Germany views hydrogen as a pivotal tool for national decarbonisation and industrial transformation, leading to the launch of the Klimaschutzverträge (KSV) scheme in 2022 by the Federal Ministry of Economic Affairs and Climate Action. The KSV scheme offers financial assistance to companies in energy-intensive industries for climate-friendly initiatives, emphasizing hydrogen use without directly funding low-carbon hydrogen production. However, concerns arise regarding the indirect subsidization of low-carbon hydrogen production costs within project bids. The study urges future funding rounds to explicitly exclude such funding. While green hydrogen was initially favored due to lower emissions, a proposed revision may diminish its competitive edge over low-carbon hydrogen, prompting recommendations to reinforce incentives for green hydrogen in the KSV criteria. Energy and resource efficiency issues are highlighted, suggesting that the bidding mechanism should factor in transport emissions and prioritize hydrogen production proximity to project sites. Moreover, sustainability measures are crucial, advocating for a holistic standard encompassing environmental and social safeguards for hydrogen projects. The study, supported by Deutsche Umwelthilfe, provides valuable insights to navigate funding challenges and uphold sustainability standards in Germany's hydrogen strategy.