Carbon's shifting anchor

The growth in electrolyser capacity is pivotal to Europe's decarbonisation ambitions

The argument for a slow rate of industrial decarbonisation in Europe hinges on the need for the carbon price to rise beyond an industry’s estimated carbon abatement cost, and crucially remaining higher than that level for an extended period of time such that high carbon prices become embedded in expectations.

Only then, so the argument goes, will industrial companies begin to invest in decarbonisation technologies.

Large industrial companies and consultants typically place their abatement cost estimates anywhere in the region of €60-€230 per tonne, depending on the technology, industry, etc. With the current EU carbon price not even one-third of this upper range, difficult to decarbonise industries appear to have someway to go before they have sufficient incentive to invest (see The long term price of emission).

However, there’s a good case to be made that the cost to decarbonise is likely to come down fast, and perhaps to levels significantly lower than these estimates from 2020 suggest.

The anchor by which major industrial emitters judge future investments in decarbonisation is shifting.

It all comes down to the role green hydrogen is likely to play in Europe’s decarbonisation. According to research by Agora Energiewende and the Wuppertal Institute for Climate, green hydrogen could provide one-fifth of the industrial emission reduction required by 2030 under the EU ETS.

This is likely to be an underestimate. As the cost of green hydrogen comes down, other use cases are likely to become apparent, enabling and accelerating the last mile of decarbonisation.