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Germany launches $53 bln scheme to help stricken industry decarbonise

file photo: pipes at the landfall facilities of the 'nord stream 1' gas pipline in lubmin
Pipes at the landfall facilities of the 'Nord Stream 1' gas pipeline are pictured in Lubmin, Germany, March 8, 2022. REUTERS/Hannibal Hanschke//File Photo

Germany is launching a programme that will make available tens of billions of euros for firms facing substantial energy costs, in a bid to help its challenged industrial sector fund a shift towards carbon-neutral production techniques.

The programme, which according to sources will have a volume of around 50 billion euros ($53.45 billion) over the next 15 years, comes as European industry faces pressure due to high costs for raw materials, energy and labour.

The money is to come from a so-called climate and transformations fund, being fed by proceeds from emissions trading and other sources, although the economy and finance ministries both pointed to ongoing talks over Germany’s budget, suggesting details have yet to be hammered out.

It also aims to provide a counterweight to programmes in other regions, most notably the United States, that could lure companies away from the continent by offering lavish subsidies and more favourable legislation.

The so-called climate protection contracts are a major pillar of Germany’s response to these challenges, hoping financial support can help makers of steel, cement, paper and chemicals to decarbonise their production.

“We are in a period of prolonged recession, in an extremely challenging period economically,” Economy Minister Robert Habeck told journalists after outlining details of the scheme.

He said that while other parts of the world, ranging from the United States to Asia, were offering investment incentives, Germany was subject to stricter requirements when it comes to budget and keeping debt under control.

“Nevertheless, it can’t be right to not provide investment incentives and investment impulses in this phase. We’re rather observing a weakness in investment and in innovation in Europe and in Germany.”

A report by German industry association BDI on Monday said that 16% of surveyed companies were in the process of actively shifting parts of production abroad and that an additional 30% were considering it.

Companies have two months to express interest in the programme, aimed at fulfilling Germany’s pledge to become carbon neutral by 2045, before an auction process starts, Habeck said, adding that lowest bids would win.

Firms emitting 10 kilotonnes of CO2 or more a year would be eligible for the auction process, effectively opening it up for the thousands of mid-sized companies active in Europe’s top economy.

These include numerous makers of speciality chemicals, the sector most exposed to energy costs that came under extreme pressure when gas prices spiked in 2022 in the wake of reduced supplies from Russia.

“This is an important signal for businesses and gives them the investment security they need now,” said Joerg Rothermel of chemicals lobby VCI, which has long warned that high energy costs could harm local production.

“It is particularly positive that small and medium-sized enterprises are also to be taken into account in this funding programme.”

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