European Commission Gas Legislative Review

Gas networks - revision of EU rules on market access.

Posted 22nd March, 2021

Context

In September 2020, the European Commission (EC) announced that a new European Union (EU) regulatory framework for competitive decarbonised gas markets would be developed in 2021. In February 2021, the European Commission began this consultation process, launching the initial Inception Impact Assessment or Roadmap consultation outlining the key considerations and the broad process for the review.

“Gas networks - revision of EU rules on market access” is the first stage of the EC’s gas legislative review. It represents the first major overhaul of the EU gas market rule book since the Third Energy Package in 2009.

Achieving decarbonisation ambition

The European Green Deal [December 2019] framed the EU’s plans for decarbonisation, and its ambition to become net zero carbon by 2050. As the flagship climate and energy policy, it provided the basis for all the strategies which have followed. The gas legislative review was also identified as an action to facilitate the gas sector’s contribution to decarbonisation, in both the Energy System Integration and Hydrogen strategies [July 2020].

This review is the EU’s response to the challenge of decarbonising gas networks and, therefore, is of significant relevance for the future role of gas in the EU energy sector. It will be closely coordinated with other initiatives emanating from the European Green Deal including the Renewable Energy Directive, Energy Efficiency Directive, the EU Emissions Trading System (‘ETS’), as well as initiatives following from the EU strategy to reduce methane emissions.

Figure 1 - Development of EU Energy Policy & Regulation - Timeline

It will result in a new EU regulatory framework for competitive decarbonised gas markets, accomplished through changes to both the Gas Directive 2009/73/EU and the Gas Regulation 715/2009/EU.

The regulation of hydrogen may either be addressed by a revision of these existing gas instruments or by new legal instruments.

Specific objectives of the gas legislative review, as outlined in the initial Inception Impact Assessment report include:

  • Ensuring the emergence of cost-effective hydrogen infrastructure and contestable hydrogen markets;
  • Facilitating local and decentralised production of renewable and low-carbon gases e.g. through facilitating access of bio- and synthetic-methane to the infrastructure (pipelines, storage and LNG terminals) and the market;
  • Strengthening consumer rights, ensuring competition, transparency and security of supply;
  • Ensuring more holistic and inclusive infrastructure planning, in particular, for the gas, hydrogen, electricity and heating and cooling markets;
  • To avoid that demand for natural gas is locked-in.

Transforming the energy markets

Aligned with the European Green Deal, the EC affirms that energy markets will need to transform to enable progressing towards a net zero target and ensure that these objectives can be realised in a non-disruptive and cost-effective manner. The gas legislative review proposes to revise EU gas rules to facilitate the market entry of renewable and low-carbon gases and remove any undue regulatory barriers.

Phase 1 - Inception Impact Assessment

Points of note:

The role of gases

  • The EC recognises that “full electrification is unlikely to be viable”. The share of gaseous fuels in the 2050 energy mix would be c. 20% – down from 22% today.
  • Biomethane, synthetic methane, renewable and decarbonised hydrogen will represent 2/3 of the gaseous fuels in the 2050 – natural gas with CCUS will represent the remainder.

Hydrogen regulation

  • Renewable and low-carbon hydrogen is promising as an energy carrier to support the EU’s decarbonisation efforts.
  • The initiative aims at modifying existing EU legislation and creating a new framework for an internal hydrogen market.

The role of Transmission System Operators (TSOs)

  • Hydrogen is not addressed by the current regulatory framework – early regulatory intervention may provide predictability for investors.
  • A key question is should gas TSOs be allowed to operate electrolysers.

The role of Distribution System Operators (DSOs)

  • The vast majority of today’s biomethane plants in the EU are connected at the distribution level.
  • The current regulatory framework does not anticipate decentralised gas injections, meaning that the tradability and access of renewable and low-carbon gases to gas markets and networks is not on a level playing field with natural gas.

Investment and Incentives

  • With growing hydrogen demand, the need for infrastructure is expected to progressively increase.
  • An efficient and sustainable development of renewable and low-carbon gases may require, among other factors, regulatory incentives for production and/or consumption.

Related Legislation

  • EU Green Deal initiatives relevant to the decarbonisation of gas include the Renewable Energy Directive (REDIII), Emissions Trading System (ETS), and new obligation envisaged from the EU Methane Emissions Reduction strategy.

  • Appropriate alignment of the gas regulatory framework with the 2018 (electricity) Clean Energy Package will be important.

What are the next steps here?

  1. A more in-depth and targeted 12-week public consultation will be launched in Q2 2021.
  2. A broad consultation process will be organised with different stakeholder groups i.e. Member States, National Regulatory Authorities and other relevant public authorities, market players – including network operators.
  3. The impact assessment envisages the delivery of a set of legislative proposals by Q4 2021.
Figure 2 - Gas legislative review proposed timeline for delivery

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Author: Mary O’Mahony, European Affairs - Innovation & Policy Analyst, Gas Networks Ireland