Navigating the Energy Transition: Carbon market as the North Star ?

Navigating the Energy Transition: Carbon market as the North Star ?

As the world stands on the cusp of COP28, recent financial announcements from prominent hydrogen technology providers underscore the sector's financial vulnerability. The combined stock market value of the top 10 hydrogen technology providers currently stands below €10 billion, raising concerns about market ability to support the massive investments required for large-scale green hydrogen production.

In addition, this financial fragility is not limited to the hydrogen sector. The wind energy industry, another crucial pillar of the clean energy transition, is also facing financial pressures. During last months, leading wind turbine manufacturers have experienced significant declines in stock market value, highlighting the challenges of commercializing renewable energy technologies.

These financial difficulties stem from a combination of factors, including rising material costs, supply chain disruptions, high inflation and interest rates, and still an absence of value sharing between the different players in the supply chain.

In the face of these constraints, it is imperative to revisit business models and policy frameworks to ensure the long-term viability of the clean energy transition. Several potential solutions warrant consideration, especially when it comes to public-private partnerships, green bonds or supply chain support.

However, current stock market situation combined with the rise in interest rates, poses an additional layer of complexity to the financial challenges. This layer will not be fixed easily.

To mitigate the impact of rising interest rates, I do believe that we need to come back to the root of the global warming: Carbon...and at the heart of carbon lies the principle of emissions trading.

The establishment of a global carbon market is essential to effectively address climate change. It should attract investments where they should be on a worldwide scale. By linking national carbon markets, businesses can trade credits across borders, ensuring that the same carbon price applies globally. This fosters a level playing field, prompting all businesses to take quickly action regardless of their geographical location.

The global carbon market has experienced significant growth in recent years, driven by increasing demand for carbon credits and rising carbon prices. In 2022, the market reached a record value of €865 billion, representing a 13.5% increase from the previous year, but it remains too limited in comparison to global conventional infrastructure investments which are estimated to have reached $3.9 trillion during the same period.

As of today, an increasing number of regions have decided to put a price on CO2 emissions to support the energy transition and we need to speed up.

For instance, The EU has the world's largest and most established carbon market, the EU ETS, which covers over 11,000 power plants and industrial facilities in 31 countries. China launched its national ETS in 2021, covering around 4.4 billion tonnes of carbon dioxide (CO2) emissions from power plants. It is expected to expand to cover other sectors in the future.

However, if the United States have a patchwork of carbon markets at the state and regional levels, there is still no federal carbon market and this needs to be solved.

Same, Japan and Indonesia also have just launched during last months their first carbon credit market, this is really good and there is here a clear need to speed up.

Carbon markets offer a multitude of benefits that make them an effective tool for supporting the energy transition. By putting a price on carbon, carbon markets incentivize businesses to adopt cleaner technologies and practices, reduce air pollution, and invest in renewable energy sources. As the world transitions to a low-carbon economy, carbon markets are poised to play a pivotal role in shaping a more sustainable future for all. I would love to see this topic clearly addressed and fixed during next COP28.


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