BlogCarbon Contracts for Difference & Funding, Emissions Trading System (ETS)

German carbon contracts in the 2nd round

Written by

Ulf Narloch

Published on

Germany’s Carbon Contracts for Difference are entering the next round in 2026. Companies can submit their bids until 7 September 2026 in order to obtain funding for CO2-saving projects. To support the transformation of energy-intensive industries, the funding budget has been increased and the funding conditions have been expanded.

(Last update on 13/05/2026)

From pilot project to central industrial policy instrument

Carbon Contracts for Difference (CCfD) are a key instrument for the climate-friendly transformation of industry in Germany. As an industrial policy instrument, they are intended to make a significant contribution to achieving climate neutrality by 2045.

This is an innovative funding instrument designed to offset the additional costs of climate-friendly production processes and the associated energy and CO2 price risks. In doing so, Germany is assuming an international pioneering role in CCfDs.

These Contracts offset the additional costs of climate-friendly production compared with conventional processes and protect companies against price risks relating to CO₂ and energy.

The selection of the first projects still took place under the name “Climate Protection Contracts” at the Federal Ministry for Economic Affairs and Climate Action of the previous government in 2024. The programme has now been adjusted within the restructured Federal Ministry for Economic Affairs and Energy of the new government.

Following the preparatory procedure, the call for funding for the second round was launched on 5 May 2026. Only a few days later, the EU also cleared the way with its state aid approval. EUR 5 billion is available for the second round. The bidding procedure runs until 7 September 2026.

What the CCfDs Fund

The revised funding guideline was published on 4 May 2026. While the funding mechanism remains unchanged, the programme architecture has been revised for:

  • broader access (lower project thresholds)
  • greater technology openness (including CCU/CCS)
  • more flexible funding requirements

Investments in climate-friendly production processes

The programme is aimed at energy-intensive industries whose installations are subject to the European Emissions Trading System (ETS 1). In particular, funding is available for:

  1. Fundamental technological changes to the existing production process and the significant investments associated with them (e.g. chemicals, cement or glass);
  2. Substitution of fossil energy sources or raw materials with low-CO2 energy sources or raw materials (e.g. electricity, H2, biomass);
  3. Use of carbon capture and storage (CCS) or carbon capture and utilisation (CCU) technologies.

In this context, the funded technology is assessed against a reference system (conventional process). Funding is directed at the additional costs of this transformation.

Technology-open funding for larger projects

Eligible projects must have a minimum funding volume of EUR 15 million. The programme is deliberately designed to be technology-open. Eligible projects include, among others:

  1. Hydrogen-based processes
  2. Electrification of production processes
  3. Material and energy use of biomass (subject to conditions)
  4. CCU/CCS technologies (new in 2026, especially for process emissions)
  5. Industrial steam projects for process heat supply

By contrast, projects focused exclusively on energy generation or lacking a clear industrial transformation link are not the main focus.

Measurable emission reduction

It is not the technology itself that is assessed, but the cost per tonne of CO₂ avoided. The core requirement is a significant reduction in greenhouse gas emissions compared with the reference system: at least 5 kt CO2 equivalent per calendar year.

For payouts, the savings criteria were defined as follows:

  1. at least 50% emission reduction after 4 years
  2. at least 85% by the end of the term

Payouts are based on the actual emissions savings, the bid price, and the difference from the actual CO2 price in ETS 1. The higher this price, the lower the payout.

Economic logic: funding through a bidding procedure

Allocation takes place via a competitive auction procedure: companies submit a bid price (€/t CO₂). This is calculated on the basis of:

  1. Expected differential costs (CAPEX and OPEX) of the climate-friendly technology over a project term of up to 15 years
  2. Expected emission reduction compared with a reference project

Contracts are awarded to the projects with the lowest funding costs per tonne of CO2 avoided. The plausibility of the calculation parameters and feasibility are also assessed. In practice, this means that technology choice, engineering, and energy prices must be modelled in a commercially robust way.

Bidding Procedure 2026: Process and Requirements

The bidding procedure builds on the preparatory procedure. Bids can now be submitted via the programme platform (easy-Online) until 7 September 2026.

Bidding process for German Carbon-Contracts-for-Difference (CCfD) is open

Extensive information is required for the bidding procedure, including:

  • Project description
  • Financial plan and quantitative data on emission reduction
  • Completed contract documents for the CCfD and declarations

The requirements go well beyond those of traditional funding programmes. They are closer to a bankable project assessment.

The second bidding round is significantly more flexible – but not simpler. The complexity lies above all in:

  • Determining a competitive bid price
  • Defining the reference system
  • Robust cost and emissions models
  • Integration into existing investment planning
  • Taking regulatory uncertainties into account (e.g. infrastructure, energy prices, EU ETS).

At the same time, the programme opens up a rare opportunity: large-scale transformation projects can become economically viable. With the right preparation, industrial companies can now benefit from this opportunity.

Sources and further information:

Photo by ADIGUN AMPA on Unsplash

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