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Three shades of gas

The long-awaited hydrogen and decarbonised gas market package was finally published by the European Commission on 15 December. Originally its main aim was to establish a framework for a competitive hydrogen market and incentivise the uptake of renewable and low-carbon gases, that are supposed to “progressively replace fossil gas”. However, the package came in a very specific time with gas prices surging and Lukashenko threatening the EU to cut Russian gas supplies. Therefore, the energy security and resilience of the gas sector became another important part of the package. Moreover, on the same day, the Commission published a new draft regulation on methane emissions reduction, that is to oblige the energy sector to control and cut emissions of this gas. These legal drafts deal with the same chemical compound – CH4. However, three different labels used by the Commission – natural gas, fossil gas and methane – clearly show the level of controversy linked to this issue in the EU today.

The Central European States treat natural gas as a transitional fuel, that is necessary to smoothly phase out coal both in power and in heating sectors. According to a study recently published by CEEP, the share of natural gas, only in the power generation mix, in eleven Central and Eastern European states will grow from 11 per cent in 2020 to 20 per cent in 2030. As a flexible and dispatchable source of power, gas is necessary to back up the rapidly growing installed capacity of solar and wind sources, which can increase from 29 gigawatts (GW) estimated in 2022 to 71 GW in 2030. This relatively new role for gas – being an enabler for RES development – has a significant impact on the gas market. In the years to come, demand for gas is likely to be more variable and will require the supply to become more flexible, which is likely to make gas prices more volatile. Gazprom misuses this situation and most probably will do it in the future as well.

The Central European economies already have some difficult experiences with gas supplies from the East and have invested significantly in infrastructural diversification projects. This is however not a regional but an EU challenge and for this reason, these investments in the security of supply were supported from the EU budget. As Kadri Simson, the European Commissioner for Energy put it recently: “this is a truly European success story and one that is paying off considering these challenging times for the energy system.” This work in Central Europe will continue under the recently adopted 5th list of the EU energy projects of common interest (PCI). And it’s good, that the discussion about necessary measures for the energy security of the gas sector is high on the EU agenda again. The rules reinforcing gas storage, solidarity mechanisms and enabling voluntary joint procurement, proposed by the Commission in the newest gas package can serve as a very good starting point. Also, the additional provisions on cybersecurity and supply disruptions should be assessed positively.

Although the Commission has recognised the “transitional role of fossil gas” in its gas package proposal, it aims, first of all, to enable and incentivise all stakeholders to ensure gradual and timely phase-out of this fuel. Molecules, along with electrons, will be needed in the net-zero economy, but in 2050 they are supposed to be either low-carbon, renewable, or decarbonised with CCS/CCU technology. The new gas package includes several important ideas on how to incentivise integration of renewable and low-carbon gases in the gas grid and how to organise the hydrogen market in the EU. These measures may help to decarbonise the gas sector, and it is positive, that at this stage the Commission does not make any meaningful distinction between “low carbon” and “renewable” gases – both need significant regulatory and financial support to reach the mass consumer market. Nevertheless, it remains unclear whether under the new rules production of clean gases will be cost-effective and cost-competitive to “fossil gas” that is to be replaced. Putting an additional burden (directly or indirectly) on consumers of “fossil gas” will not necessarily encourage them to switch to cleaner sources of energy, especially if their scope of viable options is very limited or simply non-existent.s Decarbonisation has to be affordable for companies and households, otherwise, we risk that energy poverty will lead to a social backlash against the European Green Deal.

Methane, the main component of natural gas, is described by the Commission as “a potent air pollutant, causing serious health problems”. Indeed, it is second only to carbon dioxide in its overall contribution to climate change and is responsible for approximately a third of current warming. About 60 per cent of global methane emissions are anthropogenic, of which around half comes from agriculture, and between a fourth and a third come from fossil fuel production and use. The spotlight is on the energy sector because it has high cost-efficient reduction potential. The energy sector has a tangible track record in measuring and tackling methane emissions, on which the Commission can now build its proposals. It is important however to make sure, that these new EU measures curb methane emissions in the most cost-effective way and that they equally apply to all gas producers that sell gas to the EU. The success of this regulation will depend to large extent on the will of fossil fuel exporters to cooperate with the EU.

The future of natural gas in the EU remains unclear, as it hinges on the speed of development of renewable and low-carbon gases, which in turn depend on the development of RES and CCU/CCS, among other things. What is clear, decarbonisation of the gas sector is a process that will take a few decades and will not proceed evenly across the EU. For some coal-reliant parts of the CEE region, natural gas is still a reasonable tool to cut air pollution and GHG emissions. Therefore it is important (not only) for the Central European states to ensure, that the EU remains resilient during this transition period, and the level of ambition enshrined in EU laws is realistic and affordable for consumers and households in all parts of the EU.

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