High carbon prices are an opportunity to accelerate the deployment of clean energy technologies (report)

High carbon prices are an opportunity to accelerate the deployment of clean energy technologies (report)

High carbon prices are accelerating the deployment of clean energy technologies around the world. It increases revenue flow and encourages actors to make more investments to reduce emissions.

According to a recent report - reviewed by the Energy Research Unit - the US market is leading the rise in carbon prices globally after it usually lagged behind many of its global counterparts. This helps pump more dollars into investment in clean energy projects.

The report issued by the specialized platform Bloomberg New Energy Finance (BloombergNEF) considered that the carbon market may be a contributing factor, along with other policies such as the US inflation reduction law, in the spread of clean technologies, including hydrogen and biofuels.

The carbon credit policy depends on the ability of companies to compensate for each ton of emissions they cause by contributing to a low-carbon project, or by paying a financial compensation equivalent to the price of a ton of carbon. If the institutions succeed in reducing their emissions, they achieve a surplus of carbon credits that they can sell to Others still release more emissions.

Figure : US Carbon prices sprint past their global Peers, Sources : BloombergNEF

Coastal states are building the carbon market momentum in the US. In addition to the new markets in Washington and Oregon, New York state is in the process of developing its own program. The advantage of having a compliance carbon allowance market is that it gives the emitters a price signal to abate without dictating who should and how. It also allows faster abaters to earn extra cash by selling surplus allowances back to the market.

Carbon prices in the United States

Carbon prices rose in Washington, DC, and California, exceeding those in Europe and New Zealand this summer (2023), even with the momentum of green policies on the Old Continent.

The report shows that the price of carbon in Washington rose by 74% this year, reaching an all-time high of $73.05 per ton in late August 2023.

Carbon prices in California also rose to a record high last July at $37.49 per ton, an increase of 24% since the beginning of this year.

Also, coastal states are working to grow carbon markets in the United States, including New York State, which is developing its own carbon market program.

The report believes that the multiplicity of carbon trading markets gives a signal to emitting facilities that prices may decline without intervention from any party.

This means that emitting facilities may accelerate the reduction of their emissions - through the deployment of clean technologies - to make additional money from selling their surplus credits before carbon trading markets multiply and prices decline.

Policies are important for clean energy

In parallel with US clean technology diffusion policies such as the Inflation Act, the carbon market helps clean energy projects grow; Including hydrogen and biofuels.

She emphasizes that diversifying policies ensures achieving higher returns with lower risks, noting that investors can reduce the risks that threaten their investment portfolio while hedging against inflation.

According to the report, carbon credit markets in Washington and California performed better than the Standard & Poor's Index of 500 largest US companies and most US ESG investment funds.

As carbon prices rise and thanks to market auction revenues, regulators get more money to help vulnerable groups towards their climate goals, support transition industries and achieve environmental justice.

For example, Washington state's revenues from carbon market auctions rose to $920 million for 2023, according to the Energy Research Unit.

There are currently about 35 markets committed to their climate goals globally, covering approximately 20% of global greenhouse gas emissions.