Reflection note on Carbon Contracts for Difference (CCfDs)
Author(s): Andrei Marcu, Antonio Fernandez
Carbon Contracts for difference (CCfDs) have been discussed as one of the most promising alternatives for the decarbonization of certain parts of the EU Industry. However, key questions regarding the suitability and implementation of this instrument remain unanswered.
There is a broad consensus in the EU to speed up decarbonization and reinforce the system through which carbon pricing delivers the biggest chunk of emission reductions. Certain low-carbon technologies require a high carbon price and currently EU ETS prices are not yet high enough to trigger this switch in hard-to-abate sectors. This can be partially explained by the fact that the ETS price signal first gives an incentive to deploy solutions that are already close to the market or undergo certain fuel-switching.
Even though carbon prices are not high enough, this should not necessarily translate in public coffers shouldering an undefined financial burden for an indetermined period. This risks to translate into an increase of Member States intervention in markets and even more worryingly into a transfer of risk from industry to Member States. Apart from that, the impact that such an instrument may have on the EU-ETS is not clear and analyzed sufficiently enough, which should serve as a caveat against a rushed implementation
