Designing Carbon Contracts for Difference

The document analyzes the implementation of CCfDs in Europe, specifically comparing the Dutch SDE++, the UK's Industrial Carbon Capture (ICC) contract, and the Danish CCUS Fund. It details how these mechanisms bridge the cost gap between the EU ETS carbon price and the actual cost of carbon abatement for hard-to-abate sectors like cement, steel, and chemicals. The analysis covers critical design elements including fund sizes, technology eligibility, reference and bid pricing, payment symmetry, and the management of cross-chain risks related to transport and storage (T&S) infrastructure.

• Carbon contracts for difference (CCfDs) are being used by European governments to cover the cost gap where the additional cost to cut a tonne of CO2 exceeds the market price under the European Union Emissions Trading System (EU ETS).
• The Netherlands' SDE++ scheme, which expanded in 2020 to include CCUS, uses a 'subsidy intensity' basis for awarding contracts and employs a reference price floor set at two thirds of the 15-year projection of the ETS price.
• The UK's Industrial Carbon Capture (ICC) contract utilizes a fixed trajectory reference price increasing linearly from £83/tCO2 in 2022 to £128/tCO2 by 2040 for the first ten years to ensure predictability.
• Denmark's CCUS Fund requires the project 'Operator' to deliver the entire capture, transport, and storage value chain, with a restructured fund aiming to procure at least 2.3 Mtpa by 2029.
• Payment symmetry varies across the three schemes: SDE++ and the Danish CCUS Fund only provide payments from the government to the project, whereas the UK ICC contract allows for payments from the project back to the counterparty during extension years or for waste management plants.
• The UK ICC contract provides specific protections against transport and storage (T&S) unavailability, continuing capex payments based on previous delivery averages, while the Dutch SDE++ places the full risk of T&S unavailability on the capture facility.

APA

Lockwood, T. (2024). Designing Carbon Contracts for Difference. Clean Air Task Force. https://www.catf.us/resource/designing-carbon-contracts-for-difference/

Chicago

Lockwood, Toby. Designing Carbon Contracts for Difference. Clean Air Task Force, 2024. https://www.catf.us/resource/designing-carbon-contracts-for-difference/.

Wikipedia

{{cite report |last1=Lockwood |first1=Toby |title=Designing Carbon Contracts for Difference |publisher=Clean Air Task Force |date=12 February 2024 |url=https://www.catf.us/resource/designing-carbon-contracts-for-difference/ |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{lockwood2024designing, author = {Lockwood, Toby}, title = {{Designing Carbon Contracts for Difference}}, institution = {Clean Air Task Force}, year = {2024}, month = feb, url = {https://www.catf.us/resource/designing-carbon-contracts-for-difference/}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }