German industry decarbonisation pressure tests Berlin’s policy toolbox

German Bundestag

Germany’s German industry decarbonisation pressure is intensifying as policymakers reject extra steel support while insisting current tools are enough.

German lawmakers have rejected an opposition motion for more targeted steel decarbonisation aid, but they openly acknowledge mounting competitiveness risks. They point to weak export markets, rising energy costs and the phase-out of free EU ETS allowances as key drivers of German industry decarbonisation pressure. As a result, firms in steel and chemicals now face climate policy tightening just as global demand softens.

Meanwhile, Berlin is promoting an industry power price and extended power price compensation as its main answer to German industry decarbonisation pressure. Officials stress that grid fee cuts, carbon cost compensation and tax reductions are not “subsidies” but cushioning against global shocks. However, industry groups warn these measures remain fragmented and late compared with US and Asian incentive schemes. The debate now centres on how much state help is needed to keep core assets onshore.

Germany searches for a cheaper decarbonisation path

Germany’s government insists German industry decarbonisation pressure must be managed without choosing the “most expensive way”. Policymakers now frame circular economy, raw materials partnerships and smarter infrastructure as cost-control levers. Therefore, they emphasise more recycling, reduced raw material dependence and tighter integration with resource-rich partners.

However, the steel and fertilizers sectors argue that ETS tightening and CBAM timing create a dangerous cost squeeze. Industry leaders warn that phasing out free allowances before export support is clear risks accelerating plant closures. They call for extended free allocation, slower ETS tightening and faster clarity on CBAM-linked export schemes.

Steel, chemicals and CCS at the heart of the debate

Steel, fertilizers and chemicals sit at the core of German industry decarbonisation pressure, because they rely on high-temperature processes and constant energy. Officials argue that extending power price compensation signals to investors that Germany wants these sectors to stay and evolve. As a result, Berlin is pushing Brussels to widen eligibility and lengthen compensation schemes.

At the same time, the government wants a more permissive stance on carbon capture and storage. Economy officials argue that onshore CCS should become the norm, not the exception, if Germany wants deep industrial decarbonisation at realistic cost. Yet political resistance to CCS, local opposition and permitting delays still threaten timely deployment.

The Metalnomist Commentary

Germany’s battle with German industry decarbonisation pressure shows how climate ambition and industrial policy now collide in real time. Unless export support, power price relief and CCS rules are aligned quickly, Europe’s largest industrial base risks losing capacity before low-carbon investments mature. For metals, fertilizers and chemicals, the next legislative cycle will decide whether Germany remains a core production hub or shifts further toward managed deindustrialisation.