European trade body EFET to lobby EU on market-based gas decarbonization

London — European energy traders' industry group EFET plans to engage EU policymakers on supporting market-based solutions to promote the decarbonization of gas, it said, based on the findings of a report it commissioned from Frontier Economics.

Gas -- despite being the cleanest of the fossil fuels -- is coming under increasing pressure in Europe with sustained calls for more progress in decarbonizing gas on the road to net zero carbon emissions by 2050.

The Frontier report concluded that, should any support mechanisms for the decarbonization of the gas sector be necessary as an interim solution, they should be "technology-neutral, avoid handing producers or suppliers fixed, non-market based subsidies, and be open across EU borders".

The report, entitled "Gas decarbonization and sector coupling: ensuring a market-based approach", also found that a "credible, harmonized EU-wide carbon pricing scheme" would be the long-term driver for decarbonization across the economy.

"We look forward to engaging in debates on the findings and recommendations of the report with our counterparts in the industry, as well as policymakers in Brussels, Berlin and other European capitals," EFET said.

Peter Styles, EFET board member, said the body wanted a study that would stand out from others on the subject, "concentrating on potential market-based solutions".

Christoph Riechmann, a director in Frontier's energy practice, said: "Our report for EFET sets out a blueprint for European policymakers for decarbonizing the gas sector and the wider economy in a cost-effective manner. It covers a number of issues relevant for the 'European Green Deal', one of the key priorities for the current Commission."

'No silver bullet'

The report said that while the gas sector had a long-term role to play in the European energy transition, "unabated gas likely has a limited long-term role in a decarbonized EU energy system".

It also concluded there were a number of potential solutions for reforming EU climate policy to support gas decarbonization, but there was "no silver bullet".

It said clarity on policy objectives and the use of markets and incentives was a "critical starting point".

"The first steps in any updated climate policy framework must be to define an overall decarbonization ambition: If climate protection is the main objective, it would be preferable for this ambition to be defined in terms of economy-wide decarbonization," it said.

However, the report said that policymakers may wish to define sub-targets in relation to heating, cooling and transport or may even perhaps set gas-sector specific targets for a transitional period.

"In the long run, sector specific sub-targets should be avoided and it should be left to market-based signals to direct decarbonization efforts into those sectors where abatement can be achieved at least cost," it said.

The report found that there were clear benefits to the use of markets and incentives to deliver decarbonization.

"However, some aspects of the transition (such as switching over whole gas distribution areas to use of hydrogen) will require significant coordination –- markets and incentives alone may not be sufficient to deliver effective outcomes in such areas," it said.

"Policymakers should clearly set out how such limitations will be considered. Policymakers can then turn to how best to harness the market to deliver incentives to achieve this decarbonization ambition. This requires a coherent framework that rewards carbon abatement in a market-based, technology neutral way," it said.

ETS expansion

Another of the report's recommendations is for the current EU Emissions Trading System (ETS) to be expanded.

It says policymakers should define a "credible harmonized EU-wide carbon pricing scheme as the long-term driver for decarbonization across the economy".

"This regime could be anchored in the EU ETS, with an expansion of the ETS to buildings and transport (including maritime) being a key step on the way," it said.

It added that in order to ensure that any interim support mechanisms do not undermine ETS pricing, the trajectory of ETS allowances provided to the market to be adjusted and take account of abatement achieved through interim support mechanisms.

It concluded that to underpin both carbon pricing and any market-based support mechanisms, policymakers should develop a scheme to certify the relative greenhouse gas content of gases on a consistent basis, ideally based on existing EU instruments such as guarantees of origin or sustainability certificates.