We saw last time in the En-ROADS simulation results the power of carbon price to make a difference in the decarbonisation pursuit. From the results, you can see what a carbon price of 200 $/tone of CO2 can do to the energy mix:
At that price, a whole set of renewable investment options is available to an investor. And only after such investment does the change happen. But that is not enough for someone to set billions of dollars in renewable projects. The magic word is uncertain. How could an investor trust the carbon price at a future date to be true? What happens if the governments backtrack from today’s commitments or remove schemes (say, cap and trade) altogether? So the political uncertainty for an investor is too high to depend on the carbon price.
CCFD – the hedge against uncertainty
One way to reduce the uncertainty and encourage investments in clean energy is a carbon contract for difference (CCFD). CCFD is the commitment by the government to pay out to companies a specified amount of money in case there is a difference between the expected and the actual.
References
The Paris Agreement: UNFCCC
EN-ROADS: Climate Interactive
