Economic support for green commodities and fuels: Carbon Contracts of difference

Current status of implementation and existing gaps

For shipping, two different models of carbon contracts-for-difference have been proposed in the literature: the fuel version and the total cost of ownership model (Alex Clark et al., 2021). The former version intends to cover a part or the full costs of switching to a zero-emission fuel or provide infrastructure/retrofitting support. The later covers costs associated with building and operating low-emission ships.

Current status of implementation and existing gaps

Innovative economic instruments are emerging to encourage heavy industries to switch to low-carbon processes. Such instruments could be useful in the production of SAF to guarantee revenue for fuel suppliers.

Examples and initiatives

In 2025, the UK government will develop a guaranteed strike price mechanism to support SAF development. If the reference price exceeds the strike price, the producer will pay the difference; if reference price is below the strike price, the producer will receive a payment. The mechanism aims to ensure revenue certainty for producers (UK Department for Transport, 2024).

Current status of implementation and existing gaps

The introduction to carbon contracts-for-difference by Germany’s Federal Ministry for Economic Affairs and Energy outlines a market-driven approach that shares decarbonisation costs with cement producers. By guaranteeing a minimum abatement price over many years, Germany aims to unlock large-scale investments in carbon capture, alternative binders and next-generation cement kilns, ultimately driving deep emission cuts in one of Europe’s most carbon-intensive industries.

Examples and initiatives

Germany has launched a EUR 4 billion carbon contract-for-difference to provide financial support to energy-intensive industry to undertake climate-friendly investments. A second round, for EUR 19 billion, is also planned.

Current status of implementation and existing gaps

Other economic instruments are emerging to encourage heavy industries, including the chemical and petrochemical sector, to switch to low-carbon processes.

Examples and initiatives

A prominent example is the launch of EUR 4 billion of carbon contracts-for-difference by Germany for its first bidding.

Current status of implementation and existing gaps

Other economic instruments are emerging to encourage heavy industries to switch to low-carbon processes. A prominent example is the contracts-for-difference in the heavy industries.

Examples and initiatives

The introduction to carbon contracts-for-difference by Germany’s Federal Ministry for Economic Affairs and Energy outlines a market-driven approach that shares decarbonisation costs with cement producers. By guaranteeing a minimum abatement price over many years, Germany aims to unlock large-scale investments in carbon capture, alternative binders and next-generation cement kilns, ultimately driving deep emission cuts in one of Europe’s most carbon-intensive industries.