BMWE launches preliminary procedure for 2026 climate protection contracts

07.10.2025

Source: E & M powernews

The Federal Ministry for Economic Affairs and Energy has launched the preliminary procedure for the 2026 bidding process for climate protection contracts. Companies can participate until December 1, 2025.

The Federal Ministry for Economic Affairs and Energy (BMWE) has announced that it has launched the preparatory procedure for the 2026 bidding process for CO2 difference contracts. The climate protection contracts are intended to promote investments by energy-intensive industries in low-CO2 production processes. The aim is to ensure the competitiveness of climate-friendly technologies and strengthen Germany as an industrial location.

Companies from sectors such as chemicals, pulp and paper, steel, metals, cement, lime, ceramics, glass and gypsum can take part. The prerequisite for participation in the actual bidding process in 2026 is registration for the preliminary process, which must be submitted by December 1, 2025 at the latest. Companies that already took part in the preliminary procedure in summer 2024 can participate again with a declaration of confirmation. The rules for the current procedure were published in the Federal Gazette on October 6.

According to the BMWE, the funding instrument is more flexible and open to different technologies compared to the first round in 2024. For example, processes for carbon capture and storage (CCS) and carbon capture and utilization (CCU) are now also eligible for funding. Medium-sized companies with smaller production facilities can also participate. These changes were approved by the EU Commission in March.

Procedure to start in mid-2026

The actual bidding process is set to start in mid-2026. Contracts will be awarded as part of a competitive auction process. Companies will submit bids for the targeted CO2 savings. The projects that can achieve the required savings at the lowest cost will be awarded the contracts. According to the ministry, this procedure ensures that subsidies are used efficiently.
Over a period of 15 years, the CO2 difference contracts compensate for cost differences between conventional and low-CO2 production processes. They also protect companies against fluctuations in the price of CO2 and energy. Binding savings targets are envisaged: From the third year of the contract term, at least 60 percent less CO2 must be emitted; by the final year, the reduction should be 90 percent. The compensation is based on the actual emissions saved.

Solution technology optional

The funding instrument is designed to be technology-neutral. Companies can decide for themselves which processes they use, as long as the CO2 reduction targets are met. Projects with industrial heat pumps, hydrogen applications, CCS systems or storage technologies, among others, can be supported. According to the BMWE, the contracts are also intended to help new technologies establish themselves on the market and have a positive impact on other companies.

The ministry points out that contracts for difference are an established instrument for promoting investment in industry. Other European countries such as the United Kingdom, France, the Netherlands and Austria also use such contracts.

In Germany, the bidding process for climate protection contracts is still tied to the budget resolution. Around six billion euros have been earmarked for this in the government's draft budget for 2026. According to the ministry, the start of the bidding process in 2026 also requires approval from the EU Commission under state aid law.

Award procedure

The CO2 difference contracts will be awarded through a competitive auction process. This identifies the decarbonization projects that can be implemented with the least amount of state funding. According to the ministry, this ensures the cost efficiency of the program. During the auction, companies submit their bids in terms of price per tonne of CO2 saved. They can take into account both investment and operating costs (capex and opex).

The bid reflects the level of CO2 prices that would enable the companies to produce
competitively and in a climate-friendly manner. The state pays the difference between the bid and the actual CO2 price. The bids are sorted in ascending order and the most favorable bids are awarded until the auction's production volume is exhausted ("cut-off price").

A detailed verification and examination of the cost structure is not necessary due to the auctioned subsidy. Payments are made on the basis of the ETS reporting on CO2 emissions, which the companies prepare anyway due to the European Emissions Trading Scheme (ETS).

Information on the 2026 preliminary procedure for contracts for differences is available online.

Author: Susanne Harmsen