Carbon price starts to impact industries

• The current EU carbon price is around the break-even price for green hydrogen priced at $2 per kilogram to compete with the cheapest fossil fuels in use today for industrial applications, such as steel manufacturing. Hydrogen at $2/kg is benchmark that could be reached this decade.
• Meanwhile, the Inflation Reduction Act in the US has revised the 45Q tax credit for carbon capture, utilization and storage (CCUS). Combined with the California carbon price, most CCUS projects are now competitive.

 

 

EU carbon price versus price needed to make $2/kg hydrogen competitive in various industrial sectors

California carbon price and cost of carbon capture utilization and storage

• However, the free allocation of allowances mutes the price signal for industrials in both the EU and California. Only investor-owned electric utilities in California and the EU power sector are exposed to the full carbon price.
• The impact of the carbon price reaching the break-even price for clean technologies is that industries can reduce their emissions and demand for allowances. However, it will also likely lead to companies that are not able to reduce their emissions today to hedge against rising carbon prices. The hedging demand would boost carbon prices.