EU Grapples with Future Role of Gas [Brussels Conversation]

After all the talk about a new EU “gas package”, the document was ominously absent from official communication this autumn. It did not come up at the first high-level meeting of member states after the summer break, nor was it cited in the mission letter of the incoming EU energy commissioner, Kadri Simson. The highly anticipated reform of EU gas market rules has not disappeared, but it is being repositioned and it has been pushed back.

The “gas package” has been renamed the “decarbonisation package” and stakeholders now expect it in late 2020 at the earliest, and perhaps only 2021. Its primary purpose is to create Europe’s first regulatory framework for “green” – that is to say renewable or decarbonised – gas, said the EC’s director for the internal energy market, Klaus-Dieter Borchardt, in an interview with the Florence School of Regulation back in January 2018.

But the EC also recognises that natural gas has decarbonisation potential in its ability to replace coal. Industry representatives and some experts argue that the value of a coal-to-gas switch in the power sector is being overlooked in the mad rush to decarbonise gas entirely.

“There is so much focus on the ultimate objectives of either net zero decarbonisation of all gases by 2050 or electrification of all sectors that currently use gas, that we miss the critical point: we have to do something immediately,” said Simon Blakey, a European gas expert at IHS market, in an interview. “Using gas at higher load factors and taking coal and lignite down to lower load factors… at existing power stations, using existing infrastructure, gives you much deeper, faster cuts in greenhouse gas emissions than anything else."

A study by Eurogas in 2017 suggested that a coal-to-gas switch could deliver an extra 5% greenhouse gas emission reduction in Europe in 2030. That switch is starting to happen in countries like Germany, mainly because gas prices have come down. Blakey argues that to make it last, policy-makers should introduce emission performance standards of for example 400g of CO2/kWh. Without them, global gas demand will eventually catch up with supply. By the early- to mid-2020s, the LNG market will need a fresh wave of investment to keep up production, he said.

Emission performance standards for new investments are on the table in Brussels, but they are much harsher than Blakey’s proposals. A controversial new draft energy lending policy drawn up by the European Investment Bank (EIB) – to be discussed for the third time on 14 November – proposes a limit of 250g of CO2/kWh. Technical experts advising the EC on a new sustainable finance law have proposed 100g of CO2/kWh. This level would exclude natural gas from the power mix.

WWF economist Sébastien Godinot argues that the age of gas is over: “Gas for transition was a relevant issue ten years go,” he says. “Renewables are cost-effective now.” The two are not comparable, as gas-fired power can be turned on and off, and renewables without gas is not yet secure and affordable.

Nevertheless, this kind of sentiment also underpins condemnation by NGOs and some members of the European Parliament (MEPs) of the latest list of European Projects of Common Interest (PCIs). These are priority energy infrastructure projects that can get fast-track planning approval and apply for EU funds.

The latest biennial list, the EU’s fourth, contains three times as many electricity and smart grid projects as gas projects, stressed Borchardt when he presented it to MEPs on 17 October. That’s up from twice as many last time. But the official also conceded that projects on the list had not been assessed for their impact on climate change. “Unfortunately we are not doing it,” he said. "This is certainly a missing link in the criteria that needs to be included, and the EC knows this.”

MEPs from across the political spectrum criticised the persistence of many fossil fuel projects on the list, although the number of gas projects has dropped from 53 to 32, or from a third to a fifth of all projects. The number of electricity projects has remained roughly constant. Most of the EU’s financial assistance – 59% of €3.8bn – has gone on electricity projects so far, the EC emphasised. (This is also what is required under EU law.)

Polish MEPs said that a switch to gas was the only way their country and others like it could wean themselves off coal. Borchardt agreed that “for the foreseeable future, one decade, we will still need natural gas". He also suggested however that in addition to climate impact, future gas projects on the list should be assessed for their compatibility with non-fossil gases, such as biomethane and green hydrogen. “A gas pipeline and a power network are… as green as what you put through them,” said Nicolas Jensen, policy manager for distribution at Eurogas, in an interview.

MEPs can approve or block the entire PCI list; they cannot amend it. In practice, the list is likely to pass simply because blocking it would also block support for all the electricity projects on it. Instead, sceptical MEPs are likely to focus their efforts on an overhaul of the Trans-European Energy Networks (TEN-E) regulation, which sets out the criteria for inclusion on the PCI list in the first place.

 The TEN-E regulation dates back to 2013 and Borchardt’s comments suggest the EC is well aware it needs a review. It was created to drive better cross-border gas and electricity interconnection, not to get the EU to climate neutrality in 2050. The question is when a review might come.

TEN-E is a good candidate for inclusion in the new “decarbonisation package”. Some suggest that this could stretch as far as a re-opening of the EU Emission Trading Scheme (ETS) and revised climate targets for non-ETS sectors. At a minimum, the package is expected to reform existing gas market rules, define “green” gases and start building a framework to account for these in climate policy. It will also set out a vision for sector coupling, or the conversion of renewable power to hydrogen (via electrolysis) and its derivatives, to decarbonise difficult sectors such as long-distance transport.

The focus of the EC’s work right now is to define “green" gases. This taxonomy will be a central pillar of the new decarbonisation package. All stakeholders agree that the EU needs “green" gas to deliver a net zero emissions economy in 2050. But they have very different ideas on what a “green" gas is, where it will be used and how to scale it up.