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Natural gas projects to face stricter CO2 norms for EU funding

Natural gas projects will have to meet stricter sustainability standards to be deemed priority projects eligible for EU funding in future, according to the EU's new energy commissioner, Kadri Simson.

The move is to align with the European Commission's goal for the EU to become a net-zero carbon economy by 2050, by which time any gases in the energy system will have to be fully decarbonized, Simson told the European Parliament's energy committee on Dec. 5.

There are 32 natural gas projects on the EU's fourth and latest projects of common interest, or PCI, list, down from 53 on the previous list from two years ago. Projects on the PCI list are eligible for EU funding from the Connecting Europe Facility, as well as streamlined permitting.

The latest list includes Croatia's Krk LNG terminal; the Baltic Pipe between Poland and Denmark; gas links between Poland, Slovakia and Hungary; the BRUA gas project linking Bulgaria, Romania, Hungary and Austria; Southern Gas Corridor projects linking the EU to the Caspian region; and the EastMed Pipeline project.

The projects are all focused on improving the EU's gas supply security, giving the countries involved access to new gas supply sources via pipeline or the global LNG market by the early 2020s, Simson said.

Gas supply security became a top energy priority for the EU after cuts in Russian gas supplies via Ukraine in 2006 and 2009 revealed eastern Europe's vulnerability from over-dependence on a single gas supplier, Gazprom.

The EU is bracing itself for potential supply cuts again this winter, as Russia and Ukraine have yet to agree terms for transit after Jan. 1.

Several committee members from different political groups still criticized the latest PCI list for including natural gas projects, however, say they would create stranded assets in the EU's low carbon future.

The parliament has until the end of April to decide whether to object to the list. If it does object, the list would become void and only projects on the previous, third, list would be eligible for funding from the EU's Connecting Europe Facility. Simson pointed out that the previous, third, list included more gas projects.

New criteria

Simson said she planned to propose updating the EU's TEN-E regulation, which sets out the rules for becoming a PCI, by the end of next year to support the EU’s climate goals.

As part of that she has asked her services to come up with clear sustainability criteria for gas projects by mid-2020. The EC will also review eligibility criteria for priority energy projects generally, with a view to promoting digitalization, integrating gas and electricity, and hydrogen.

Several committee members from different political groups urged Simson to propose new rules more quickly, so they could be applied before the next, fifth, list is adopted in 2021.

Simson said that would not be possible. However, even under the current rules gas projects for the fifth list could be assessed more strictly on whether they are needed and if they risk becoming a stranded asset.

She said to expect the next PCI list to include more digitalization projects, and highlighted that the latest list includes three new smart grid hubs.

EIB exemptions

The European Investment Bank, or EIB, has also decided to tighten its sustainability criteria for funding energy projects, and will phase out loans to unabated fossil fuel projects from the end of 2021.

Gas projects on the EU's fourth PCI remain eligible for EIB funding, however, as long as the EIB board approves the loans by the end of 2021.

Siobhan Hall is a reporter with S&P Global Platts. S&P Global Market Intelligence and S&P Global Platts are owned by S&P Global Inc.