EC unveils legislative proposals to decarbonize EU gas market

The European Commission on Dec. 15 unveiled a package of legislative proposals designed to decarbonize the gas market in Europe, primarily through the phase-out of fossil gas and the uptake of renewable and low-carbon gases, including hydrogen.

The package is part of the EU's ambition to reduce greenhouse gas emissions by at least 55% by 2030 and become climate-neutral by 2050.

The new proposals cover how Brussels hopes to manage the shift away from unabated fossil gas to low-carbon gases.

"Europe needs to turn the page on fossil fuels and move to cleaner energy sources. This includes replacing fossil gas with renewable and low carbon gases, like hydrogen," EC Executive Vice-President Frans Timmermans said.

"We are proposing the rules to enable this transition and build the necessary markets, networks and infrastructure," Timmermans said.

EC Energy Commissioner Kadri Simson added the proposals covered the establishment of a "competitive hydrogen market."

"We want Europe to lead the way and be the first in the world to lay down the market rules for this important source of energy and storage," Simson said.

The EC said there was "significant" potential to scale up the production and consumption of renewable and low-carbon gases, which make up less than 5% of the gas market currently.

Hydrogen, low-carbon gas rules

On hydrogen, the market rules will be applied in two phases, before and after 2030, and cover access to hydrogen infrastructure, separation of hydrogen production and transport activities, and tariff setting, the EC said.

A new governance structure in the form of the European Network of Network Operators for Hydrogen (ENNOH) is to be created to promote a dedicated hydrogen infrastructure, cross-border coordination and interconnector network construction, it said.

"Existing natural gas networks can be repurposed partially for transporting hydrogen, with significant cost savings compared to new-build infrastructure," it said.

It also warned against the creation of monopolies in the early phases of hydrogen market development given the "nascent and local nature" of hydrogen production and consumption in the early phases.

The package proposes rules on the operation and financing of hydrogen networks, on transparency of gas quality parameters and hydrogen blends, on the repurposing of gas networks for hydrogen transport, unbundling and non-discriminatory network access.

"This will create the right environment to invest in hydrogen infrastructure and develop a competitive hydrogen market," the EC said.

The EC added that the new rules would make it easier for renewable and low-carbon gases to access the existing gas grid, by removing tariffs for cross-border interconnections and lowering tariffs at injection points.

"They also create a certification system for low-carbon gases to complete the work started in the Renewable Energy Directive with the certification of renewable gases," it said.

"This will ensure a level playing field in assessing the full greenhouse gas emissions footprint of different gases and allow member states to effectively compare and consider them in their energy mix."

Hydrogen economy

The drive to integrate renewable and low carbon gases into existing gas grids is set to provide much-needed short-term stimulus for Europe's hydrogen economy, S&P Global Platts analysts said Dec. 15.

"Blending zero and/or low-carbon hydrogen into existing gas grids is an opportunity to stimulate hydrogen market growth in the near-term, provided appropriate processes and regulations to monitor and manage emissions are in place," said Platts Senior Analyst, Hydrogen, Brian Murphy.

Platts data shows Europe is leading the world in low-carbon hydrogen project development, driven by ambitious EU targets and the promise of climate-focused pandemic recovery funding.

"Our Hydrogen Asset Production Database shows 7.7 million mt/year of hydrogen production capacity planned to come online in Europe between now and 2030, split 55%/45% between electrolysis and natural gas-based production pathways," Murphy said, adding, however, that almost 70% of the natural-gas based production capacity is based in the UK.

Within the EU, the split between electrolysis and natural gas-based production is 79%/21%.

The cost of producing blue hydrogen -- hydrogen produced from natural gas with CCS -- is currently much cheaper than green hydrogen production using electrolysis.

S&P Global Platts assessed the cost of producing hydrogen via alkaline electrolysis in the UK (including capex) at GBP22.63/kg Dec. 14, while PEM electrolysis production was assessed at GBP26.53/kg.

By contrast, the cost of blue hydrogen production by autothermal reforming including capex, CCS and carbon was assessed at GBP7.22/kg.

Industry reaction

The package was "broadly" welcomed by industry group Eurogas, but it noted that the framework needed "fine tuning" to deliver the potential of a decarbonized gas sector.

Eurogas Secretary General James Watson said the EC "gets the message" that gases are good for energy transition.

"Fundamentally, gases are a key part of Europe's energy resources, so we need EU policies that help and don't hinder the role of gas," Watson said.

"A number one priority is to turn up the heat on getting renewable and low-carbon gases, such as hydrogen and biomethane, into our energy system," he said.

"Industry is clamoring for more certainty from EU politicians so this can happen. We are still calling for an overall decarbonization target of at least a 20% reduction of greenhouse gases in the gas sector compared to 2018."