The European Commission has published new guidance for EU countries on how to design state aid schemes using carbon contracts for difference (CCfDs) under existing EU rules.
The guidance is intended to help Member States set up CCfD-based support schemes in line with the EU’s Guidelines on State aid for climate, environmental protection and energy, known as the CEEAG, the Commission said in a statement on Friday.
A CCfD is a type of subsidy agreement between a public authority and a company — such as a steel or chemicals plant — to reduce greenhouse gas emissions by lowering the financial risk of decarbonisation projects.
It typically guarantees a set payment, known as a “strike price”, for each tonne of CO₂ the company avoids emitting.
If the market carbon price is below the strike price, the public authority pays the difference to the company.
If the market carbon price is above the strike price, the company may have to pay back the difference or keep the extra revenue.
How the Commission says CCfDs can be used
CCfDs can take different forms, and the guidance sets out examples of possible approaches rather than limiting how Member States design schemes, the Commission said.
The Commission said CCfDs are part of the Clean Industrial Deal, its framework for industrial decarbonisation, and can support investments including hydrogen, electrification and carbon capture by providing long-term price certainty for CO₂ reductions.
