Commission publishes state aid guidance on carbon contracts for difference

The European Commission has published guidance to support member states in designing state aid schemes based on carbon contracts for difference (CCfDs), in compliance with the Guidelines on state aid for climate, environmental protection and energy (CEEAG). The aim is to support member states in setting up such aid schemes, in line with EU rules.

A CCfD is a subsidy agreement between a granting authority and a beneficiary (for instance, a steel or chemicals plant) to help reduce greenhouse gas emissions by removing financial risks for decarbonisation projects. Typically, a CCfD ensures a certain remuneration (strike price) for every tonne of CO₂ the beneficiary avoids emitting. If the market carbon price is lower than the strike price, the granting authority pays the difference to the beneficiary. Conversely, if the market price is higher than the strike price, the beneficiary may either have to pay back the difference or keep the extra revenue. CCfDs can present various forms and approaches and the guidance provides such examples, but is not meant to restrict design choices by the Member States.

CCfDs play an important role in achieving the objectives of the Clean Industrial Deal by accelerating decarbonisation in Europe's industrial sectors while boosting their competitiveness. By providing long-term price certainty for CO₂ reductions, CCfDs help derisk high-cost decarbonisation investments such as hydrogen, electrification, and carbon capture, and make them financially viable. CCfDs can ultimately strengthen Europe's strategic autonomy and industrial resilience in line with the Clean Industrial Deal's goals.

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