The battle to end public investment in fossil-fuel infrastructure is key to winning the war against climate change and 100 MEPS just asked the Commission to exclude “low-carbon” fossil fuels from a key EU directive.
Hamburg (Brussels Morning) The war on fossil fuels is on, waged by 100 MEPs and NGOs who wrote to the Commission late last month insisting on removing “Non-renewable and low-carbon fuels, including so-called ‘low carbon’ fossil fuels” from any provision under the Renewable Energy Directive, which outlines the rules around the bloc’s 2030 renewable energy target.
Keeping taxpayers’ money away from the fossil fuel sector is a key battle. And the omens are good.
The cross-party pan-European call to exclude fossil fuel gases received by Commission vice-president Frans Timmermans and energy commissioner Kadri Simson delineates the battleground with the oil industry as a new regulatory regime dawns over Europe.
The fossil fuel industry is striving to maintain a slice of the public budget, by reference to low-carbon fossil fuels, including hydrogen made from natural gas steam reforming, coupled with carbon storage technology to bury the emissions underground and form part of the EU’s reewable energy target. Clearly, the issue is linked to the controversial role of natural gas as a transition fuel. In short, it could make or break efforts to stop climate change.
Europe’s regulatory “big bang”
Slogans aside, people do not always understand how the promise by President von der Leyen to “make Europe the first climate neutral continent in the world, by 2050” will be realised and affect everyday life.
To simplify and popularise this project is a daunting task, wholly transformative, and affects our energy system, the economy, social structures and lifestyle in every sense. It is a “paradigm shift” in the literal rather than usually exaggerated and metaphorical use of the term.
The first thing to say is that the Commission will renovate Europe’s legal landscape, effectively transforming all policy areas and industry sectors.
Europe wants to reduce greenhouse gas emissions (GHGs) by 55% by 2030, that is, “a stepping-stone” to the 2050 climate neutrality goal. These ambitious objectives are actually about to be carved into the European Climate Law, the first of its kind for the continent with 12 directives and regulations to be adapted.
The Commission plans to bring out 10 proposals (two new laws and eight amendments) by June and two more by the end of 2021. The June mega-package is referred to as “Fit for 55”, a legislative big bang that can only be compared to the 2016 Clean Energy Package with the introduction of eight legal acts.
Yes, we can
The new target is based on a comprehensive social, economic and environmental Impact Assessment and reflects what can realistically be achieved, turning Europe into a first-tier geopolitical player in the new green world of tomorrow. By taking the lead of climate action, Europe aspires to global leadership that delivers on climate change objectives and puts Europe in the driving seat of global industrial transformation by the next UN climate conference (COP26).
The upcoming climate law is a regulation, not a directive, therefore, it is immediately applicable in member states. Once the legal step has been made, from Rome to Helsinki, implementation will have to proceed without delay.
It is important to point out that the law contains measures and mechanisms to monitor and control progress, ensuring milestones to the end destination are reached on time.
As in any industrial project, there are two basic principles: first, what can’t be measured, can’t be managed; secondly, to punish non-compliance and reward compliance.
We expect to have a new legal landscape in force by 2023, which is not a political or a cultural transformation, but the rise of a new civilisation. The climate law is the foundation of the new EU eco-economy. And both EU member states and the Commission are taking these objectives on with a “yes we can” spirit.
Looming battle
The battle is being waged around the fundamental building blocks of our economies, the energy matrix and industrial structure. Thus, the Commission is revising and expanding the EU Emissions Trading System; it is adapting the Effort Sharing Regulation (in other words, the mechanism of climate and energy governance for the EU member states) and the framework for land use emissions (including the Common Agricultural Policy); reinforcing energy efficiency and renewable energy policies; and strengthening CO2 standards for road vehicles.
Nobody dares to disagree on the objectives (the ‘whys’ and the ‘what’), the battle is over ‘how’. Many issues are highly controversial. One of the most polarising is how long we should keep natural gas in the energy and industry system.
If the EU shifts its financial levers to achieve climate neutrality, there will be less public funding for fossil fuel infrastructure.
“I want to be crystal clear with you”, said Executive Vice-President Timmermans’ at the Eurogas Annual Meeting on 25 March 2021 “fossil fuels have no viable future. That also goes for fossil gas, in the longer run”.
“The future”, he added “is in carbon free electricity and a decarbonised gas sector, which embraces hydrogen as the new energy carrier and green hydrogen as the final destination”.
By the end of the year, the European Investment Bank (EIB) will end its investments in oil and gas. For the first time, Europe’s TEN-E Regulation will exclude natural gas from long-term infrastructure priorities.
These moves are data-driven — the Commission calculates that to meet the objective of a 55% CO2 emissions reduction by 2030, the consumption of fossil gasses must drop by 36%.
Gas infrastructure and “lock-in” risk
While the EU is putting an end to fossil fuel infrastructure investment, public investment in the sector still outweighs private by a ratio of 2:1, according to a report published by the Global Energy Monitor (GEM). Approximately 2.6 billion of the total 6.9 billion euro in public subsidies for gas projects originates from EU pots and financial institutions. But with the EIB’s new investment rules and the exclusion of natural gas from European priority projects (IPCEI) public funds will dramatically drop.
“We can therefore assume that the share of private investors, especially in the LNG sector, will increase, at least in the short term”, the report concludes. This is not good news, taking into account shale gas upstream emissions.
While regulation is taking bold steps, market realities do not reflect that policy turn. Across the EU, fossil gas infrastructure worth 87 billion euro is currently under construction or at the planning stage. These projects could create additional gas import capacities of 222 billion cubic metres per year. That risks an investment “lock-in”, or too great a financial commitment to move forward. Germany, which does not to date have a single LNG terminal, remains the EU country with the largest investment program.
German battleground
Germany is the biggest industrial centre in Europe, a global exports leader, and the most populous country in the EU. What happens in Germany defines Europe.
Germany’s Federal Ministry of Economics and Technology (BMWi) is confident that natural gas will play a “significant role” in 10 years’ time. However, the recent “Dialogue on Climate-Neutral Heat” concedes that “Climate neutrality means that by 2050 at the latest, natural gas can only be used selectively (CCS/CCU) for heat supply, if at all”.
Clearly, there are forces working in opposite directions. It is unclear what share of the overall energy mix will natural gas occupy. In their draft for a network development plan for gas 2020-2030, the transmission system operators (TSOs) have drawn up two scenarios. The first scenario anticipates total gas demand in Germany to grow by about 7% between 2020 and 2030. The second envisages a 9% drop in demand.
Beyond fossil natural gas, the two scenarios include low carbon gases, such as biomethane and other so-called “green” gases. Nevertheless, the gas network is to be expanded. According to the national development plan, 1,746 kilometres of additional pipeline networks will be added at the cost of 8.5 billion euro.
For all investors, there is a clear risk that much of the infrastructure could remain idle if it’s not compatible with green gases. In 2020 alone, projects worth more than 5 billion euro were cancelled or postponed. As public money is leaving and the risk passes from the taxpayer to private investors, this is no longer as safe an investment.
