The European Commission has approved a €5 billion German state aid scheme to help industrial companies replace fossil fuels and raw materials with low-carbon alternatives, including biomethane, electrification, hydrogen, carbon capture and heat recovery.
Eligible projects must involve fundamental technological changes and deliver at least 50% emissions reductions within four years, rising to 85% by the end of a 15-year contract period. Projects will be selected through competitive bidding based on cost efficiency, measured as aid requested per tonne of avoided CO2 emissions.
Aid will take the form of two-way carbon contracts for difference, with annual payments linked to market developments such as EU Emissions Trading System (ETS) allowance prices compared to conventional technologies. If cleaner processes become cheaper to operate than conventional alternatives, beneficiaries must reimburse the difference.
Sectors covered include steel and other metals, plaster, glass and ceramics, paper and pulp, cement, lime and chemicals. The scheme requires that any hydrogen used complies with EU legislation on renewable or low-carbon hydrogen.
The measure replaces a scheme approved in March 2025 that German authorities decided not to implement and redesigned. It follows an earlier scheme approved by the Commission in February 2024.
