Incentivize industrials to adopt zero-carbon processes and lower-carbon fuels

Governments may utilize the same suite of tools on the production side to incentivize industrials and materials producers to adopt zero-carbon processes and lower-carbon fuels. For example, this could take the form of a steel company procuring low-carbon hydrogen to produce green steel via output-based subsidies, or capex support. Operational subsidies such as contracts for difference support the additional cost of producing low-carbon technologies and materials. In markets with (or planning to introduce) a carbon pricing mechanism, CO2 contracts for difference can effectively do the same thing while reducing the subsidy bill for governments through carbon market revenues in the long run. Governments can target a specific technology or a range of technologies, and should award subsidies to projects via a competitive bidding process to help reduce subsidy costs and improve price discovery.