Can the current EU regulatory framework deliver decarbonisation of gas?

This Energy Insight examines the current regulatory framework and challenges facing the natural gas industry (producers, transporters, suppliers and consumers) during the transition to a zero-carbon economy.  The EU has declared its intention to be climate neutral by 2050, which means that the current level of natural gas usage will no longer be possible. However natural gas is a crucial component of energy supply, representing 24 per cent of primary energy supply for the EU27+UK and 36 per cent of residential energy consumption. In some countries the use of natural gas is much higher – around 40 per cent of primary energy supply in Netherlands, UK and Italy. The current framework impacting gas addresses two different market failures – natural monopolies for gas transportation, and the externalities of Greenhouse Gas Emissions. The framework will not deliver decarbonisation of gas as it does not stimulate either supply or demand for alternatives such as hydrogen, nor create the conditions to enable gas networks to transition to a decarbonised future. Policy makers need to prioritise their objectives to take account of the trade-offs involved in designing a new framework. Exclusion of certain low carbon technologies risks driving away investors, and reduces the chances of targets being met, whilst “picking winners” involves risks because of the many uncertainties involved such as future costs and time required to build new value chains.

By: Alex Barnes