Hydrogen at the heart of the new German government’s coalition agreement | Shearman & Sterling LLP
The new federal government presented ambitious framework conditions for the decarbonization of the German economy using hydrogen, aiming to position Germany at the center of a global hydrogen economy. German industry is awaiting more details in the coming months.
The parties of the future German federal government (the Social Democrats (SPD), the Greens (BÜNDNIS 90 / GRÜNE) and the Liberals (FDP)) published their 177-page coalition agreement on November 24, 2021. Climate protection is essential fundamental to the coalition agreement. The new federal government – which should be in office the first week of December after the election of the new Chancellor Scholz – has pledged to achieve the 1.5 degree target, supports the EU program “Fit for 55 ”And aims to develop an efficient and technologically neutral path to climate neutrality by 2045 at the latest.
Hydrogen plays a key role, and although more details will be clarified in the coming months, it is clear that Germany – a major proponent of hydrogen-based decarbonization under Chancellery Merkel – is stepping up its pace. hydrogen policy. The most significant impact is on government support for the necessary investments, where the government will seek to activate more private capital for national transformation projects and the German state-owned bank KfW is mandated to play an important role as an investment agency. innovation and investment.
In this short note, we summarize the main hydrogen-related aspects of the Coalition Agreement.
Position Germany as a leader in hydrogen technology
The federal government aims for Germany to become the leading market for hydrogen technologies by 2030 and the coalition partners have agreed that the German hydrogen strategy must be accelerated in 2022. The target is a rapid rise in the market. The domestic production of hydrogen from renewable energies (i.e. green hydrogen) is a priority. The coalition also aims to implement a national electrolysis capacity of 10 GW by 2030, as well as expand offshore wind production to 30 GW in 2030, 40 GW in 2035 and 70 GW in 2045.
The coalition agreement demands that the development of an efficient hydrogen economy and the necessary import and transport infrastructure be accelerated as quickly as possible. Hydrogen projects eligible for the EU’s ‘Important Projects of Common European Interest’ program, in particular, must be implemented quickly and the establishment of a hydrogen network infrastructure must be financially supported. In this regard, we note that the Merkel government had already committed to finance 8 billion euros of investments in 62 projects to trigger new investments in Germany of more than 33 billion euros in total.
The need to import hydrogen to meet Germany’s decarbonization commitments continues to be recognized, and the coalition agreement states that when importing hydrogen, the effects of climate policy must be taken into account and a level playing field must be ensured for the German economy.
The federal government will work at European level to achieve a uniform certification standard for hydrogen and its by-products, and strengthen European import partnerships. The coalition agreement further supports domestic demand for hydrogen and other green industrial products (including hydrogen derivatives) through mandatory “green public procurement” quotas, details of which have yet to be clarified. developed.
Carbon Contracts for Difference and CBAM are coming
The German government is committed to supporting German industry throughout the energy transition.
Carbon Contracts for Difference (CCfD) that incentivize key industrial sectors (such as steel, cement and ammonia production) continue to be the preferred policy instrument to bridge profitability gaps with alternative processes carbon intensive, thus also supporting the demand for green hydrogen in the sectors concerned. sectors. This is in line with German industry expectations generated by the Merkel government, but clarity is still pending on the terms of these CCfDs and there is still no specified limit on the amount of funding available. However, we expect that strict criteria to determine the compensation mechanism and the conditions for terminating the CCfD program will be put in place. We also expect that the basis of the CCfD system will be the principles of the Federal Ministry of the Environment published in April 2021.
In addition, the government is committed to supporting the carbon border adjustment mechanism proposed by Europe and expresses the ambition to work so that all states around the world eventually adopt a uniform minimum carbon price.
Programs such as H2Global (aimed at subsidizing imports of green hydrogen and supporting domestic demand) are intended to be further developed on a European basis and financially supported accordingly. The Federal Ministry of the Economy recently pledged to provide funding of 900 million euros to H2Global to balance the price of supply and demand for imported green hydrogen for a period of 10 years.
80% renewable energy in the electricity mix; Investment in gas infrastructure must be H2-Ready
The federal government plans to increase gross electricity demand in Germany from 680 to 750 TWh in 2030. It wants 80% of this demand to come from renewable energies. He wants to accelerate the exit from coal, ideally completed by 2030, and continues to oppose any place for nuclear in the energy mix.
At the same time, the federal government recognizes the need to maintain modern gas-fired power plants until security of supply is achieved through renewable energies. However, gas-fired power plants must be constructed in such a way that they can be converted to run on climate-neutral gases (“H2-ready”).