New EU climate policies could triple global demand for documented renewable electricity

The EU’s Carbon Border Adjustment Mechanism (CBAM) and the Corporate Sustainability Reporting Directive (CSRD) could almost triple the demand for documented renewable electricity documented with International Renewable Energy Certificates (I-RECs), a new analysis by Ecohz found. This can put the most geographically widespread Energy Attribute Certificate (EAC) market on track to generate 32 billion EUR in revenue for renewable electricity producers by 2030.

Ecohz analysed electricity usage in the production of aluminium and steel imported into the European Union, two key products covered by CBAM’s framework for pricing the emissions of carbon-intensive imports. In a conservative estimation, the study concluded that about 172 TWh of electricity per year must soon be documented as renewable to avoid producing taxable emissions.  

Unlike other European policies, the guidance documents for CBAM’s transitional period do not yet consider EACs valid proof of renewable energy consumption. However, Ecohz’ report found CBAM could increase the demand for I-RECs, used to track renewable energy outside Europe, by close to 165% by approving EACs for its definitive implementation, starting in 2026. 

Ecohz’ report also considers the effect of the CSRD, new legislation that mandates undertakings to report on their environmental impacts and risks. As opposed to CBAM in its current form, the CSRD instructs companies under its scope to report on energy consumption based on contractual instruments, such as I-RECs. It also covers the supply chains of European companies, which are often globally connected and could thus raise demand for I-RECs.

“CBAM and the CSRD are likely to have ripple effects across the globe as they push industries to decarbonise. How they do it, however, will determine the extent of their impact. By homogenising the use of EACs across policy areas, the European Commission can unlock a multi-billion Euro revenue source that increases the competitiveness of renewables worldwide. Conversely, excluding EACs would greatly limit the options of the non-European companies looking to comply with EU legislation, hindering the momentum of much-needed corporate action,” says Tom Lindberg, CEO of Ecohz.

Supported by CBAM and the CSRD, I-RECs could raise 32 billion Euros for renewable energy towards 2030 

Ecohz’ whitepaper projects that if CBAM, like the CSRD, approves the use of EACs, these synergetic policies could boost the revenue of clean electricity producers, generating close to 32 billion EUR in profits by 2030. 

The report compares two scenarios. The first estimates the revenue I-RECs can generate if the market develops following its historical growth rate. The second considers the potential effect of CBAM and the CSRD on the demand for and the price of I-RECs.

Comparison of the potential revenue generated by International Renewable Energy Certificates (I-RECs). Scenario 2 factors in the effect of European climate policy on the demand for and price of I-RECs

In the first scenario, Ecohz projects I-RECs to raise close to 6 billion EUR between 2026 –when the definitive CBAM rules take effect – and 2030. The second scenario shows a potential revenue generation more than five times higher. 

The report concludes that harmonising CBAM and the CSRD around the use of market-based instruments can unlock a revenue stream worth billions of Euros for renewables worldwide. 

Background  

The Carbon Border Adjustment Mechanism (CBAM) is a policy framework that prices the carbon embedded in products imported into the EU. The CBAM quota will follow the weekly average price of allowances under the ETS.
Read more here.  

The Corporate Sustainability Reporting Directive (CSDR) strengthens the rules regarding the information companies should disclose on environmental and social impacts and risks. It expands the scope of entities that must report on sustainability, climate change, human rights, diversity, and other issues. 
Read more here.  

The International REC Standard Foundation (I-REC Standard) is a non-profit organization that provides a robust standard for developing attribute tracking systems worldwide, such as International Renewable Energy Certificates.
Read more here.