but would like to see even more commitment to the preservation of endangered industrial jobs.

The Federation of German Industries (BDI), a major business lobby for German manufacturers, also welcomed the launch of the bids.

“Extensive state support is necessary if the politically desired transformation towards climate neutrality is to succeed in a short space of time,” said BDI President Siegfried Russwurm, who pointed to major up-front costs for companies.

The German Chemical Industry Association (VCI) called the agreements a “positive signal” and called for them to be established in the long term and for new technologies such as chemical recycling to be supported.

The environmental advocacy group Greenpeace was more cautious in its support, welcoming the programme in principle but adding that the specific technologies supported would make a big difference.

Greenpeace Germany’s Martin Kaiser warned against “dangerous sham solutions” such as the capture and underground storage of CO2 and so-called “blue hydrogen,” which is produced using natural gas.

German Vice-Chancellor and Minister for Economic Affairs and Climate Protection Robert Habeck speaks about the first bidding process for climate protection contracts with a total volume of up to 4 billion euros. Germany is the first EU member state to use this new instrument to decarbonize its industry. Britta Pedersen/dpaGerman Vice-Chancellor and Minister for Economic Affairs and Climate Protection Robert Habeck speaks about the first bidding process for climate protection contracts with a total volume of up to 4 billion euros. Germany is the first EU member state to use this new instrument to decarbonize its industry. Britta Pedersen/dpa

German Vice-Chancellor and Minister for Economic Affairs and Climate Protection Robert Habeck speaks about the first bidding process for climate protection contracts with a total volume of up to 4 billion euros. Germany is the first EU member state to use this new instrument to decarbonize its industry. Britta Pedersen/dpa

German Vice-Chancellor and Minister for Economic Affairs and Climate Protection Robert Habeck speaks about the first bidding process for climate protection contracts with a total volume of up to 4 billion euros. Germany is the first EU member state to use this new instrument to decarbonize its industry. Britta Pedersen/dpaGerman Vice-Chancellor and Minister for Economic Affairs and Climate Protection Robert Habeck speaks about the first bidding process for climate protection contracts with a total volume of up to 4 billion euros. Germany is the first EU member state to use this new instrument to decarbonize its industry. Britta Pedersen/dpa

German Vice-Chancellor and Minister for Economic Affairs and Climate Protection Robert Habeck speaks about the first bidding process for climate protection contracts with a total volume of up to 4 billion euros. Germany is the first EU member state to use this new instrument to decarbonize its industry. Britta Pedersen/dpa

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