European Commission Approves €5 Billion German State Aid Scheme to Support Industrial Decarbonization

May 7, 2026 – The European Commission has approved, under EU state aid rules, a €5 billion German scheme to help companies in industrial sectors decarbonize their production processes. The scheme will contribute to Germany's energy and climate targets, as well as the EU's strategic direction for sustainable prosperity and competitiveness.

Details of the German Scheme

Eligible projects must involve a fundamental technological change and replace fossil fuels or raw materials with low-carbon alternatives (e.g., electrification, hydrogen, carbon capture and storage (CCS), carbon capture and utilization (CCU), use of biomethane, and heat recovery and storage).

Projects will be selected through a competitive bidding process based on cost-effectiveness, measured as the amount of aid required per ton of CO2 avoided. Projects must achieve significant emissions reductions, including at least 50% within four years and 85% by the end of the 15‑year contract period. These reduction targets will be compared to a reference benchmark reflecting the most efficient conventional production technology in the relevant sector.

The aid will be granted in the form of 15‑year two‑way carbon contracts for difference. Beneficiaries will receive annual payments linked to market developments (e.g., EU ETS allowances or energy input prices) compared to conventional technology. The measure will only cover the extra costs of the cleaner production process. If operating costs of these processes fall, beneficiaries will have to refund the difference.

Projects supported under the scheme will cover sectors covered by the EU Emissions Trading System (ETS), including steel and other metals, gypsum, glass and ceramics, pulp and paper, cement, lime, and chemicals.

The scheme follows a similar scheme approved by the Commission in February 2024. It replaces another scheme approved in March 2025 – which was redesigned after the German authorities decided not to implement it as originally planned.

Commission's Assessment

The Commission assessed the scheme under EU state aid rules, in particular Article 107(3)(c) of the Treaty on the Functioning of the European Union (TFEU), which allows member states to support the development of certain economic activities under specific conditions, and the Climate, Environmental Protection and Energy Aid Guidelines (CEEAG), which allow member states to support measures to reduce or eliminate CO2 emissions.

The Commission found that:

• The scheme is necessary and appropriate to support decarbonization in ETS‑covered sectors, in line with European and national environmental objectives.

• The scheme has an incentive effect, as beneficiaries would not carry out such decarbonization investments without public support.

• The scheme has limited impact on competition and trade within the EU. Moreover, it is proportionate, and any negative impact on competition and trade will be limited due to the design of the competitive bidding process, which keeps the aid amount to a minimum.

Finally, Germany committed to ensuring that the aid results in an overall CO2 reduction, and not merely a shift of emissions from one sector to another. For example, any hydrogen used under the scheme must comply with EU rules on renewable or low‑carbon hydrogen. In addition, the German authorities have validated that indirect CO2 emissions from the electricity used will remain at a limited level compared to the overall reduction.

On this basis, the Commission approved the German scheme under EU state aid rules.