In our ESG and Climate report published today we focus on hydrogen and what we believe are some unrealistic cost/timing estimates for green hydrogen. One of our concerns is that the hope of cheap green hydrogen, and absent any other strong incentives, will put the brakes on other carbon abatement initiatives and if the cost of hydrogen does not fall we could reach 2030 having made little progress on any front.
The voluntary carbon emission reduction markets are a possible way to increase incentives to lower emissions, and while prices are rising, demand for the credits needs to rise materially such that prices reflect adequate incentives for CO2 emitters to focus on some of the harder to tackle problems. If these credits could be additive to the 45Q incentive for CCS, we might begin to see increased CCS activity, and given our view that all routes to carbon abatement need to be pursued concurrently, this would be a positive step. European CO2 credit prices have stalled, after a surge in the first 5 months of the year (Exhibit below) but we expect the upward path to continue and see somewhere close to €100 per ton a stable longer-term average, but also the potential to overshoot this level meaningfully over the next couple of years.
Source: Bloomberg, C-MACC Analysis, June 2021
