Carbon Contracts for Difference (CCfD)

With the Carbon Contracts for Difference, the German Federal Government plans to guarantee the funding of differential costs. This measure is intended to offset the higher costs of environmentally friendly production methods compared to conventional methods, thereby creating an additional incentive for transitioning to sustainable processes. The funding provider is the Federal Ministry for Economic Affairs and Climate Action (BMWK).

How can companies benefit from the Carbon Contracts for Difference and what costs are covered?

The Carbon Contracts for Difference (CCfD) aim to cover the additional costs incurred by companies when transitioning to lower-emission production methods. This typically includes:

Capital expenditure (Capex): The CCfD may help cover higher procurement and installation costs for new technologies that produce fewer emissions, including expenses related to the purchase and implementation of more environmentally friendly machinery and equipment.
Operating costs (Opex): Additionally, the CCfD support the coverage of operating costs that may arise from the use of more sustainable technologies. This includes higher expenditures for energy, maintenance, and possibly specialized raw materials used in greener processes.
Price difference: The CCfD compensate for the cost difference between more carbon-intensive and more sustainable production methods. This support is based on the principle of equalizing the CO₂ cost difference between conventional and environmentally friendly technologies.

In summary, Carbon Contracts for Difference ensure that companies investing in technologies to reduce greenhouse gas emissions are financially supported to enhance the profitability of these investments and minimize risk. This creates an incentive to invest in greener technologies and contribute to environmental protection without compromising the financial stability of the company.

Carbon Contracts for Difference begin with crucial initial bidding round

On March 12, 2024, Dr. Robert Habeck, Federal Minister for Economic Affairs and Climate Action, announced the start of the first bidding round for the Carbon Contracts for Difference. During the preparatory process in the summer of 2023, numerous companies from emission-intensive industries engaged. It is important to note that only companies that participated in last year’s preparatory process are eligible to participate in the current bidding round. These companies are now called upon to submit their bids for the provision of funding. A total of 4 billion euros is available for this first round. Future rounds are planned. Please contact us if you require support during the bidding process or for new calls.

What are the goals of the funding program?

The Carbon Contracts for Difference are designed to decisively advance Germany towards carbon neutrality by 2045 and serve as a key tool to support the emission-intensive industry in transforming their production processes:

Reduction of greenhouse gas emissions: A central goal is the significant reduction of CO₂ emissions. By 2045, a total of 350 million tons of CO₂ is expected to be saved, corresponding to an annual reduction of up to 20 megatons of CO₂.
Promotion of technological innovation: In addition to immediate emissions reductions, the CCfD aim to promote the development and implementation of modern, environmentally friendly technologies. A special focus is on the use of green hydrogen, which must meet strict environmental standards to be recognized as sustainable.
Economic efficiency and security: The CCfD offer financial security to companies and help them minimize the economic risks associated with transitioning to cleaner technologies. By providing funding over a 15-year period, investments in new technologies and processes are significantly facilitated, enhancing the long-term planning and competitiveness of German companies.

These goals reflect the comprehensive commitment of the BMWK to not only adapt the industrial sector to current climate realities but also actively shape a sustainable and competitive industrial future for Germany.

How is the funding mechanism structured?

The BMWK has introduced an auction process to optimize the allocation of funding. In this process, companies submit bids specifying how much financial support they need to avoid a ton of CO₂. Awards are given to those companies whose technologies can achieve CO₂ savings most cost-effectively. This promotes a competitive climate while ensuring that the

available funds are optimally utilized. In return, the usual documentation, and proof obligations, which can burden companies and lead to cumbersome approval processes, are eliminated.

The Carbon Contracts for Difference (CCfD) not only compensate for the additional costs of environmentally friendly production methods but also provide a hedge against the volatile prices of crucial raw materials such as hydrogen. This offers financial stability to companies and reduces the risk of long-term investments.

Who is eligible to apply?

Eligible participants in the Carbon Contracts for Difference are major CO₂ emitters from industrial sectors, such as the paper, glass, chemical, and steel industries. These sectors often face particularly large challenges in reducing their emissions due to the nature of their production processes. In detail:

Companies from energy-intensive industries located in Germany.
Small and medium-sized enterprises (SMEs) and larger companies that exhibit significant CO₂ emissions.
Consortia of industry and research that develop and implement innovative solutions for CO₂ reduction.

What are the prerequisites for funding?

Applicants must have participated in the preparatory process to be eligible for the subsequent bidding process. Those who did not participate or who did not submit the required information completely and on time will be excluded from the bidding process, referred to as a material exclusion deadline.

Evaluation Criteria:

Cost-efficiency of funding: Bids are evaluated based on how cost-effectively the project can achieve the funding goals compared to other bids. This includes an analysis of the required subsidy per unit of greenhouse gas reduction.
Relative greenhouse gas emissions reduction: Projects are evaluated in terms of their potential and actual effectiveness in reducing greenhouse gas emissions, compared to the baseline scenario or other technologies.
Financial pre-qualification: Applicants must provide proof of a security performance that corresponds to 0.1% of the requested maximum total funding amount. This serves as financial pre-qualification to ensure that applicants have the necessary financial stability and commitment to carry out the proposed projects.

These criteria ensure that only well-prepared and financially stable applicants enter the bidding phase, and that the projects selected for funding provide effective and efficient emissions reductions that align with the overarching goals of the Carbon Contracts for Difference.

What is the implementation period?

The Carbon Contracts for Difference have a duration of 15 years, starting with the operational start of the project. The approval authority may extend the deadline upon request if unforeseen events such as force majeure cause a delay.

What are the eligible costs?

The eligible costs specifically include additional expenses incurred through the implementation of low-emission production processes. These costs are assessed in relation to a corresponding reference system and include:

Investments in new technologies: Costs for the acquisition and installation of technologies that enable more efficient and lower-emission production.
Adaptation of existing facilities: Expenses for the modification and optimization of existing production facilities to reduce emissions levels.
Transition processes: Costs arising from the transition to more environmentally friendly production processes, including possible training for the operating personnel.
Comparison with reference systems: The additional costs are considered in comparison to the costs of a conventional, less environmentally friendly system to determine the specific eligibility for funding.

Overview

The bidding process initiated on March 12, 2024, runs over a period of four months. A second preparatory process is planned for the summer of 2024, followed by another bidding round towards the end of the year. Additional funding rounds are anticipated. The Federal Ministry for Economic Affairs and Climate Action (BMWK) has provided a mid-double-digit billion amount for the CCfD program to sustainably strengthen Germany as a location for innovation.

The planned program of climate protection agreements should be aimed at recipients similar to the funding programs “Federal funding for efficient buildings (BEG)” and “Energy and Resource Efficiency in the Industry (EEW)”. In our articles you can find out more about the funding requirements and the application process.

If you want to discover more funding programs, visit our grants searcher. We would be happy to support you in applying for grants and research allowances. If you have any questions, please do not hesitate to contact us. We look forward to successfully helping you achieve funding for your projects.

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