Carbon price needs to triple to spur green EU hydrogen growth

The cost of polluting in the European Union will need to triple to encourage emitters to use hydrogen instead of fossil fuels, according to a report by BNP Paribas Asset Management.

For the bloc to meet its 2050 goal of climate neutrality, emitters in the transport, buildings and manufacturing sectors will have to shift from fossil fuels to clean hydrogen. That switch would need carbon prices at around 79 euros a ton ($92.70 a ton), some 50 euros above the current price, the research said.

“The EU ETS will only be able to play its part in delivering net-zero emissions by 2050 if it first enables green hydrogen to displace gray hydrogen as a feedstock by 2030,” said Mark Lewis, chief sustainability officer at BNP Paribas Asset Management.

The EU cap-and-trade emissions program covers around 12,000 facilities owned by manufacturers and utilities and limits emissions from airlines. The price of discharging a metric ton of carbon dioxide has quadrupled over the past three years and is set to go even higher as Europe tightens its climate policies under the Green Deal.

EU national governments and the European Parliament are currently considering a proposal by the European Commission to deepen the 2030 emissions-reduction goal to at least 55 per cent. The current target, agreed only six years ago, is a cut by 40 per cent.

“On the basis of the assumptions we made, we think that between 79 euros per metric ton to 103 euros per metric ton is a fair indication of the range in which EU carbon prices would need to trade in 2030 for green hydrogen to be competitive with gray hydrogen by that date,” Lewis said.

In a model that Lewis built for the carbon market under the stricter EU climate goal for 2030, the EUETS would have a surplus of 462 million allowances, largely caused by the virus-induced recession. Upholding the existing target of 40 per cent would translate into 1.15 billion excess carbon permits, according to the BNP Paribas report.

“However, what matters from the pricing point of view is how a more ambitious 2030 target changes market psychology,” Lewis said.

© 2020 Bloomberg L.P.

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