Decarbonisation of Industry: Germany is maintaining its course
EU climate target by 2040: Effects on emissions trading
The EU environment ministers have agreed that greenhouse gas emissions must be reduced by 90 % by 2040 compared to 1990 levels. The agreement was accompanied by compromises in the area of CO2 offsetting.
The launch of the new European Emissions Trading System (ETS2), which addresses the distributors of fuels for certain sectors, has been postponed until 2028. This postponement only applies to the obligation to surrender emission allowances. Other obligations – such as to submit monitoring plans and emission reports – are already in effect. The consequence of ETS2 starting later is that the national emissions trading system will continue to operate. The auction phase will start here in 2026 (with a fixed price corridor). In 2027, the price will be based on ETS1; allowances will not be auctioned.
According to the EU environment ministers, it will be possible to offset 5 % of the targeted reduction in the future using international CO2 allowances. Some options for meeting the greenhouse gas quota abroad have gained a poor reputation in the past – controversial discussions are to be expected.
The CBAM will enter the normal operation phase with multiple simplifications on 1 January 2026. Affected companies must be authorised as CBAM applicants. However, the sale of CBAM certificates has been postponed until February 2027.
Green light for CCS
By passing the Carbon Dioxide Storage and Transport Act (KSpTG) in November 2025, the German Bundestag and Bundesrat have issued a signal for industrial policy. The law paves the way for carbon capture and storage (CCS). It allows the offshore storage and (cross-border) transport of CO2. Additionally, the federal states can authorise onshore storage. In the future, CO2 infrastructure will be considered to be in the overriding public interest.
There are still legal issues that have yet to be clarified. The pressure for utilisation in the offshore sector is enormous and spatial planning in this area is not holistic. Conflicts with other technologies, such as offshore wind energy, and nature conservation interests are to be expected.
Enabling CC(U)S technology has been a longstanding demand of industry, particularly for emissions that are difficult or impossible to avoid. The task now is to press ahead with the development of a (cost-intensive) CO2 circular economy. The federal government has yet to develop a carbon management strategy.
Economics ministry continues climate protection agreements funding programme as "carbon contracts for difference"
The Federal Ministry for Economic Affairs and Energy has decided to continue the "climate protection contracts" funding programme launched under the previous government as "carbon contracts for difference". The federal government is using this funding programme to support emission-intensive companies that are converting their conventional production process to a climate-friendly one.
The 2026 preliminary process was conducted from 6 October 2025 to 1 December 2025. Only companies that took part in the 2026 preliminary process can participate in the 2026 bidding process, which is expected to take place in mid-2026 and for which around EUR 6 billion has been earmarked in the 2026 federal budget.
Following the successful 2024 pilot round, in which 15 companies received climate protection contracts with a value of up to EUR 2.8 billion, further improvements to the funding programme are now on the agenda. The carbon contracts for difference function as hedging instruments and protect companies against price risks when investing in climate-neutral processes.
One of the most significant developments is the eligibility of CCS/CCU technologies for funding. In addition, the minimum size for projects was reduced from 10 to 5 kt of annual greenhouse gas emissions so that more companies would be eligible to participate.
Following the conclusion of the 2026 preliminary process, the interdepartmental consultation and the EU notification procedure are now pending. The bidding process can then start in 2026.
The German funding programme is already attracting international attention – similar models are being planned or implemented in France, Belgium, Spain and Japan.
German government is decisive in driving the hydrogen market ramp-up
The German government is continuing to focus on hydrogen as a key technology for achieving climate neutrality in 2045. Since the 2021 amendment to the German Energy Act (EnWG), a comprehensive planning law framework has been created to enable the development of hydrogen infrastructure. One milestone is the approval of the hydrogen core network by the Federal Network Agency (BNetzA) in October 2024, which will connect important locations to each other and will go into operation in stages until 2032. The German development bank KfW made the first financing disbursements back in March 2025. The transmission system operators want to enable capacity reservations to be made as early as 2026. The regulatory basis is also about to be published by the Federal Network Agency (BNetzA).
The planned German Hydrogen Acceleration Act (WassBG) will further accelerate the ramp-up: For example, it declares hydrogen projects to be of "overriding public interest", significantly shortens official deadlines and digitalises processes. The simplifications affect all relevant areas of law – from emission control and water law to energy and planning law. In addition, legislators have also provided for amendments to the German Federal Mining Act for the sake of the important hydrogen storage facilities.
With these measures, Germany is establishing conditions for investment in the hydrogen economy and underlining its pioneering role in the decarbonisation of industry.
