The decline in the European Union’s carbon price this year has raised concerns about the potential impact on a fund designed to be one of the world’s largest initiatives for supporting new green technologies. The decrease in carbon prices could lead to a shortfall in the fund’s budget and potentially jeopardize some low-carbon projects within the EU.
Following a significant surge to over 100 euros per ton of CO2 last year, the cost of EU carbon permits had nearly halved by February, driven by a reduction in emissions covered by the market due to decreased power demand and increased generation of renewable power.
As a result of this decline, analysis of market data shared with Reuters by consultancy Veyt revealed that Europe’s budget for low-carbon investments has suffered a loss of 4.1 billion euros ($4.36 billion) in potential revenues thus far in 2024.
While the decrease in emissions indicates that the carbon market is contributing to the EU’s climate objectives, it also means that the scheme is generating less revenue than anticipated for EU green transition funds and for financing member states’ climate initiatives.
The EU Innovation Fund, which is the primary fund for emerging technologies such as hydrogen and carbon capture, is crucial for the 27-nation bloc’s efforts to achieve its climate change targets. However, the fund’s projected 40 billion euros for this decade may be at risk, given that the benchmark EU carbon price has remained below the required level for more than three months, trading at around 70 euros per ton on Wednesday.
Consequently, the data from Veyt indicates that EU carbon revenues in 2024 are 30% lower than if carbon auctions had achieved the average 2023 price of 83.6 euros per ton, potentially impacting the number of projects the funds can support.
The reduction in cash available for the energy transition would pose a challenge to European industries striving to adopt green practices while remaining competitive globally. Some companies have already redirected their investments to the U.S. to take advantage of clean tech subsidies, underscoring the potential repercussions of the fund’s limitations.
Holcim, the world’s largest cement maker, emphasized the significance of the Innovation Fund in driving low-carbon investments in Europe, citing its successful backing for carbon capture projects in several European countries. However, the company expressed concerns over the potential impact of reduced funding and hinted at the possibility of bidding for the fund in the future.