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Industrial decarbonisation is Europe's most overlooked climate challenge

Why Germany needs a carbon management strategy 

April 5, 2022 Work Area: Carbon Capture

Following the start of the Russia-Ukraine war, German Chancellor, Olaf Scholz, declared the country finds itself at a Zeitenwende, or watershed moment. As the country looks to release itself from dependency on Russian fossil energy imports, seismic shifts in its energy policy are being seen with new agreements to import from producing countries like Norway, the United Arab Emirates, and Qatar, to secure supplies of fossil gas. The EU and the U.S. have also brokered an agreement to import additional supplies of LNG. At the same time Germany faces an enormous task in meeting its emissions reductions targets of 65% from 1990 by 2030, and climate neutrality by 2045, as set in its Climate Protection Act. To address both of these challenges, Germany is accelerating its renewable energy deployment targets and has already entered into agreements with producing countries on supply for zero-carbon fuels like hydrogen and ammonia. A carbon management strategy for Germany is a necessary component of a transition plan that can address both objectives. 

Carbon management technologies, which include carbon capture and storage as well as negative emissions technologies like direct air capture or bioenergy with carbon capture and storage, can play a key role in decarbonising various applications. In particular, carbon management can play a significant role in the production of zero carbon fuels, like hydrogen and ammonia. As Germany enters a new phase in its Energiewende, ensuring its energy strategy is consistent with Germany’s climate and energy security goals will mean carbon management will play an ever-greater role. 

The sheer scale of the challenges ahead in reducing Germany’s dependency on Russian energy imports as well as its greenhouse gas emissions, means all climate-neutral options must be on the table. As Vice-Chancellor, Robert Habeck, described in considering how these issues can be solved: “There are no thought taboos.” Reaching climate neutrality without carbon management will not be possible according to the leading studies on reaching climate neutral Germany in 2045. For Germany to meet its climate goals, the development and implementation of a carbon management strategy must be considered as an immediate top priority.   

The Government has already made several commitments which will be very difficult to achieve without securing a full-scale deployment of carbon management. In the coalition agreement, the Government has committed to: promoting regional decarbonisation clusters (Transformationscluster), developing a strategy to deploy carbon removal technologies, and maintain a ‘technology-open’ approach to Germany’s hydrogen economy. 

In 2019 former German Chancellor, Angela Merkel, announced carbon management as a key part of Germany’s decarbonisation strategy. Nearly three years later, Europe’s largest economy has still yet to see any meaningful policy progress in support of carbon management, let alone the development of actual projects. But despite its commitment to substantive climate action, the Ukraine conflict has exposed the need to have a robust approach to effective climate action which will not succeed without carbon management. If the government is serious about decarbonising the entire economy, the coalition government must come up with a carbon management strategy, and fast. 

Here are five reasons why developing a carbon management strategy is a vital task for the new government: 

1. A Carbon Management Strategy would help Germany set realistic climate targets 

In recent months, four key studies by leading modeling agencies, Ariadne, Agora Energiewende, Deutsche Energie-Agentur (Dena), and the Bundesverband der Deutschen Industrie e.V. (BDI) have analysed how Germany can reach net zero by 2045. A key conclusion from each of these studies is that reaching net zero by 2045 will require Germany to use carbon capture and storage, direct air capture and bioenergy with carbon capture and storage.  

Quantities in millions of tons (Mt) of CO2 to be stored annually using Direct Air Capture (DAC), Bioenergy Carbon Capture and Storage (BECCS) and Carbon Capture and Storage (CCS) from Point Sources in a climate neutral Germany in 2045.
Figure 1: Quantities in millions of tons (Mt) of CO2 to be stored annually using Direct Air Capture (DAC), Bioenergy Carbon Capture and Storage (BECCS) and Carbon Capture and Storage (CCS) from Point Sources in a climate neutral Germany in 2045.

As the Ariadne study outlines, carbon capture and storage will need to play a key role in reducing CO2 emissions from the industrial sector over the coming decade. In 2021, Germany’s industrial sector emitted almost 180 million tons of CO2 per year, according to data from Agora Energiewende. To stay in line with reaching climate neutrality by 2045, these emissions will have to fall to 40 million tons of CO2 per year by 2030. While some of this can be undertaken through modifications in the steel and cement-making processes, as much as 30% of all steel and cement-making facilities in Germany will have to be equipped with carbon capture and storage in 2030 (Ariadne, p.138). The role of carbon capture and storage in Germany’s decarbonisation strategy is a clear point of consensus, with all studies concluding that between 1-3 million tons of CO2 per year will have to be captured and stored by 2030.  

Additionally, while most of the development before 2030 will be on capturing CO2 from point source emitters, carbon removal technologies such as direct air capture and bioenergy with carbon capture and storage will have to be scaled at a rapid rate before 2045. Estimates on the amount of atmospheric CO2 which will be required to be removed by these technologies vary widely, from 29 million tons per year to as high as 74 million tons per year. 

2.  A Carbon Management Strategy will fill crucial gaps in the existing decarbonisation strategy 
Since reducing emissions from the industrial sector is critical to Germany’s decarbonisation strategy, it is incumbent on the federal government to provide support and oversight. While much of the required emissions reductions can come from measures like electrification or energy efficiency improvements, for some sectors there are significant emissions from chemical processes which these approaches cannot address. Moreover, enabling a wide portfolio of technologies reduces the risk of one option not delivering as intended.  

Figure 2: Trend of GHG Emissions per year in the industrial sector from 1990-2020. Estimate for 2021 and annual sectoral targets from 2020 to 2030. Source: Agora Energiewende 

While emissions in the sector have been falling, evidence shows that it is not nearly fast enough, leading Agora Energiewende to claim that “in order to achieve the 2030 target, rapid entry into new, climate-neutral production processes is necessary, especially in the energy-intensive process industries.” Some of these technologies, like carbon capture and storage, have thus far not been enabled by the federal government. Without incentives or regulatory measures, emitters have little reason to deploy carbon capture and storage. Therefore, the technology will not see widespread implementation unless a clear business case exists or emitters are simply forced to deploy the technology.  

High costs for the technology arise because concentrated CO2 point sources are frequently located at dispersed locations far from a likely offshore storage site. Figure 3 provides an illustration of the difficulty that isolated German industrial sites might face if they capture CO2 without a planned CO2 transportation network. Given that Germany currently has no ability to store CO2 within its borders, even large point source emitters who want to employ carbon capture and storage on their facility have no means to transport and store the captured CO2. 

Figure 3: Overview of the biggest potential users of carbon capture. Source: BDI

3.  A strong hydrogen economy in Germany will involve carbon management 

Given the significant role of hydrogen planned for Germany’s economy over the coming decades, it is unlikely this goal will be met without a carbon management strategy in place. Germany is already by far the largest consumer of hydrogen in the EU, producing approximately 2.5 million tons of grey hydrogen each year. Without carbon capture and storage, it will not be possible to decarbonise those existing assets, which will simply continue to remain unabated. The German government plans to meet most of its hydrogen demand using electrolysis by doubling the current target of electrolyser capacity of 5 GW to 10 GW by 2030. This is certainly an ambitious goal given that the current production of hydrogen produced from electrolysis is essentially zero. But the target also raises more fundamental concerns when it comes to the role of hydrogen in Germany’s pathway to climate neutrality, namely, where should new renewable electricity go. Moreover, despite a dramatic increase in EU ETS prices, Germany’s share of renewable energy fell by 5.4% in 2021, while coal power increased by 20.8%, according to Agora Energiewende. Since the scale up of renewable electricity is simply not moving fast enough, this begs the question of whether precious, new, clean electricity should be used to produce hydrogen or if it should be used to replace the 40% share currently occupied by coal and nuclear in Germany’s grid, both of which are scheduled to be phased out before 2030.  

If Germany is to meet its hydrogen needs, other options must be on the table. Hydrogen can already be produced from fossil gas commercially with reformers achieving 90% capture rates or greater, providing a clean, alternative way to produce the hydrogen needed for Germany’s industrial decarbonisation. Minister for the Economy and Climate, Robert Habeck, has already admitted that replacing fossil fuels with renewable sources in the power sector is “a Herculean task for Germany”. Placing additional burdens on renewable energy sources to also cover Germany’s hydrogen demand is simply too great a risk. Indeed, the Government has agreed to “jointly plan the use of blue hydrogen for a transition period” with the Norwegian Government, as well as “expand hydrogen cooperation,” including blue hydrogen, with the United Arab Emirates. For Germany’s industrial sector to decarbonise over the coming years, enabling other sources of energy to produce the clean hydrogen needed will be crucial. Ensuring that this is done in a manner consistent with Germany’s climate goals means a carbon management strategy is essential. 

4. Scaling Carbon Management reduces risks for the energy transition 

The significant role carbon management can play in Germany’s industrial sector offers the opportunity to reduce risks in the broader energy transition. For Germany to reach its renewable energy targets of 80% of electricity by 2030 and 100% by 2035, an enormous amount of industrial materials will be required. Producing the low carbon materials in sufficient quantities for Europe’s climate ambitions will prove an extremely difficult task. Wind turbines, for example, are made of at least 70% steel, an industry responsible for approximately 55 million tons of CO2 emissions in Germany each year, according to Agora Energiewende. Producing the wind turbines needed to generate renewable energy means cutting production is not feasible, particularly as clean industrial goods in Europe for the energy transition will become more important. 

Solutions to decarbonise steel, such as carbon capture and storage and clean hydrogen already exist. As CATF has already analysed, these will be crucial to ensure that the whole value chain of electricity sources like wind is truly low carbon. The example of Tata Steel’s Ijmuiden plant in the Netherlands shows the tremendous difficulties and problems associated with green hydrogen as the steel industry’s silver bullet. Replacing the Ijmuiden plant with green hydrogen would require 6 GW of wind power – nearly equivalent to the Netherlands’ existing installed wind capacity. A portfolio of solutions including carbon management is needed to ensure the risks associated with decarbonising Germany’s industrial sector, and its energy transition more broadly, are reduced as much as possible. 

5. A Carbon Management strategy will enable Germany to connect to regional hubs 

In the past few years, the governments of the Netherlands, UK, Norway, and Denmark  have all supported the development of carbon capture and storage hubs, with various full-scale commercial projects now in development. Some of these are aiming to become part of an international carbon management industry. Projects such as Norway’s Northern Lights project have made expressly clear that they envisage an open-source CO2 storage business, where emitters from across northern Europe can store their captured CO2. Similarly, the Porthos project in the Netherlands could also function as a storage site for CO2 captured in Germany, given the close geographical and economic ties between the two nations.  

Key studies have outlined the need for a network enabling for the transport of CO2 both within Germany as well as for exporting abroad. This has received overwhelming support from a coalition of NGOs and industry leaders, which recently led a call to action for the development of a cross-border CO2 network in the Antwerp-Rotterdam-Rhine Ruhr Area. The call to action preceded an announcement from the Dutch Government to co-finance a study on the development of the Delta Corridor Project which would transport CO2 from North Rhine Westphalia to the Netherlands. Indeed, the federal government of North Rhine-Westphalia has already developed their own Carbon Management Strategy, which will play a key role in its large industrial sector to become climate-neutral. The strategy, based on extensive analysis by the Wuppertal Institute, places significant reliance on transport of CO2 to Norway and the Netherlands for storage. Since there are no CO2 storage sites are available in Germany, any captured CO2 would have to be transported abroad for storage. Developing cross-border pipeline links such as the Delta Corridor or new, countrywide pipeline networks in Germany such as one planned by Open Grid Europe will be essential to making this happen.

However, under the London Protocol rules, German industries cannot transport their CO2 cross-border for disposal at sea, while there is no clear means for emitters to transport CO2 over land. Without a strategy to develop carbon management, Germany risks stalling on creating a climate-neutral industry and missing the boat on a growing carbon management industry in Europe. 

Figure 4: An overview of current carbon capture project developments in northern Europe. Source: Clean Air Task Force, Europe Carbon Capture Activity and Project Map 

Given the well-documented failures to develop carbon capture and storage projects in Germany until now, a comprehensive strategy from the federal government is needed to place carbon management firmly on Germany’s climate agenda. This would not reflect a reversal in strategy, the previous federal government made clear its intention to bring carbon capture and storage technologies to market maturity as recently as 2019. Instead, a pragmatic carbon management strategy would drive the broader climate objective forward, by giving Germany a better chance of reducing its emissions fast enough by scaling solutions, like carbon management, to get itself there.  

If Germany is really experiencing a Zeitenwende in its economic and climate policies then it must also awaken to the fact that it won’t reach its climate goals without the use of carbon management. The new federal government has a unique opportunity to lead (where its predecessors failed) a successful decarbonisation strategy by providing the appropriate political and financial support to its nascent, but much needed carbon management industry. 

This is the first of a two-part blog series on carbon management in Germany. Part two will assess what a German carbon management strategy should include. 

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