EU Approves €5bn German Industrial Decarbonisation Scheme
The European Commission has approved a €5 billion German State aid scheme designed to support the decarbonisation of energy-intensive industries through cleaner production technologies and large-scale emissions reductions.
The programme, approved under EU State aid rules, aims to help companies replace fossil fuel-based industrial processes with lower-carbon alternatives, including electrification, hydrogen, carbon capture and storage (CCS), carbon capture and utilisation (CCU), biomethane, and heat recovery and storage systems.
The scheme will support sectors covered by the EU Emissions Trading System (ETS), including steel and metals, cement, chemicals, glass, ceramics, paper, pulp, plaster and lime production.
Projects will be selected through a competitive bidding process based on cost efficiency, measured by the amount of aid requested per tonne of avoided CO2 emissions. To qualify, projects must achieve at least a 50% reduction in emissions within four years and 85% by the end of the 15-year contract period.
Funding will be delivered through two-way carbon contracts for difference (CCfDs), under which beneficiaries receive annual payments linked to market developments such as ETS allowance prices and energy costs. If low-carbon production methods become cheaper than conventional alternatives over time, companies will be required to repay the difference.
The Commission said the measure was necessary to accelerate industrial decarbonisation while maintaining competitiveness and ensuring public funding remains proportionate. Germany has also committed to ensuring that supported projects deliver genuine overall emissions reductions rather than shifting emissions between sectors.
The scheme follows a previous German decarbonisation programme approved in February 2024 and replaces a separate scheme authorised in March 2025 that was ultimately redesigned before implementation.
The European Commission assessed the measure under Article 107(3)(c) of the Treaty on the Functioning of the European Union and the Climate, Environmental Protection and Energy Aid Guidelines (CEEAG), which allow Member States to support emissions reduction initiatives under certain conditions.
Teresa Ribera, Executive Vice-President for Clean, Just and Competitive Transition, said the scheme demonstrates how industrial decarbonisation can be supported while preserving fair competition across Europe.
She said: “Today’s decision supports industry in making the shift to cleaner production while keeping a clear focus on efficiency and fairness. This scheme will help deliver substantial emissions reductions in key sectors, using public support in a targeted and proportionate way.”
The approval comes as the EU continues to strengthen climate policies under its Fit for 55 package, with the EU ETS remaining one of the bloc’s primary tools for reducing greenhouse gas emissions and driving investment in low-carbon technologies.
