How to design Carbon Contracts for Difference - A systematic literature review and evaluation of design proposals

Carbon Contracts for Difference (CCfDs) are considered a promising policy instrument to incentivise energy-intensive industry to invest in climate-neutral production processes. Among the different CCfD proposals under discussion, it is unclear which design elements and their respective design options shall be considered. In this paper, these design proposals suggested and discussed by the industry, policymakers, and research institutes are analysed with a systematic literature review, along with in-depth investigation of the design elements in these proposals. We find that some design elements examined need further research. Furthermore, the evaluation of the design options based on four selected criteria (effectiveness, static and dynamic efficiency and actor diversity) discloses that trade-offs between design options make it difficult to meet positive outcomes under all criteria simultaneously. The results also indicate that policymakers focus on static efficiency at the expense of actor diversity. Therefore, these trade-offs need to be considered when implementing CCfDs.