EU fight over role of natural gas ends in compromises [GasTransition]

With support for coal and oil definitely ruled out under EU policymaking, the debate over the future of fossil fuels now centres squarely on the role of natural gas. According to climate campaigners, only investments in renewable energy are compatible with the Green Deal, the overarching instrument by which the EU intends to achieve its 2030 and 2050 climate targets of -55% emissions and net zero emissions respectively. In their vision, renewable energy includes “green” hydrogen, based on renewables, but excludes any role for “blue” hydrogen, based on natural gas in combination with carbon capture and storage (CCS).

Others, however, say that natural gas, which has lower carbon intensity than coal and oil, should at least be part of the transition as a bridge fuel. They also point out that gas infrastructure built now can be used in the future for carbon-free green hydrogen. The European Commission generally takes this position, whereas the European Council (the EU Member States) is strongly divided.

The debate isn’t just academic. In order for the EU to deliver on its clean energy targets, significant investment is needed in the energy sector. The EU supports investment in various ways, through its Regional Development (“Cohesion”) funds, a Just Transition Fund, Projects of Common Interest (PCIs), the COVID-19 recovery fund and a host of rules and regulations.

In December a number of key decisions were taken in Brussels that show the likely way forward for natural gas, as European policymakers see it. On 11 December the European Council (the Member States) officially adopted the greenhouse gas reduction target for 2030 announced earlier by the European Commission: -55% from 1990 levels, up from the previous target of -40%. In their conclusions, the leaders reaffirmed that it will be up to each member state “to decide on their energy mix and to choose the most appropriate technologies to achieve collectively the 2030 climate target, including transitional technologies such as gas.”

Although climate campaigners fought hard to rule out any EU support for natural gas, from this statement it is clear that they failed to do so in the end. The policymakers seem to have heeded gas advocates, who argue that natural gas needs to be part of the energy transition and gas infrastructure can support clean gases such as biomethane and hydrogen.

“With the current technology you can abate up to 90% of the CO₂ emissions from gas, which is already a lot,” said Luca Giansanti, head of European government affairs at Italian energy company ENI, at an event organised by Eurelectric. “Then you have decarbonised and low-carbon gas in the form of blue hydrogen. Technological improvement in the future could bring this percentage up to 100%.” Giansanti also pointed out that coal-to-gas switching is delivering significant greenhouse gas reductions in Europe. In 2019, coal power generation declined by a record 24%, with half replaced by renewables, and the other half by natural gas.

Lifespan

In addition to this broad policy statement from the European Council, on 9 December the European Parliament and the European Council reached a provisional agreement which sees fossil fuels removed from financial support in the EU’s Just Transition Fund (JTF) but included in EU Regional Development Funding until 2025. The Just Transition Fund has €15 billion to spend, the Regional Development Fund (so-called cohesion funds) some €400 billion.

Under the new Regional Development Fund, money is still available for gas projects, but they must meet the “taxonomy criteria of ‘do no significant harm’ (DNSH)”, which include a stipulation that emissions must be lower than 270g CO₂e/kWh. District heating will be eligible for regional development funding only if it is based on renewable energy sources, but with no conditions on sustainability, leaving the door open for biomass. 

The most efficient power plants running on “unabated” natural gas achieve 350g CO₂e/kWh at best. However, a gas power plant running partly on hydrogen could meet the criterion. There are other loopholes too for natural gas projects, writes Lina Strandvag Nagell of Norwegian NGO Bellona on the website of Euractiv.

She notes that the “sustainable finance taxonomy” criteria adopted by the European Commission have exceptions to the DNSH criteria for projects with a claimed lifespan below 10 years. “In the absence of specification of what determines a lifespan, it would be possible to claim a planned future shift to low-carbon alternatives (biogas, hydrogen) as an end to the current activity, effectively rendering the already weak DNSH criterion void,” she notes.

The EU taxonomy is a classification system, establishing a list of environmentally sustainable economic activities. It is described by the European Commission as “an important enabler to scale up sustainable investment and to implement the European Green Deal. Notably, by providing appropriate definitions to companies, investors and policymakers on which economic activities can be considered environmentally sustainable, it is expected to create security for investors, protect private investors from greenwashing, help companies to plan the transition, mitigate market fragmentation and eventually help shift investments where they are most needed.”

The Commission is currently preparing an IT tool that will facilitate the use of the taxonomy by allowing users to navigate easily through the taxonomy. The tool will be available from the beginning of 2021.

Case by case

Benjamin Denis, senior policy adviser with the workers association IndustriAll Europe, told Euractiv that he thinks the assessment about whether a gas technology should be eligible for green funding should be made on a case by case basis. “Behind the big word ‘gas’ we really need granularity to see what projects we’re talking about,” he said.

“We might need to have this discussion on a case-by-case, project-by-project basis. Let’s say that if the wide majority of funds – 90% maybe – would be dedicated to low carbon and green initiatives, it fully makes sense. But at the same time, if one member state or one region decides to go from an energy mix based 80% on coal towards an energy mix based mainly on renewables in the coming two decades, it could make sense to help that region or member state to unlock its current dependence on coal to go for some kind of gas technology for a certain period of time.”

Funding for the research and innovation into new low-carbon gas technologies will also be essential, he said. “I think we all agree we will need to roll out a wide portfolio of different technologies to be able to achieve that goal, keeping in mind that the energy efficiency first principle should apply. We need of course a lot of renewables, electrification, CCS, and some kind of green gas green hydrogen on the menu.”

Stephan Kolb, director of regulatory affairs at the German heating system manufacturer Viessmann, said for companies in his sector, a mix of available technologies will be best. “What we need is a range of opportunities, offers, technologies and energy carriers to make sure everyone can cope with this huge challenge of decarbonising our home heating. We believe that decarbonised gases can help people so that nobody’s left behind.”

Missing link

The European Commission, meanwhile, seems to be inclined, like the European Council, to support technology neutrality. “We have to use all the means we have if we want to reach our objective,” Helene Chraye, an official responsible for clean energy research at the Commission, told another Euractiv event in Brussels. “It’s not to go to one single type of energy or enabler, we have to use everything we have. There are hard-to-abate sectors that will need specific solutions, and there’s no one size fits all.”

Tomasz Dabrowski, director of Polish electricity association PKEE, said on the same occasion that his sector views gas as an essential technology that needs to be supported in the context of decarbonisation. “We consider gas technologies as the missing link enabling transformation from the current energy and heat generation paradigm towards a more sustainable one.”

According to him, this approach would halve the emissions intensity of the Polish electricity sector, improve air quality in cities while addressing concerns about energy security. “In order to accommodate more renewable energy sources in the power grid you need some kind of flexible generation,” he argued, noting that different areas of Europe have very different situations when it comes to indigenous energy sources.

“For countries like Poland gas is one of the answers, even before 2050 we can reduce the emissions coming from coal by replacing it with gas sources and emit less, and then be better prepared to expand renewable energy resources. For every government it’s a choice between sustainability, competitiveness and security of supply. If you look at these three objectives as a triangle, it should be an equilateral triangle, we should not neglect any of these policy aspects.”

The European Investment Bank, the EU’s lending arm, which has been at the centre of the debate over whether the EU should support gas as a transition fuel, also does not entirely rule out investment in natural gas projects. “We have decided that where the benefit of our lending should be is in developing renewable energy and not in developing transition fuels,” said the EIB’s director general for projects, Christopher Hurst. “The issue we have is that in 30 years’ time we have to get to zero [emissions], so it’s possible that natural gas plays a role. But what should that role be? And how do we avoid getting locked into natural gas, given it’s only able to make contribution for a relatively short period of time?”

“As we see the renewable energy price tumbling and batteries becoming much cheaper, we think that’s where EIB is better placed. It’s not that we wouldn’t fund gas itself, but we have an emissions performance target,” Hurst said. “In order to be coherent with our goals there has to be some sort of abatement coming from normal gas turbines,” he argued.

Lock-in effect

Funding for gas projects is also an important topic in the ongoing debate around the revision of the regulation on Trans-European Networks for Energy (TEN-E). On 15 December, the European Commission issued a legislative proposal to revise the TEN-E Regulation “to better support the modernisation of Europe's cross-border energy infrastructure and achieve the objectives of the European Green Deal.”

The Regulation on Trans-European Energy Networks (TEN-E), adopted in 2013, “lays down rules for the timely development and interoperability of trans-European energy networks”. It underpins the Projects of Common Interest (PCIs), which are eligible for EU funding. In the past, cross-border gas infrastructure projects have received many billions of euros in funding under this regulation.

The new proposal excludes dedicated gas (and oil) but supports hydrogen pipelines as well as offshore power grids and “smart gas grids” that integrate electricity and low-carbon gases into the network. It was welcomed by industry association Hydrogen Europe which said it
 “represents a first stepping stone towards the realisation of the European Union’s ambition to develop a hydrogen economy and firmly position the EU as a global frontrunner on hydrogen.”

By contrast, several “green” NGOs expressed disappointment with the proposal, which they said might deepen the “gas lock-in effect”. Specifically, they object to the possibility of “blue” hydrogen to be used in the hydrogen pipelines.

Chicken and egg

Yet another policy debate that reached a provisional climax in December was around the EU’s hydrogen strategy, first presented by the European Commission in July 2020. On 11 December, the European Council agreed to “rapidly upscale the market for hydrogen at EU level.” In their conclusion, the 27 Member States recognised that that “emphasis should be given to hydrogen from renewable sources” of energy such as wind and solar power, but added that “there are different safe and sustainable low-carbon technologies for the production of hydrogen”, leaving a role for blue hydrogen and natural gas.

As Euractiv notes, the wording of the conclusions was aimed at “comforting countries like the Netherlands, Poland and France which are planning to support hydrogen produced either from natural gas or nuclear power. ‘The interconnected gas transmission and storage infrastructure in the EU harbours a range of future opportunities for the transmission of hydrogen,’ the conclusions say in a nod to the Netherlands, which is planning to revamp its existing gas pipeline network to carry hydrogen in industrial areas situated around the Port of Rotterdam.”

Nevertheless, five countries – Austria, Denmark, Luxembourg, Portugal and Spain – issued a joint letter stating that the EU must clearly prioritise green hydrogen over any support for natural gas-based or nuclear-based hydrogen.

European Commission officials, such as Vice-President Frans Timmermans, have regularly voiced support for blue hydrogen in the past year. “We actually need blue hydrogen to break the chicken and egg problem,” Diederik Samsom, the chief of staff of Timmermans, reiterated at another Euractiv event in December. “We need to speed up demand and supply of hydrogen and we can only do that at the speed required when we give a role to blue hydrogen. And the way we manage it is the way we manage all of those transitions – by gradually and carefully financing it and withdrawing those finances when needed.”

In July 2020, a group of eleven European gas infrastructure companies presented plans to create a dedicated hydrogen pipeline network (“hydrogen backbone”) of almost 23,000 km by 2040. According to those plans, 75% of the network will consist of retrofitted natural gas pipelines – which are gradually expected to become redundant as volumes of natural gas decrease in the future.

In the Netherlands, gas TSO Gasunie is proposing to build a national “hydrogen backbone” in the Netherlands, which will be partly fed by blue hydrogen.

Most environmental groups remain unconvinced. They describe the European Commission’s hydrogen strategy as “a Trojan horse for the gas industry” which risks diverting massive amounts of taxpayer money into gas infrastructure. “The reality is that the EU risks being caught in a fossil gas trap,” notes a recent report from Corporate Europe Observatory (CEO), a lobby watchdog group.

No doubt, the debate around the role of natural gas in the EU will continue into 2021 and beyond.