In a groundbreaking shift, new climate policies from the European Union are poised to nearly triple the global demand for documented renewable electricity.
A recent analysis by Ecohz has shed light on the transformative potential of the EU's Carbon Border Adjustment Mechanism (CBAM) and the Corporate Sustainability Reporting Directive (CSRD), forecasting a surge in the market for International Renewable Energy Certificates (I-RECs).
The Ecohz study delves into the electricity consumption involved in producing aluminium and steel imported into the EU.
Renewable or taxable
These industries, integral to the CBAM's framework, are set to confront a new reality where some 172 TWh of electricity annually must be certified as renewable to avoid taxable emissions.
This shift is a direct consequence of CBAM's aim to price emissions from carbon-intensive imports.
During CBAM’s transitional period, European policies have yet to recognise Energy Attribute Certificates (EACs) as valid proof of renewable energy consumption.
The report from Ecohz suggests a significant uptick in demand for I-RECs, which are crucial for tracking renewable energy usage outside Europe, potentially increasing by 165% if EACs gain approval in CBAM's definitive implementation starting in 2026.
A raft of Australian companies exposed to the green energy sector, such as Provaris Energy Ltd (ASX:PV1, OTC:GBBLF), Hyterra Ltd and Gold Hydrogen Ltd (ASX:GHY), stand to gain from this new direction.
The CSRD's influence is equally pivotal. This new legislative measure mandates companies to disclose their environmental impacts and risks, including energy consumption, verified through contractual instruments like I-RECs.
Given the global reach of European supply chains, this directive could substantially heighten the demand for I-RECs.
Ecohz CEO Tom Lindberg underscores the global impact of these policies, emphasising their potential to drive industries towards decarbonisation.
Multi-billion revenue stream
He argues that standardising the use of EACs across European policy areas could unlock a multi-billion Euro revenue stream, thereby bolstering the global competitiveness of renewable energy.
Conversely, he warns that neglecting EACs could limit compliance options for non-European companies, potentially slowing the pace of corporate environmental action.
The report projects that, if both CBAM and CSRD endorse the use of EACs, this synergy could significantly elevate revenues for clean electricity producers, potentially amassing close to 32 billion EUR by 2030.
Ecohz's whitepaper outlines two scenarios: one following the historical growth rate of the I-REC market and another accounting for the potential impacts of CBAM and the CSRD. The latter scenario predicts revenue generation more than five times higher than the former.
Ecohz’s analysis suggests that harmonising CBAM and the CSRD around market-based instruments like I-RECs could not only stimulate a significant revenue stream for renewable energy but also mark a pivotal moment in the global transition to cleaner energy sources.