Europe's hydrogen economy and what it means for carbon prices

Central to the decarbonisation of many sectors under the EU ETS is the widespread rollout of green hydrogen as an industrial feedstock.

Up until very recently estimates have suggested that Europe requires very high carbon prices to incentivise the switch away from hydrogen manufactured using fossil fuels, known as grey hydrogen.

However, record high natural gas prices in Europe may accelerate hydrogen's role in industrial decarbonisation, without the need for significantly higher carbon prices.

Carbon traders may have looked to the ‘dark-spread’ as a tool for estimating carbon allowance demand, but they may increasingly be looking to ‘green-grey’ hydrogen spread instead as the long term driver of carbon prices.