Germany’s federal budget proposal for 2025 signals a major retreat from previously committed financial support for industrial green hydrogen, with funding expected to drop from €3.7 billion to just €1.2 billion through 2030—a 67.5% reduction.
This shift, confirmed by leaked draft documents and reported by Tagesspiegel and the German Association of Energy and Water Industries (BDEW), marks a dramatic pivot in the country’s approach to decarbonising hard-to-abate sectors such as steel, cement, and chemicals.
The proposed cuts threaten the viability of the “climate protection contracts” (Klimaschutzverträge), a mechanism designed to bridge the cost gap between conventional fossil-based processes and their low-emission hydrogen alternatives. These contracts had already disbursed more than €1 billion in direct grants to five industrial firms as of October 2024, forming a keystone policy in the country’s industrial decarbonisation strategy.
The CDU-led coalition has framed the cuts as part of broader fiscal consolidation following a constitutional court ruling in late 2023 that invalidated the reallocation of €60 billion in unused COVID-19 relief funds for climate purposes. The judgment forced the government to reassess spending priorities, leading to widespread concern among clean energy advocates about the dilution of climate ambition.
According to BDEW, the cuts could jeopardize the market ramp-up of green hydrogen, which remains economically uncompetitive without subsidy support due to persistently high production costs—currently ranging between €4 and €6 per kilogram in Europe, compared to €1–2/kg for grey hydrogen derived from natural gas. The European Commission had originally encouraged member states to use Contracts for Difference (CfDs) and state aid to offset this delta until carbon pricing or economies of scale close the gap.
Risks to Industrial Competitiveness and Emissions Targets
Germany’s 2030 climate targets hinge on achieving deep emissions cuts from its industrial base, which accounts for nearly 23% of national greenhouse gas emissions. A lack of funding for green hydrogen could delay or derail decarbonisation pathways in steelmaking, ammonia production, and high-temperature heat processes.
The decision to curtail investment comes at a time when German industrial producers face mounting pressure to decarbonise or risk export penalties under upcoming EU Carbon Border Adjustment Mechanism (CBAM) regulations. Without sufficient domestic support, German manufacturers could fall behind competitors in France, the Netherlands, and the Nordics, where hydrogen subsidies and infrastructure programs remain robust.
Industry reaction has been swift. Several large companies that had applied for hydrogen-related state aid have warned that uncertainty over funding will force them to delay final investment decisions or shift focus abroad. The cancellation or deferral of flagship hydrogen projects would weaken demand signals needed to unlock private investment in electrolyser manufacturing, hydrogen storage, and pipeline infrastructure.
Moreover, the budget revision could ripple across Germany’s broader hydrogen strategy. The National Hydrogen Council had previously called for €20 billion in public investment through 2030 to achieve targets of 10 GW electrolyser capacity and meet domestic demand estimated at 90–110 TWh by the end of the decade. The revised allocation now covers only a fraction of that trajectory.
The budget draft is subject to parliamentary review and may yet be amended. However, with Germany under increasing fiscal pressure and prioritising household energy cost relief and infrastructure investment, hydrogen support appears to be politically deprioritised.
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