Getting to Zero sees CFDs as a way to close the green fuel price gap

The cost gap between zero-emission fuels and fossil fuels could be bridged by spending revenues from EU emissions trading to fund derivatives called contracts for difference (CFDs) on green trading.

That’s the finding of the Getting to Zero coalition in a new research paper, which suggests using 14% to 25% of shipping revenue when it falls under the EU’s Emissions Trading Scheme (ETS). the EU.

Incentives provided through CFDs could target different segments of the shipping sector and a range of zero-emission fuels, particularly on the development of green corridors, the offshoot of the Global Maritime Forum (GMF) said.

The CFD strategy would support the coalition’s goal of at least 5% zero-emission fuels in EU shipping by 2030 at an estimated cost of €1.2 billion ($1.26 billion). dollars) per year, the coalition said.

“This sum could be funded with just a portion of the ETS revenue related to transport, which is estimated between 5 and 9 billion euros per year depending on the price of the ETS,” said Getting to Zero.

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A CFD is an asset derivative contract that mitigates the market risks faced by providers of a new high-cost commodity by paying the provider the difference between a predetermined reference price reflecting the old technology – in this case, the cost of conventional fuel – and a strike price set at the value required for the new technology to be viable.

The provider receives a guaranteed minimum price for the duration of the CFD, and if the benchmark price exceeds the strike price, the provider pays back the subsidy, Getting to Zero said.

The coalition added that a CFD model for the shipping industry would most likely focus on the cost of fuels, with ship operators directly receiving government subsidies for the difference between the strike price of zero-emission and fossil fuels. .

In turn, operators would sign off-take agreements with fuel producers based on the fixed strike price, and fuel producers would be incentivized to cut costs to improve profits, Getting to Zero said.

To reach the 5% utilization target by 2030, around 11 GW of electrolysis capacity would be needed in the EU if it were based only on green hydrogen and fuels derived from green hydrogen.

“This would save around 2.7 million tonnes of heavy fuel oil per year by 2030,” the coalition said.

The required electrolysis capacity can be achieved comfortably in the context of announced global capacity and the European hydrogen strategy which aims for 40 GW of electrolysis capacity in Europe by 2030, the group added.

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