The new federal administration has proposed ambitious framework conditions for hydrogen-based decarbonization of the German economy, with the goal of placing Germany at the forefront of a global hydrogen economy. The German industry anticipates further information in the coming months.
On November 24, 2021, the next German federal government’s parties (the Social Democrats (SPD), the Greens (BÜNDNIS 90/GRÜNE), and the Liberals (FDP)) released their 177-page coalition agreement. Climate protection is a cornerstone of the coalition agreement. The new federal government, which is set to take office in the first week of December following the election of new chancellor Scholz, is committed to the 1.5-degree target, supports the EU’s “Fit for 55” program, and aims to develop a reliable, cost-effective, and technology-neutral path to climate neutrality by 2045 at the earliest.
While more details will be revealed in the coming months, it is apparent that Germany, which has been a leading proponent of hydrogen-based decarbonization under Merkel’s leadership, is speeding up its hydrogen program. The most significant influence will be on government backing for critical investments, with the government aiming to mobilize more private funds for domestic transformation initiatives and the German state-owned bank KfW being tasked with serving as an innovation and investment agency.
By 2030, the federal government wants Germany to be the leading market for hydrogen technology, and coalition partners have agreed to speed up the German hydrogen plan in 2022. The objective is to go to market quickly. Domestic hydrogen generation using renewable energy sources (i.e. green hydrogen) is prioritized. The alliance also wants to build a 10 GW domestic electrolysis capacity by 2030, as well as increase offshore wind capacity to 30 GW by 2030, 40 GW by 2035, and 70 GW by 2045.
The coalition agreement mandates that the creation of a cost-effective hydrogen economy, as well as the requisite import and transportation infrastructure, be accelerated as soon as feasible. Hydrogen initiatives that qualify for the EU’s “Important Projects of Common European Interest” program will be implemented quickly, and the creation of a hydrogen network infrastructure will be financially supported. In this regard, we should mention that the Merkel administration has already committed to investing EUR 8 billion in 62 projects, resulting in a total investment of EUR 33 billion in Germany.
The need to import hydrogen to satisfy Germany’s decarbonization goals is still recognized, and the coalition agreement specifies that when importing hydrogen, climate policy implications should be considered and fair competitive conditions for the German economy should be assured.
On a European level, the federal government will endeavor to establish an unified certification standard for hydrogen and its secondary products, as well as expand European import relationships. Domestic demand for hydrogen and other green industrial goods (including hydrogen derivatives) is further supported by the coalition agreement, which includes required “green public procurement” quotas, the specifics of which are currently being worked out.
Carbon contracts for difference (CCfDs) that incentivize key industrial sectors (such as steel, cement, and ammonia production) remain the preferred policy tool for closing profitability gaps with alternative carbon-intensive processes, thereby supporting demand for green hydrogen in the relevant sectors. This is in line with the expectations of German business created by the Merkel administration, but the rules of such CCfDs remain unclear, and there is no set limit on the amount of financing available. However, we anticipate that tight criteria for establishing the compensation mechanism and the conditions for the CCfD program’s termination would be applied. We also expect the Federal Environment Ministry’s principles, which were released in April 2021, to serve as the foundation for the CCfD system.
In addition, the government pledges to support Europe’s planned carbon border adjustment system and expresses a desire to see all countries adopt an unified minimum carbon pricing in the future.
Programs like H2Global (which aims to subsidize green hydrogen imports while also promoting domestic demand) are meant to be expanded and financially supported on a European scale. For a period of ten years, the Federal Ministry of Economics has committed EUR 900 million to H2Global to balance the offer and demand price for imported green hydrogen.
Germany’s total electricity demand is expected to rise to 680–750 TWh by 2030, according to the federal government. It wants renewable energy to account for 80% of the total. It intends to speed up the coal phase-out, with the goal of having it finished by 2030, and it continues to reject nuclear power’s position in the energy mix.
At the same time, the federal government understands the importance of maintaining contemporary gas-fired power facilities until renewable energy sources can provide supply security. Gas power plants, on the other hand, must be constructed in such a way that they can be converted to run on climate-neutral gases.
