News
18/09/26
Cautious optimism on German decarbonisation
Berlin, 18 September (Argus) — German government officials have voiced cautious
optimism about financing the country's industrial decarbonisation, as the
economy ministry this week disclosed the results of its €5bn ($5.7bn) tender for
carbon contracts for difference. Germany's government is advancing in its aim to
get more private capital involved in the green transformation, finance ministry
official Anna Klabunde said at an industry event in Gelsenkirchen this week.
Klabunde, who is head of the ministry's sustainability, decarbonisation and
carbon pricing unit, flagged the three new programmes launched or planned by the
government's "Germany fund", under the auspices of state-held bank KfW, that are
designed to make it easier for private-sector investors to get involved. The
first of the programmes is an investment loan scheme for energy supply, aimed at
district heating and cooling networks. The second is a hedging instrument for
"industries in transition". Both were launched last month, with German turbine
manufacturer Enercon already making use of the new hedging instrument for its
€1bn green loan syndicated guarantee facility, arranged with banks including
KfW. The third scheme has not yet been launched. It targets the construction
sector and aims to push private investments in residential construction. Half of
all applications for state guarantees in the industry-heavy German state of
North Rhine-Westphalia are for transformation projects such as biogas plants or
electrolysers, auditing firm PWC director Rainer Holtmann said at this week's
event. The firm audits and manages state guarantees for loans on behalf of the
economy ministry. But it is difficult to arrange state guarantees for hydrogen
or steel projects, given the lack of "expectations", Holtmann said. Such
projects are considered loss-making businesses that will be dependent on
subsidies for the foreseeable future. Hydrogen projects will typically need
100pc equity, Holtmann said. Financing for steel is difficult too, and there is
massive competition from areas such as the armament industry, which promises
better returns in the short term, Holtmann said. German research institute Oeko
Institut's Felix Matthes called for a more encompassing approach. Germany needs
a hydrogen strategy and a carbon capture and storage (CCS) strategy, and
sufficient funding, he said. The cost gap for transformation projects will not
be bridged through insurance instruments alone or the EU emissions trading
system (ETS) price, Matthes said. He pointed out how the UK, a country with a
"different attitude to the financial markets", supports its green hydrogen
industry. Klabunde suggested there might be a case for extending to other
sectors Germany's "inter-temporal" funding mechanism for its hydrogen core grid
— through which the state broadly advances the investment costs. And she
defended the government's much-criticised decision to shift billions of euros
from Germany's climate transformation fund to the general budget. Finance
minister Lars Klingbeil has said the changes were necessary owing to budgetary
constraints, but Klabunde clarified that they were also carried out as part of
an overall focus on raising efficiency and enabling the most emissions
reductions at the lowest costs. Many European states do not even have such a
fund, she said. Green lead markets — another much-debated support mechanism for
industrial decarbonisation — can be "hard work" as they must be implemented at
the European level, economy ministry official Verena Lauber said. Lauber leads
the ministry's decarbonisation funding programmes unit. Local content rules
planned under the European Commission's proposed Industrial Accelerator Act
would only come in 2030, which would be too late for "many", think-tank the
Jacques Delors Centre senior policy fellow Philipp Jaeger said. North
Rhine-Westphalia's junior economy minister, Silke Krebs, voiced her "joy" at the
plans for public green procurement mooted by the EU, and stressed that "we
continue with confidence and hope that everything will fit together". North
Rhine-Westphalia is actively driving forward Germany's hydrogen starter grid.
The "key" problem facing the state's industrial decarbonisation is that "the
timelines no longer match" on areas such as CCS, along with the voices placing
doubt on the need for decarbonisation in the first place, Krebs warned. There is
always a risk that policy makers cave in, crashing EU ETS prices, research
institute Wuppertal Institut's Lukas Hermwille said. This makes the restrained
reaction of the EU ETS to the commission's revision proposal in July all the
more remarkable, he said. It shows how market participants had correctly
anticipated and priced in the "waning credibility", Hermwille said. It is
precisely the massive delays in infrastructure deployment that made ETS
adjustments necessary, Jaeger said, stressing that the delays were not expected
2-3 years ago. And the lack of a Europe-wide consensus on decarbonisation and
ensuing political insecurity make investment decisions more difficult, Jaeger
said. Germany's government is also working on a carbon management strategy and a
long-term negative emissions strategy, which are expected to be presented by the
end of this month. By Chloe Jardine Send comments and request more information
at feedback@argusmedia.com Copyright © 2026. Argus Media group . All rights
reserved.
