The role of carbon credits in scaling up innovative clean energy technologies | IEA

High-quality carbon credits can have a role to play in accelerating the transition to clean energy and scaling up solutions such as low-emissions hydrogen, sustainable aviation fuel (SAF) and direct air capture and storage (DACS), according to a new joint report by GenZero and the International Energy Agency.

Titled The Role of Carbon Credits in Scaling Up Innovative Clean Energy Technologies, the report estimates that by the early 2030s, annual investment of USD 4.5 trillion is needed per year to accelerate deployment across all clean energy technologies and infrastructure, up from USD 1.8 trillion in 2023.

Reaching net zero emissions targets will require a rapid transformation of energy systems, including the deployment of innovative technologies that can address the most challenging sectors and tackle residual emissions. According to the latest update of the IEA’s Net Zero Emissions by 2050 (NZE) Scenario, further progress is essential to develop and deploy critical technologies. Among these, low-emissions hydrogen, SAF and DACS would need to grow substantially in the coming years. But achieving the necessary scaling up depends on early deployment and investment.

To mobilise the level of investment required, governments can deploy a range of complementary policies and innovative financing instruments. An integrated approach of public and private funds could help manage different risks and lower the overall cost of capital for certain technologies. Public funds could help to manage regulatory and country risks to help unlock private capital for early projects. In developing economies, an integrated approach involving grants or guarantees could support market entry and project feasibility, with governments bridging the investment gap by providing clear regulations and enabling policies.

Frederick Teo, CEO, GenZero, said: “Accelerating the development and adoption for critical technologies like low-emissions hydrogen, sustainable aviation fuels and direct air capture will be critical to achieve fundamental decarbonisation at industrial scale and realise net zero ambitions globally. Beyond challenges in technology readiness, high costs continue to deter early adoption. While costs will eventually come down and technology will mature, will it happen fast enough to avert a looming climate crisis? We need to accelerate adoption by catalysing more investments and financing into these areas. Carbon markets, via high-quality tech-based carbon credits, offer a scalable pathway to do so. Together with supportive regulatory policies, clearer guidance on the carbon accounting associated with such carbon credits, and strong corporate demand supported by high-integrity claims guidance, we believe that carbon credits can play an important role to scale up these critical low-carbon technology solutions.”

Tim Gould, Chief Energy Economist of the IEA, said: “Our analysis shows that low-emissions hydrogen, sustainable aviation fuels and direct air capture all have crucial roles to play if we are to limit global warming to 1.5 °C, but for the moment the underlying economics are challenging. To secure an early, massive scaling up of these technologies, governments need a range of complementary policies and innovative financing instruments. Carbon credits cannot bridge the investment gap on their own, but our new joint work with GenZero underscores how well-designed and credible crediting mechanisms can get projects moving by improving revenues and bankability.”