The European Commission has approved a €5 billion German State aid scheme to help industrial companies cut carbon emissions from their production processes.
The funding is intended for projects involving major technology changes that replace fossil fuels or raw materials with lower-carbon alternatives such as electrification, hydrogen, carbon capture and storage, carbon capture and use, biomethane, and heat recovery and storage, according to the Commission's release issued on Thursday.
Projects will be chosen through competitive bidding, with bids assessed by cost efficiency based on how much support is requested per tonne of CO₂ emissions avoided.
Companies receiving aid must cut emissions by at least 50% within four years and by 85% by the end of a 15-year contract period, with reductions measured against reference systems based on the most efficient conventional production technologies in each sector.
How the support will work
The aid will be delivered through “two-way carbon contracts for difference” lasting 15 years, meaning beneficiaries receive annual payments linked to market developments such as the price of EU Emissions Trading System allowances or energy input prices compared with conventional technologies, the Commission said.
The scheme covers only the additional costs of cleaner production, and if the supported processes become cheaper to operate than conventional alternatives, companies will have to repay the difference.
Eligible projects will be in sectors covered by the EU Emissions Trading System — the EU’s carbon market that sets a price on emissions — including steel and other metals, plaster, glass and ceramics, paper and pulp, cement, lime and chemicals.
The measure follows a scheme approved in February 2024 and replaces a scheme approved in March 2025 that German authorities decided not to implement in that form and redesigned instead.
