Carbon Contracts for the industrial transformation

This project develops carbon contracts to accelerate the industrial transformation and create fundaments for its long-term climate neutrality and competitiveness.

  • Project Duration: 10/2020 - 11/2021

With the goal of climate neutrality by 2045, Germany initiated a process of profound structural change. To achieve this goal in a socially inclusive manner, appropriate measures for the transformation of its economy must now be defined and enacted promptly.
The basic materials industry is a cornerstone of Germany’s prosperity and has a pivotal role for a successful transition to climate neutrality. The production of steel, basic chemicals and cement secures over 260,000 jobs, but is also responsible for over 60 percent of industrial greenhouse gas emissions. Furthermore, the transformation of these activities allows the manufacturing industry to prepare for an increasing demand for equipment, processes, and products that support the development of a climate-neutral global economy. In addition, the basic materials industry represents an anchor for the development of infrastructure for the production and transport of renewable energies and hydrogen as well as the use and storage of CO2, which is strategic for achieving climate neutrality also in other sectors of Germany’s economy. However, the switch from conventional to climate-friendly industrial production is associated with high costs and risks for companies.Carbon Contracts and Carbon Contracts for Difference (CCfDs) can secure the required investments and cover higher production costs until market demand for climate-friendly products can compensate for their environmental benefit.

The aim of this project is to define concrete proposals for the design and refinancing of CCfDs. Moreover, we develop recommendations for their coordination with the upcoming European Fit-for-55 reform package. The project is being carried out by Agora Energiewende with its partners FutureCamp, Ecologic Institute and the Wuppertal Institute.

The focus of our work is on the hydrogen-based production of direct reduced iron in the steel industry, the use of renewable hydrogen in ammonia production, and the development of plants for the capture and utilization or storage of unavoidable CO2-emissions in the cement industry. With the objective of transparently presenting the economic aspects of using these climate-friendly technologies, we are developing corresponding transformation cost calculators and accompanying analytical reports. In addition, general recommendations for the implementation of CCfDs are presented within the framework of a transversal study on transformation of the basic materials industry in general.

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