FRANKFURT (Reuters) – The German government on Friday presented plans for so-called contracts for differences (CfDs), instruments that help companies in the steel, cement, lime and ammonia industries finance the transition to low-carbon technologies.
A draft plan by the environment ministry, seen by Reuters, says that companies committed to cutting carbon dioxide emissions by more than half by using innovative technology could be granted a license to operate under a 10-year CfD.
While at an early stage, the plan points the direction for Europe’s largest economy to take advantage of CfD payments, which companies have to bid on at auction, and which guarantee a minimum strike price for low-carbon products.
Through CfD, states reduce or partially finance higher operating costs than those in the existing process, reducing uncertainty around developments in emission permit prices and thereby assisting planning and access to finance.
The design draws on green hydrogen derived from wind and renewable solar energy, which Germany hopes can be developed to produce synthetic fuels for the industrial, energy and transportation sectors.
“The plan includes bridge technologies such as partial use of natural gas (fossil) and green hydrogen (from renewable energy) in direct reduction (steel making) or ammonia plants where the share of green hydrogen must increase significantly during the CfD run-time. , “Said the draft.
Germany’s top court on Thursday demanded reform of climate laws by the end of 2022, which would require faster emission reductions.
The ministry’s draft plan is subject to EU state aid oversight but must be helped by the fact that the CfD is a proven tool for stimulating renewable energy, which was already seen in Britain, which was a member of the EU before leaving the bloc last year.
Utilities like RWE have called for the introduction of CfD.
Reporting by Markus Wacket and Vera Eckert, editing by Thomas Escritt and Veronica Brown