Germany is launching a program that will make tens of billions of euros available to firms facing substantial energy costs, in a bid to help the country's challenged industrial sector fund a shift towards carbon-neutral production techniques.
The program, which will reportedly cost around 50 billion euros ($53.45 billion) over the next 15 years, comes as European industry faces pressure due to high costs for raw materials, energy and labor.
The money is to come from a so-called climate and transformations fund, being fed by proceeds from emissions trading and other sources, although the economy and finance ministries both pointed to ongoing talks over Germany's budget, suggesting details have yet to be hammered out.
It also aims to provide a counterweight to programs in other regions, most notably the U.S., that could lure companies away from the continent by offering lavish subsidies and more favorable legislation.
The so-called climate protection contracts are a major pillar of Germany's response to these challenges, in the hope that financial support can help makers of steel, cement, paper and chemicals decarbonize their production.
"We are in a period of prolonged recession, in an extremely challenging period economically," Economy Minister Robert Habeck told journalists after outlining details of the scheme.
Habeck said that while other nations ranging from North America to Asia, were offering investment incentives, Germany was subject to stricter requirements when it comes to budget and keeping debt under control.
'Weakness in investment and innovation'
He said: "Nevertheless, it can't be right to not provide investment incentives and investment impulses in this phase. We're rather observing a weakness in investment and in innovation in Europe and in Germany."
A report by German industry association BDI on Monday said that 16 percent of surveyed companies were in the process of actively shifting parts of production abroad and that an additional 30 percent were considering it.
Habeck said companies have two months to express interest in the program, aimed at fulfilling Germany's pledge to become carbon neutral by 2045, before an auction process starts, adding that the lowest bids would win.
Firms emitting 10 kilotons of CO2 or more a year would be eligible for the auction process, effectively opening it up for the thousands of mid-sized companies active in Europe's top economy.
These include numerous makers of specialty chemicals, the sector most exposed to energy costs that came under extreme pressure when gas prices spiked in 2022 in the wake of reduced supplies from Russia.
"This is an important signal for businesses and gives them the investment security they need now," said Joerg Rothermel of the German Chemical Industry Association, which has long warned that high energy costs could harm local production.
"It is particularly positive that small and medium-sized enterprises are also to be taken into account in this funding program."