Policymakers around the world increasingly recognize that along with carbon dioxide, cutting emissions of methane is critical for reaching the temperature goal of the Paris Agreement. Methane is a key element in the reinvigorated U.S. climate strategy and — for the first time — discussed in China’s latest five-year plan.
Now the EU has a chance to significantly influence methane emission reductions not only within Europe, but globally.
Methane from human activities is responsible for at least 25% of today’s warming. One of the largest emitters is the oil and gas industry. The European Commission Methane Strategy released last October identifies the global oil and gas sector as the most cost-effective opportunity for methane emission reductions.
The key to the EU’s global methane leverage lies in the continent’s vast gas market. A new policy brief by the Florence School of Regulation and Environmental Defense Fund describes policy pathways to unlock the opportunity, while a separate analysis prepared for EDF by Germany’s Enervis Energy Advisors illustrates how a comprehensive policy could offer far-reaching climate benefits.
Europe’s global methane footprint
Europe is the world’s largest buyer of internationally traded gas. Imports account for 85% of its consumption. Top suppliers include Russia, Norway and Algeria, with an increasing role for liquid natural gas from Qatar, Nigeria and the U.S.
Crucially, the ‘methane footprint’ of gas produced in these supplier countries is estimated to be between three and eight times larger than the methane emissions from the gas supply chain within the EU’s borders. A solution for the EU to consider: A methane performance standard for all gas consumed in the EU, both imported and domestically produced.
A performance standard would complement other essential measures under discussion in Brussels, including limits on routine venting and flaring, and safeguards like frequent leak detection and rapid repairs at well sites and compressor stations. It would also create the potential to extend methane reductions far beyond the gas produced for the EU.
Implementing a methane performance standard
A performance standard could be introduced through different routes such as the revised Gas Directive, through a Carbon Border Adjustment Mechanism or as standalone legislation. The FSR brief explains how performance could be measured with a clearly specified “emission intensity” metric — the amount of methane emitted relative to the volume of gas sold by the producer. The lower the intensity, the better.
The emissions data could come from an EU methane monitoring, reporting and verification regulation that builds on the OGMP 2.0 reporting framework spearheaded by the EC, the UN Environment Programme, the Climate & Clean Air Coalition and EDF. Gas from companies not reporting according to an MRV regulation would be assigned a default methane emissions intensity value.
Based on existing industry commitments, FSR and EDF suggest an initial benchmark upstream emission intensity of 0.20%. Any gas with a higher methane intensity would be subject to financial penalties. To avoid methane penalties, entities shipping gas on the EU transmission system would either need to reduce volumes of unabated gas or switch to a lower methane intensity source.
Potential for high impact at low cost to EU households
Combining domestic methane regulations with the EU’s significant purchasing power in global gas markets creates powerful leverage. To illustrate, EDF asked Enervis to estimate the impact of an EU methane emissions price on all natural gas imported or produced in the EU in line with the penalties described in the FSR policy brief.
While the numbers are based on specific assumptions, the results underscore the potential:
- If a price of 25€ per tonne of CO2 equivalent (equivalent to €700/t CH4 using a global warming potential for methane of 28) on upstream methane emissions prompts EU gas buyers to choose cleaner gas suppliers, the upstream methane footprint from EU gas use would fall by 18%. At 100 €/tCO2eq, it would drop by 48%. But the original producers would simply sell their gas elsewhere.
- If methane pricing also triggers methane mitigation and a 75% reduction in emission intensities by producers supplying gas to the EU (a potential based on International Energy Agency estimates), that upstream methane footprint from gas would fall an estimated 78% at 25€/t CO2eq, and 79% at 100 €/tCO2eq.
- If producers logically extend abatement practices to all their gas production beyond the volumes exported to the EU, total oil and gas methane emissions worldwide could drop by 15 to 25%.
The projected impact on EU household gas prices is small, due to the large share of existing taxes and other charges in end-user gas prices. The estimated average price increase for residential gas in the EU would be just 1% at 25 €/tCO2eq, and 5% at 100 €/tCO2eq (and less if producers reduced their emissions in response to the methane price).
Power of leverage
Europe’s share of exports from key supplier countries offers tremendous influence. Around 70% of gas exports from Russia and Algeria goes to the EU, as do close to 90% of Norwegian gas exports. What’s more, most EU gas imports come by pipeline, making it difficult for producers to ship their gas to other markets that don’t have methane emission restrictions.
Next, consider the additional leverage if the EU was to enlist other countries in a natural gas buyers’ club to harmonize international emissions performance standards, leveling the playing field for responsible suppliers and accelerating methane reductions by gas suppliers worldwide. (Norway, for example, already has incentives in place to limit methane emissions from its offshore petroleum facilities, offering an example for other oil and gas producing regions looking to remain competitive in the face of increasing climate ambitions.)
As the world races to limit global warming to well below 2 degrees Celsius, cutting oil and gas methane emissions is an invaluable opportunity to slow the rate of warming now, even as we continue to decarbonize world energy systems as fast as possible.
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