.png)
🇪🇺 What does Europe’s future carbon price look like - and what does it mean for CDR in the ETS?
đź’¬ A lot of people are talking about the price gap between removals and emission allowances (EUAs) in the EU Emission Trading System these days.
đź«° The basic issue: removals cost much more than EUAs and that gap needs to be filled with public money.
🤔 But how big is the gap really going to be?
I spent a lot of time covering the CDR cost side, and published analysis for each of the three main methods in Europe - here as a reminder:
🏠BioCCS: https://lnkd.in/eGHdUQ8A
🌬️ DACCS: https://lnkd.in/et9Z3r2w
🪨 Biochar Carbon Removal / BCR: https://lnkd.in/eFY_6bVg
📊 Today, let’s dive into the EUA side. I looked at a bunch of third party estimates for pre vs post ETS revision proposal data.
📉 The short version: throughout the 2030s, EUA price is expected to be up to 22-35% lower than it would have been prior to the current EU Commission proposal. A lot of this depends on whether the linear reduction factor is decreased in combination with the use of international credits in the ETS.
⚠️ Critics will say that this is creating a license to pollute and destroy the ETS. Advocates will say that the whole ETS is at stake if we cannot smooth the EUA cost curve for industry.
👉 This post is not about that judgement call, but about what this means for CDR.
🏛️ The key question for policy makers is when the falling cost of CDR will cross the rising price of EUAs. According to the [very optimistic] Commission proposal, sometime in 2036-38.
🔎 My assessment based on these numbers and the knowledge I have: for almost all currently considered CDR it will not happen in the 2030s at all, creating a significant price gap.Â
đź’¶ I have laid out solutions to this in the posts linked above, but the main one is to lower the average portfolio cost of CDR in the ETS by allowing BCR in now, and leaving the door open to other lower cost options in future through a direct link to CRCF permanent removals.
🙋🏻 What is your take? What am I missing in my analysis?
Comments