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Abstract:
A major question for the upcoming review of the EU Emission Trading System (ETS) is how to contain costs while ensuring that green investments, specifically in energy-intensive industries, are not choked off. A key concern for both is the relatively slow progress in rolling out Carbon Capture and Storage (CCS) infrastructure and scaling up hydrogen (H2) supply. Compared to more optimistic expectations that arguably prevailed in the past, this could delay investment in abatement technologies and push up ETS prices, which endangers industrial competitiveness and raises carbon-leakage risks. An important policy option to moderate these effects is additional allowance supply from permanent carbon dioxide removal (CDR). Yet it is unclear how high prices could rise and how much additional supply would be needed to level out price increases.
