Germany’s Budget Cuts Leave Heavy Industry Stuck with Dirty Tech

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The government’s key program to help clean up its heavy industries relies on an auction instrument to bridge the pricing difference between conventional processes and cleaner, more expensive alternatives. While a first auction last October awarded contracts to 15 projects, an economy ministry spokesperson said preparations for a potential second round were “complex,” though it’s technically possible for another to take place this year.

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One company that could be eligible to participate is Hamburg-based copper recycler Aurubis AG. It installed two hydrogen-ready anode furnaces last year, but with no hydrogen available at competitive prices, it continues to burn natural gas in its state-of-the-art ovens.

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At an energy conference last month, economy minister Katherina Reiche explained that the expected demand for hydrogen isn’t materializing, or is very delayed. Meanwhile, the German budget envisions slashing two-thirds of the funding the previous administration allocated to hydrogen.

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Of course, the lack of state support isn’t the only reason why decarbonization projects are stuck or failing. For example, when steelmaker ArcelorMittal SA last month announced it would hand back a €1.3 billion subsidy for two local green steel units, it pointed to “unprecedented” market pressure, weak demand, unfavorable European policy and high electricity prices.

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That’s an even bigger problem for the chemical industry in Germany which is facing factory closures, layoffs and production cuts. “I can only spend every euro once,” said Martin Naundorf from Infraleuna GmbH, operator of a chemical hub in the country’s east. Given the current conditions, “nobody can afford to invest in technologies where it’s unclear when they’ll become profitable.”

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However, the state could also change its procurement strategy to help climate technologies reach market maturity, a measure the coalition already agreed upon. 

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Steelmaker Stahl-Holding-Saar GmbH is one company that would benefit from that approach. It says it’s the only European rolling mill to offer CO2-reduced rails, for which the steel was produced with electricity instead of coal. The firm already concluded supply contracts with France’s SNCF Réseau, Belgium’s Infrabel and Swiss Railways, but hasn’t received interest from any Germany customer, according to Chief Transformation Officer Jonathan Weber.

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Major industrial competitors, such as China, are investing massively in new technologies to help manufacturers decarbonize, said Julia Metz, director of think tank Agora Industry. “If Germany wants to keep up, it must not miss the boat and must invest massive amounts of money in new climate protection technologies.”

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