Hydrogen, CCUS and emissions trading: what will the next steps on the road to climate neutrality be in these areas? Are we looking at continuity, more stringent measures or perhaps a policy reversal?
The new government is committed to implementing the Paris Agreement and is pursuing the goal of climate neutrality in Germany by 2045. It aims to align climate protection, economic competitiveness and social balance. Germany is to both remain an industrial nation and become climate-neutral. Innovation is now to take centre stage.
In order to achieve the climate protection targets, the hydrogen market ramp-up is to continue to be driven forwards, taking advantage of national and European funding instruments (e.g. IPCEI, climate protection agreements). The possibility of storing and utilising captured CO2 (also known as Carbon Capture, Utilisation and Storage or CCUS for short), which stakeholders in industry have been eagerly awaiting, is to be facilitated. In addition, emissions trading is to be pushed forwards as a central ingredient in the mix of instruments. The following article highlights the new government's plans in the coalition agreement for the 21st legislative period (2025 Coalition Agreement) for these three areas in detail.
Commitment to hydrogen ramp-up
The further ramp-up of the hydrogen market remains a central component of the transformation strategy. There is no intention to reverse the hydrogen policy of the Traffic-Light Coalition Government. This gives industry planning security. Accordingly, Germany is to play a leading role in a European hydrogen initiative. The hydrogen core network currently under construction is intended to connect industrial centres throughout Germany, including those in the south and east of the country, in line with demand. In this context the expansion of the hydrogen economy is to be accelerated and organised pragmatically. Account is also to be taken of hydrogen storage facilities. Whether the new government will pass the Hydrogen Acceleration Act put forward by the Traffic-Light Coalition Government or is planning further-reaching regulations to get Germany up to speed remains to be seen. The financing conditions are to be designed in a way that allows for implementation of integrated planning of the core grid and expansion of the distribution grid.
The national and European regulations are to be implemented swiftly as part of the European hydrogen strategy. Small-scale regulation, by contrast, is to be avoided. Germany is to remain a hydrogen importer. This means connections to all German and European ports. Furthermore, hydrogen production is to be made possible via large electrolysis plants and in an increasingly decentralised manner across the entire country.
At the same time, a trustworthy and unbureaucratic certification system for climate-friendly energy sources is to be pushed forwards. In this regard, the industry recently criticised the stringent requirements of the European Commission's Delegated Acts and their implementation in the 37th German Emission Control Ordinance (BImSchV). In addition to "green" hydrogen, "climate-friendly hydrogen" from various sources, i.e. all "hydrogen colours", is being advocated for, including in particular "blue" hydrogen produced from natural gas while storing the resulting CO2. There is also the prospect of a green gas quota, although it remains to be seen whether this is primarily intended to incentivise a cross-sector ramp-up of hydrogen and/or whether it will also stimulate transitional technologies such as the use of synthetic methane.
In connection with the planned promotion of e-mobility, the new government also intends to promote a hydrogen charging infrastructure for commercial vehicles.
Finally, the use of national and European funding instruments, such as H2 Global and IPCEI (Important Projects of Common European Interest), will continue to take centre stage. In particular, support programmes for the decarbonisation of industry, namely the climate protection agreements, are to be continued.
Green light for CCUS
The 2025 Coalition Agreement makes an exciting commitment in terms of industrial policy with regard to CCUS. While the Traffic-Light Coalition Government was unable to push through implementation at the end of its legislative period, the 2025 Coalition Agreement declares that CCUS is an indispensable instrument for the goal of climate neutrality. A legislative package (in particular the amendment to the Carbon Dioxide Storage Act) is to be passed immediately, making it possible to capture, transport, utilise and store carbon dioxide, particularly for emissions from the industrial sector that are difficult to avoid and for gas-fired power plants. This is likely to be based to a large extent on the Traffic-Light Coalition Government's draft. The ratification of the London Protocol and the creation of bilateral agreements with neighbouring countries are to have the highest priority. This is the only way to facilitate cross-border CO2 transport for the purpose of offshore CO2 storage. As the steel industry in Germany is considered to be of central strategic importance for Germany as a business location, the intention is to also enable CCS technologies for the steel industry.
The legislative package is intended to enable CO2 storage offshore outside the territorial sea in the exclusive economic zone (EEZ) of the North Sea and on land. In this respect, a state flexibility clause is to be introduced, i.e. the federal states are to be free to decide whether or not to allow the storage of CO2 in their territory.
In order to speed up the planning and approval process, an overriding public interest in the construction of these CCS/CCU plants and pipelines is also to be established. Direct Air Capture is also seen as a possible future technology to leverage negative emissions.
It remains to be seen whether and when the carbon management strategy for Germany, which includes further targets and measures in connection with CCUS, will be adopted. So far, there are only basic points on the carbon management strategy of the Traffic-Light Coalition Government, which the Federal Cabinet adopted on 29 May 2024.
Further steps in emissions trading
Emissions trading and the associated CO2 pricing is to remain an important component of climate and energy policy for the new government. It intends to pursue an economically viable CO2 price development strategy. The German and European climate targets are to be achieved primarily through the reduction of CO2 and other greenhouse gases in Germany, additionally through the offsetting of negative emissions and – in a new development – to a limited extent through highly quality and credible CO2 reductions in non-European partner countries. Under certain circumstances, export-orientated sectors will continue to be allocated certificates free of charge.
In this context, the European Green Deal and the Clean Industrial Act are to be further developed in order to align competitiveness and climate protection. Emissions trading is to be promoted at both European and international level. Further countries are to be won over to CO2 pricing. The simplification of CBAM is to be continued. It is not clear whether measures are planned beyond the European Commission's omnibus packages.
The introduction of European emissions trading for the buildings and transport sectors (ETS 2) is to be supported. In this context, the aim is to ensure a smooth transition of the German Fuel Emissions Trading Act (BEHG) into ETS 2, which will apply from 2027. It remains to be seen whether any further amendments will be made to the recently amended Greenhouse Gas Emissions Trading Act. The burdens associated with emissions trading for consumers and companies are to be mitigated in a socially responsible manner through relief, subsidies, etc.
The new government does not intend to make use of the opt-in possibility of including the agricultural sector in ETS 2.
Where will we be in four years?
The 2025 Coalition Agreement does not contain any real surprises in the areas of hydrogen, CCUS and emissions trading and essentially continues the path taken by the Traffic-Light Coalition Government. This should give the respective market players planning security. However, how and when the measures will actually be implemented remains to be seen. The CCUS and hydrogen sectors in particular are still in their infancy. The new government will therefore continue to be called upon to pave the way for Germany's decarbonisation. We will closely monitor further developments, particularly in the areas of hydrogen, CCUS and emissions trading, in the new legislative period and keep you informed in further blog posts.
