New Funding Policy for Germany’s Carbon Management Strategy

Six months after presenting its carbon management strategy, the Federal Ministry for Economic Affairs and Climate Action has launched the Federal Funding Policy for Industry and Climate Action, introducing two new modules to promote climate transformation: one for industrial decarbonisation and another for Carbon Capture and Storage (CCS) and Carbon Capture and Utilisation (CCU).

The first call for funding was opened on 30 August 2024. Companies have time until 30 November 2024 to submit project outlines, marking the start of a program that will run until 2030. Annual funding competitions will be held, with approximately €3.3 billion allocated from the Climate and Transformation Fund. For the initial round, €1 billion has been earmarked by the ministry.

Funding will be provided as a non-repayable grant in the form of partial financing. Starting from the funding amount of €15 million, funding is provided on the basis of co-financing by the federal states, with the federal government covering a maximum of 70% and the federal states the remaining 30% of the funding applied for.

I. Module 1: Industrial Decarbonisation

The first module, entitled Industrial decarbonisation focuses and supports on investment projects aimed at reducing greenhouse gas emissions in the industrial sector as far as possible and on a permanent basis. It replaces a similar funding policy on industrial decarbonization that expired on 31 December 2023. The aim of funding various research and innovation projects is to unleash the potential for reducing greenhouse gas emissions in production.

The module, which the Competence Centre for Climate Protection in Energy-Intensive Industries was commissioned to implement as the project sponsor, is aimed at all industrial companies that operate plants or are planning plants with industrial processes and want to reduce their carbon emissions by at least 40%. The programme targets companies in the energy-intensive basic materials industry, including the chemical basic materials industry, the steel and foundry industry, glass industry, ceramics industry, paper and pulp industry, and the cement and lime industry. However, funding is not limited to these sectors.

The application process is twofold:

First, companies can submit project outlines by 30 November 2024, which will be reviewed by the project manager and with results shared by 28 February 2025. Successful candidates can then submit full applications by 31 May 2025, with approval notifications expected in the third quarter of 2025.

Funding applications can then be submitted in the second stage by 31 May 2025. Notifications of approval are likely to be sent out in the third quarter of 2025.

The main entry criteria for taking part in Module 1 are as follows:

• Grant recipients must have a permanent establishment or branch in Germany, as the project must also be carried out in Germany.
• The project must lead to a reduction in direct carbon emissions in the funded plant of at least 40% compared to the situation at the time of application. In the case of plants yet to be built which are not replacing existing plants, appropriate comparison plants will be used as references.
• Total investment costs must be at least €500,000 for SMEs, and at least €1 million for other companies.
• The projects must not simply involve shifting carbon emissions to another sector.

Depending on the sub-module, funding of up to €200 million per company is possible, with basic funding availability of up to 40%. For particularly efficient investments that lead to a 100% reduction in direct greenhouse gas emissions, funding intensity is up to 50%, and even up to 60% for conversion to hydrogen.

The following selection criteria are used to evaluate funding applications:

• 70% weighting on expected absolute greenhouse gas reductions over 10 years.
• 20% for innovation.
• 10% for other positive effects.

II. Module 2: Funding for CCU and CCS

The second module is entitled Funding for CCU and CCS. It supports projects in industrial sectors with carbon emissions that are mostly difficult to avoid. The funding is intended to contribute to the development and use of technologies for capturing, utilising and storing carbon. The project manager is Projektträger Jülich (PtJ).

The aim of the module is to further implement the carbon management strategy adopted in May 2024. In the first call for funding, the funding will go to investments in the use or capture of carbon emissions in plants from sectors generating carbon emissions which are difficult to avoid, as well as to facilities for achieving negative emissions. Sectors with carbon emissions that are difficult to avoid include lime, cement and thermal waste treatment. Innovative projects in the basic chemicals, glass and ceramics sectors are also eligible for funding.

Investment projects in Module 2 can receive up to €30 million in funding, with industrial research projects eligible for up to €35 million.

The following entry criteria apply, among others:

• The project must align with at least one objective of the federal government’s carbon management strategy
• Companies must put together a decarbonisation plan
• A valid provisional plan for the entire process chain from capture to use or storage must be presented

The following selection criteria are used to assess applications:

• 50% for funding efficiency
• 10% for each contribution to the use of efficient carbon cycles, level of innovation and speed of industrial exploitation of results
• 5% for each contribution to the creation of CCU/CCS clusters and joint use of car-bon infrastructure, type of coverage of electricity requirements and contribution to European and international collaboration
• 3% for a contribution to building up experience in carbon capture plants
• 2% for additional electricity and heating requirements and related carbon emissions

As in Module 1, the application process has two phases: First, an outline must be submitted; the deadline is 30 November 2024. Information on the selection will be provided by 28 February 2025, after which funding applications can be submitted up to 31 May 2025. Notifications of approval can be expected to be sent out in the third quarter of 2025.

III. What Should Interested Companies Do?

With a tight timeline, which divides the whole process over just four quarters, interested companies would be well advised to prepare the necessary documents, especially project outlines, as soon as possible. Given the complexity of the entry criteria, comprehensive legal guidance is recommended from the outset.

It is advisable to be well prepared for taking part in the first call for funding which has now started, because in the first round a third of the planned funds for the whole term are to be distributed. The chances of a successful application should therefore be particularly favourable in this first year and should therefore be seized in view of the increasingly difficult budget consultations

For projects exceeding €15 million, early communication with the relevant federal state is essential to secure co-financing.

This streamlined approach keeps the focus on clarity, helping companies better navigate the process.