Carbon Contracts for Difference

Symbolbild Klimaschutzverträge © VectorMine – stock.adobe.com

Climate protection agreements are intended to initiate climate-friendly production processes in energy-intensive industries, for example in the steel, cement, paper or glass industries. To this end, Carbon Contracts for Difference (CCfD) compensate for the additional costs compared to conventional processes, where climate-friendly production processes cannot yet be operated competitively.

Carbon Contracts for Difference are modelled on private-sector hedging contracts, i.e. risk hedging instruments: They offer companies financial planning security with regard to certain price developments (for example, for energy carriers such as hydrogen) and thus hedge against risks that currently still stand in the way of investment in climate-friendly production processes. As soon as transformative production can be carried out more cheaply than conventional production, the payment relationship established by the CCfD is reversed: Additional revenues of the subsidized companies then flow back to the state, which on balance ensures that state subsidies are in line with demand.

Carbon Contracts for Difference make a significant contribution to ensuring that climate-friendly technologies become marketable and can then also do without state subsidies. The funded plants will produce climate-friendly products, which can create green lead markets. The funded projects will also generate know-how in the financing, construction and operation of innovative plants, which holds additional potential for Germany as a business location and for climate action worldwide. They also provide a strong impetus for the development of the hydrogen infrastructure in Germany and Europe. At the same time, the transformation projects are already directly saving large quantities of greenhouse gases. In this way, they make an important direct and indirect contribution to Germany achieving its climate targets by 2045.