Germany starts first CCfD auction to support industrial decarbonisation

Germany adopted Carbon Contracts for Difference (CCfD) in June 2023 and the first auction was finally launched this March. The subsidy program covers 15 years of additional CAPEX and OPEX costs incurred by climate-friendly production facilities. We help companies make sense of the regulations and calculate the level of support.

Tyskland med CCfD-auksjon for å støtte utslippskutt i industrien

German industry is responsible for 20% of the country´s CO2 emissions. These emissions need to be removed to achieve climate neutrality by 2045.

However, progress has been slow and expensive. Therefore, in June 2023, the German government introduced a subsidy scheme for emission-intensive industries that transition to any new carbon-neutral production technology.

The authorities will allocate funding through a public auction of Carbon Contracts for Differences (CCfD).

Allocation through competitive auctions

In the final contract, a so-called base contract price (strike price) is set, which reflects how high the additional costs for a decarbonised plant are compared to a conventional plant. It is expressed in euros per tonne of CO2 equivalent avoided. The strike price is adjusted annually to reflect the changing costs of decarbonised vs. traditional processes. These changes will stem from, e.g., decreasing hydrogen and natural gas prices. The German Economic Ministry calls this a “dynamised contract price”.

Payouts to the company then depend on the difference of the strike price and the actual (“effective”) CO2 price on the EU ETS. If the effective CO2 price exceeds the strike price, companies must pay the surplus back to the state.

We help companies develop bids for CCfD auctions

Companies will have to submit bids stating the CO2 price that is necessary to make the proposed climate-friendly production facility profitable. The bids determine the support level and the chances to be selected in the auction.

With our expertise in power and CO2 price forecasting we help companies develop their bids for CCfD auctions. We are experts in both regulatory assessments and quantitative analysis, and can:

  • Calculate the expected payouts from the CCfD scheme—given the project specific technology and emissions, based on THEMA’s price projections for CO2, hydrogen, electricity, and other commodities—using our CCfD calculation tool
  • Ensure that the calculations comply with government’s regulations
  • Run risk and sensitivity analyses using different price trajectories, based on standard THEMA scenarios or client-specific input
  • Help to find the optimal bid price for the project in the CCfD auction

Purpose and scope of the German CCfD scheme

The CCfD scheme is aiming to provide:

  1. 20 Megatons of CO2 reduction annually,
  2. increased hydrogen production in Germany, and
  3. start-up financing for the green transition and kick-start green markets

The first auction was launched in early March and will allocate four billion euros from the Climate and Transformation Fund. A second auction is set to take place in the autumn of 2024.

The contracts will cover these additional costs for 15 years, with the total amount of support capped at one billion euros per project. Only companies covered by the EU´s emission trading scheme (ETS1) may participate. Their new green assets must reduce CO2 emissions by at least 90% relative to conventional production assets.

 

Tyskland med CCfD-auksjon for å støtte utslippskutt i industrien 1

 

Tyskland med CCfD-auksjon for å støtte utslippskutt i industrien 2

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