Europe’s just transition: gas industry fights GHG limits [NGW Magazine]
The European Union (EU)’s Taxonomy Regulation for projects eligible for sustainable investment has given the gas industry plenty to think about.
The criteria set out in its ‘green listing’ of projects may be beyond gas-fired power plants and even some hydrogen projects unless there is some drastic rewriting done this year.
The regulation – adopted by the EU member states last summer – sets out a classification system enlisting certain projects as environmentally sustainable in order to help private investors conscious of their carbon footprint to make informed decisions. Projects must “substantially” contribute to at least one of six objectives in order to be classified as sustainable, including climate change mitigation and pollution prevention and control.
However, some of the details are still in the making. The European Commission (EC) has been tasked with drafting the so-called delegated acts, which means a set of specific rules to supplement the regulation. The purpose is to come up with technical screening criteria for determining if a project can be considered sustainable.
So far it is not looking good for natural gas. For power plants, the commission has proposed a life-cycle greehhouse gas (GHG) emissions threshold of 100g CO2e/kWh, and combined-cycle gas turbines (CCGTs) and combined heat and power (CHP) plants are a long way from meeting this requirement. In reality this means that fuel-switching from coal to gas is not considered a sustainable activity, at least not under the current draft.
The International Association of Oil and Gas Producers (IOGP) said in its December response to the public consultation – which closed that month – that a single threshold of 100g CO2e/kWh was “not appropriate” for transitional activities and that the cap should be based on the best performance of available technologies.
“[...] Natural gas should have a dedicated threshold, above the current 100g CO2e/kWh, to reflect its role to facilitate an affordable and fair energy transition by enabling a shift away from coal in power generation and heating, providing dispatchable power to complement renewables and offering an alternative fuel in transport,” said IOGP.
IOGP supports the view that gas will gradually decarbonise and says this should be accounted for in the regulation.
“Natural gas will decarbonise over time with the addition of renewable and low-carbon gases, such as hydrogen from natural gas with carbon capture and storage (CCS) or biomethane. In this way, any possible lock-in effects will be avoided,” IOGP added.
Eurogas, a Brussels-based industry group representing the gas industry, also dislikes the 100g threshold.
"A 100g CO2/kWh threshold does not allow companies, and more broadly countries, to transition away from coal when existing 'best in class' solutions allow for 350g for CCGTs and 250g for CHPs running on natural gas. This is an issue for the strategic energy planning of member states," Eurogas senior policy advisor Nicolas Jensen told NGW.
In line with IOGP, Eurogas is also concerned that the draft rules do not seem to take into account that gas will gradually reduce its carbon footprint once new technologies are rolled out.
"The EC's draft text does not take into account the possibility of blending natural gas with biomethane or hydrogen in the system which will become increasingly mainstream by 2030,” said Jensen. “This creates a distorted picture which disregards transitional aspects. It is a wrong signal to send – not at least for member states that do not have a large share of baseload power generation, generated by hydro or nuclear for instance, in the electricity mix, and will need increasing flexibility in the future."
Under the current draft, switching from coal to natural gas will not be classified as a sustainable activity even if the transition takes place in coal-dependent regions in eastern Europe, such as Poland. To this end, PGE – Poland’s largest utility which has pledged to switch from coal to gas and renewables – called the 100g threshold “an unfeasible limit” and highlighted that switching from coal to gas “helps to save over 70% of CO2 emissions.” Among other projects, PGE is developing the 1.4-GW CCGT project at Dolna Odra near the Swinoujscie LNG terminal which will replace a 1.34-GW coal plant in a few years.
“Gas cogeneration is an important technological solution which will have to play a significant role in reducing emissions, where alternative individual green energy sources are unavailable, especially in regions transforming away from coal and densely inhabited urban areas,” PGE said in its response to the public consultation.
It is not the first time the EC set out CO2 emission thresholds for power generation plants. The EU’s revised electricity regulation – which came into effect in January 2020 – sets a ceiling of 550g of CO2/kWh for participation in national capacity markets for power plant subsidies. That practically excludes coal-fired plants and some older gas-fired plants from bidding into capacity auctions albeit with a phase-out period.
Thresholds for blue hydrogen
Nevertheless, the draft rules under the taxonomy regulation also set an emissions threshold of 2.256 mt of CO2e/mt for hydrogen projects based on the life-cycle greenhouse gas emissions. A number of blue hydrogen projects with CCS may struggle to comply with this threshold.
"For hydrogen we believe the 2.256mt CO2/mt H2 threshold is too low. A threshold of 4.37mt CO2/mt H2 would allow for more flexibility. On CCS, we think it is a problem that projects are no longer considered sustainable if they are connected to a CCU site, thereby excluding directly connected industrial users from being considered sustainable in a CCUS project," said Jensen.
It is not just the gas industry that is concerned about the EU taxonomy regulation. Nuclear power - which accounts for about a quarter of Europe’s electricity generation – is not included in, or excluded from, the draft rules. Nuclear power projects have high start-up costs and exclusion from the regulation may make it harder to attract investment and financing.
Foratom, the European association for the nuclear industry, said in its feedback to the public consultation that not all renewables projects would meet the 100g GHG lifecycle threshold set out for electricity production and called for a more level playing field.
“Adoption of this delegated act will give the technologies covered instant access to EU funds and financial instruments which are aligned to the Taxonomy goals. As a result, funds will be made available for investments in technologies such as wind and solar before being made available for investments in nuclear,” Foratom said.
There is, however, still plenty to play for. The EC is expected to adopt the first set of delegated acts – including the threshold for power plants and hydrogen – in April. However, the draft rules will face scrutiny by the European parliament and the EU member states which may veto them. For example, opposition is expected from France over the apparent exclusion of nuclear power. Adoption of the draft rules has already been delayed several times.
The EC said it was continuing to assess the high volume of replies that the four-week consultation received: almost 12,000/week.
“We are currently working with the aim to adopt the Delegated Act on climate change mitigation and climate change adaptation by spring 2021. This timing will allow the EC to properly analyse and process all responses received in the consultation,” it told NGW. When it has been finalised, the act will be adopted by the EC and then be subject to scrutiny by the European Parliament and the European Council. It will take effect from the start of next year.