Carbon Contracts for Difference (CCfD) are an important element to trigger emission reductions in industry, offering the EU the opportunity to guarantee investors in innovative climate-friendly technologies a fixed price that rewards CO2 emission reductions above the current price levels in the EU ETS (European Commission Proposal of 14 July 2021 for a Directive of the European Parliament and of the Council amending Directive 2003/87/EC establishing a system for greenhouse gas emission allowance trading within the Union, Decision (EU) 2015/1814 concerning the establishment and operation of a market stability reserve for the Union greenhouse gas emission trading scheme and Regulation (EU) 2015/757, COM(2021) 551 final, 2021/0211 (COD)).

                      
          
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In the Communication of 8 July 2020 (A hydrogen strategy for a climate-neutral Europe (COM(2020) 301 final, p. 13) the European Commission proposed a policy instrument for the creation of the tendering systems for carbon contracts for difference (CCfD).

According to the Commission, such a long term contract with a public counterpart would remunerate the investor by paying the difference between the CO2 strike price and the actual CO2 price in the ETS in an explicit way, bridging the cost gap compared to conventional hydrogen production.

Areas where a pilot scheme for carbon contracts for difference could be applied are, in particular:

  • to accelerate the replacement of existing hydrogen production in refineries and fertiliser production,
  • low carbon and circular steel and basic chemicals, and
  • to support the deployment in the maritime sector of hydrogen and derived fuels such as ammonia and the deployment of synthetic low-carbon fuels in the aviation sector.

 

It could be implemented at EU, or national level, including with the support of the ETS Innovation Fund.

 

However, the need to comply with the State aid guidelines for energy and environmental protection has been underlined.

 

 

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Communication of 8 July 2020 from the Commission to the European Parliament, take Council, the European Economic and Social Committee and the Committee of the Regions, A hydrogen strategy for a climate-neutral Europe (COM(2020) 301 final, p. 13, 14)


With the need to scale-up renewable and low-carbon hydrogen before they are cost- competitive, support schemes are likely to be required for some time, subject to compliance with competition rules. A possible policy instrument would be to create tendering systems for carbon contracts for difference (‘CCfD’). Such a long term contract with a public counterpart would remunerate the investor by paying the difference between the CO2 strike price and the actual CO2 price in the ETS in an explicit way, bridging the cost gap53 compared to conventional hydrogen production. Areas where a pilot scheme for carbon contracts for difference can be applied is to accelerate the replacement of existing hydrogen production in refineries and fertiliser production, low carbon and circular steel and basic chemicals, and to support the deployment in the maritime sector of hydrogen and derived fuels such as ammonia and the deployment of synthetic low-carbon fuels in the aviation sector. It could be implemented at EU, or national level, including with the support of the ETS Innovation Fund. The proportionality of such measures and their market impact should be assessed carefully ensuring that these comply with the State aid guidelines for energy and environmental protection.


 

 

 

 

 

 

 

 

chronicle   Regulatory chronicle

 

 

 

 

 

8 July 2020

 

Communication from the Commission to the European Parliament, take Council, the European Economic and Social Committee and the Committee of the Regions, A hydrogen strategy for a climate-neutral Europe, COM(2020) 301 final

 

 


 

 

 IMG 0744   Documentation

 

 

 

 


 

 

 

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