Although companies are increasingly pledging to reduce or eliminate their carbon emissions, technical and economic challenges remain, particularly for emissions tied to factors beyond a company’s control such as interconnection queues, permitting, inflation, growing load, and supply chain delays. Given these uncertainties, there are questions about the role that voluntary carbon markets could play in helping to meet electric sector decarbonization and corporate emissions reductions goals affordably and reliably. This analysis uses EPRI's U.S. Regional Economy, Greenhouse Gas, and Energy (REGEN) model—linking detailed electric sector capacity planning and fuels supply with representations of demand in buildings, transport, and industry—to explore how the value of voluntary carbon markets may change under different regional, technology, and policy conditions. Model results suggest that carbon markets can lower power sector decarbonization costs by displacing high-cost direct mitigation, including emerging technologies with uncertainty about their cost and availability such as carbon capture, advanced nuclear, long-duration energy storage, and hydrogen. In this context, voluntary carbon markets could function as hedges against technological uncertainty, especially in the deployment of nascent technologies. The value of carbon markets is shown to be higher in contexts where technological costs are high, portfolios are limited, and deeper economy-wide decarbonization is targeted. Results also illustrate how regional differences in decarbonization strategies are significant, which lead to variation in abatement costs, value of carbon credits, and value of regional flexibility. Overall, these scenarios indicate that net-zero targets with flexibility about the use of sectoral, regional, and technological emissions reductions can help to minimize costs while increasing the likelihood that targets are achieved.
Authors John Bistline, Anahi Molar Cruz, Geoffrey J. Blanford, and Adam Diamant