New Policy Boosts US Low-Carbon Steel, Cement, and Chemicals Innovation
A new policy, Contracts for Difference (CFD), could boost innovation in low-carbon steel, cement, chemicals, and aluminum production in the US. This policy, currently under examination, provides manufacturers with a way to de-risk their innovations by offering price certainty.
In a CFD agreement, the government agrees to pay the manufacturer the difference between the strike price and the market price for low-carbon products or materials. This helps attract private investment and lowers the cost of capital by reducing risk. To implement this, US policymakers need to examine existing federal law or enact new legislation.
Regulatory approval is crucial as CFDs are heavily regulated or restricted in the US. Compliance with U.S. financial regulations, including registration with bodies like the SEC or CFTC, and adherence to strict compliance and reporting standards applicable to derivatives trading, are necessary.
A CFD policy can strengthen US competitiveness in critical industries. A report by the American Council for an Energy-Efficient Economy explores this potential and outlines design considerations for policymakers. This policy could lower the risk of capital-intensive projects, fostering innovation in low-carbon production.
