Towards climate-neutral European gas markets?

The European Commission’s next energy and climate package – complementing July’s Fit for 55 Package – will be published on 14 December. It focuses on the revision of the EU’s gas market legislation. The drivers of the ‘gas package’ are manifold, from gas decarbonisation to energy security and ensuring the suitability of the infrastructure for new gases. So, is the era of natural gas finally coming to its end in Europe? Will the continent be soon powered by locally produced green gases? Susanna Pflüger analyses the Commission’s new package on greening gas.

According to the European Commission, gas covers currently around 25% of the EU’s energy consumption and 95% of today’s gas usage comes from natural gas. 90% of our gas is imported fossil gas. The EU’s 2050 climate neutrality goal is not the only incentive for an overhaul of the gas market; the tremendously rising gas prices and the threats of the Lukashenka regime in Belarus to cut the Russian gas supplies to the EU are compelling the bloc to diversify its gas supply. Europe’s energy market is thus vulnerable and drastic changes are needed to ultimately change course and improve the market conditions for domestic renewable gases.

At the beginning of the summer, the European Commission published its “Fit for 55 Package”: a series of legislative proposals intended to align its policies with the updated climate target of reducing EU’s greenhouse gas emissions by 55% by 2030. These proposals, focused on increased electrification, will now be complemented by the gas market overhaul that shall indeed pave the way for the uptake of renewable and low-carbon gases, with hydrogen in the spotlight. Gas shall be used in the so-called “hard-to-abate” sectors that are difficult to electrify such as heavy industry and certain transport modes. Likewise, household gas consumption is still very popular in many parts of Europe and will not likely disappear any time soon.

An increasing number of European gas players have been anticipating the gas package for several years, calling for EU-level targets to accelerate the uptake of renewable gases in Europe. The calculations about the potentials of biomethane and renewable hydrogen undertaken by various neutral studies indicate that the European gas supply could indeed become climate-neutral by 2050 at the latest. However, without targeted political support, this will hardly happen; renewable gases are not (at least at present) cost-competitive when compared to their fossil counterparts. The intelligence received about the upcoming package indicates, however, that the overhaul includes neither a target for renewable gas consumption nor a greenhouse gas intensity reduction target. The choice of gas mix will thus remain a prerogative of EU Member States.

The upcoming revisions shall nonetheless notably facilitate the access of renewable gases to the existing gas networks, create an EU-wide interconnected hydrogen system, and ensure that so-called low-carbon gases from non-renewable sources enable sufficient emissions reduction in line with the bloc’s climate commitment. At the same time, the package shall ensure a high level of consumer protection and empowerment: for instance, consumers should gain better access to transparent and comprehensible information about their gas consumption.

It is to be seen whether this is sufficient in view of the 2030 climate targets and the urgent need to diversify the EU’s gas supply. Naturally, other EU policies and legislation (e.g., the Emissions Trading System, the Renewable Energy Directive, the EU strategies on sector integration and hydrogen) also have an impact on the European gas market(s). However, put briefly, this means that the EU institutions will be revising all key legislation on gas over the coming weeks and months. Businesses should not miss the opportunity to provide their input and thereby influence the future of gas in the EU.

In fact, it is not the only area of importance for the energy industry: on the same day as the gas decarbonisation package, the Commission will publish a proposal to limit methane emissions in the energy sector, a revision of the Energy Performance of Building Directive, and a reform of the Regulation of trans-European Transport Network (TEN-T) on 14 December. Looking to the new year, the Commission will provide us with new circular economy initiatives, policies aiming at zero pollution, as well the so-called “Sustainable Products Policy Initiative” in the first half of 2022. It is thus important to stay tuned on what happens in the fast-paced political world of Brussels facing a steady stream of new Green Deal initiatives that have a significant impact on the European business environment.

Susanna Pflüger is a Senior Consultant at Miltton Europe who worked in the green gas sector for ten years. As a household gas consumer, she would also like to finally have access to renewable gases.