Gas denied ‘transition’ fuel status in draft EU green finance rules

To qualify as a “sustainable” investment, gas power plants must not emit more than 100 grams of CO2 equivalent per kilowatt hour, according to the draft rules, seen by EURACTIV. [Tjeerd Kruse / Shutterstock]

Power plants fuelled by natural gas will not be classed as “sustainable” or “transition” investments in Europe unless they meet emission limits which are so low that none are currently able to comply, according to draft EU rules seen by EURACTIV.

The new standards will be tabled in the coming weeks under the EU’s sustainable finance taxonomy, which determines what type of investments make a substantial contribution to the EU’s fight against climate change.

Failing to obtain the EU’s green label could deprive those power plants of billions of euros in funding as private investors seek shelter in investments seen as climate-friendly.

To qualify as a “sustainable” investment, gas power plants must not emit more than 100 grams of CO2 equivalent per kilowatt hour, according to the draft rules, seen by EURACTIV.

But the 100g CO2 limit would also prevent gas plants from being labelled as a “transition” technology on the way to reaching net-zero emissions by 2050.

According to the industry, this would hamper Poland’s efforts to replace its ageing fleet of polluting coal power stations with cleaner gas plants, which emit on average half the amount of CO2.

Combined cycles gas plants “are currently at 350-300g today which means investors in countries like Poland may not be able to consider CCGT investments as a transition activity,” said James Watson, secretary-general of trade association Eurogas.

“We fully expect natural gas to be classed as a ‘transition’ activity,” he said. “But the 100g threshold will unfortunately not allow this,” he told EURACTIV.

EU set to deny gas power plants a green investment label

Power plants fuelled by natural gas will not be classed as a sustainable investment in Europe, unless they meet an emissions limit that none currently comply with, according to draft European Union regulations seen by Reuters.

Environmentalists, for their part, hailed the draft EU rules for shutting the door to fossil gas investments being labelled “green”.

“The gas lobby has had its core request conclusively rejected,” said Rebecca Vaughan, an analyst tracking industry lobbying for InfluenceMap cited by Reuters.

In December last year, the European Investment Bank (EIB) decided to stop all unabated fossil project financing from end-2021, a move welcomed by green activists.

“That’s the world we’re in now: fossil gas is not sustainable,” said Dave Jones from Ember, an independent climate think-tank focusing on the global electricity transition.

“It’s perhaps disappointing even that the taxonomy didn’t set zero as the threshold,” Jones told EURACTIV.

Still, supporters of natural gas say the fossil fuel is indispensable for Europe’s transition to net-zero emissions by 2050. Earlier this year, the EU’s climate chief, Frans Timmermans, said “natural gas will probably be necessary to shift from coal to sustainable energy” and key lawmakers in the European Parliament have also supported gas when it displaces coal.

Emissions from the electricity sector fell by 12% in Europe last year, led by a steep decline in coal power generation in countries like Germany, Spain, the Netherlands, the UK, and Italy, according to data published earlier this year.

The other half was replaced by natural gas, a fossil fuel which spews about 50% less carbon than coal when burned in power plants.

In Warsaw, the fear is that Poland will be denied the same opportunity than Western EU countries.

“There is an understanding for gas to be a transition fuel,” said Wojciech Dabrowski, the CEO of Poland’s state-owned energy group PGE.

“That is very important for us because natural gas plays an important role in the short and medium-term strategy of Polska Grupa Energetyczna,” he told a recent EURACTIV event.

Poland will oppose the 100g threshold when it is submitted for approval to EU national delegates, EURACTIV understands. Other eastern EU countries, which co-signed a paper in support of natural gas earlier this year, are expected to oppose it too, industry sources said, raising fears about an east-west split on climate change.

Poland is the only EU country which has not yet adopted an EU-wide goal of reaching net-zero emissions by 2050, saying more analysis – and money – was needed before it could make the objective a national obligation.

EU leaders will meet in December to try and broker an agreement on the bloc’s 2030 climate objective, seen as a key milestone on the way to reaching climate neutrality by 2050.

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Cogeneration district heating excluded too

Critics of the new gas emission rules say the proposed 100g threshold is self-defeating because it also denies a “sustainable” or “transition” label to gas-fired cogeneration plants, which are considered the most efficient.

This is expected to slow down the conversion of district heating systems in Poland, which are currently mostly running on coal.

“District heat is very popular in East Europe. Poland has about 54GW of district heat which is 75% coal based,” said Mike Parr, a private consultant providing market research and technical support in the field of renewables and energy efficiency.

“Setting a limit of 100gms CO2/kWh seems pointless. The Poles could cut their current emissions due to coal/district heat by half by moving to natural gas, which burns far cleaner,” he told EURACTIV.

According to Parr, the best emission threshold that a CCGT plant with district heat could hope for is around 200gmsCO2/kWh.

Industry group COGEN Europe told EURACTIV they believe that “cogeneration should not be subject to the 100g threshold”. “Today, natural gas cogeneration is THE best emissions performance solution in energy-intensive industry,” they said in emailed comments.

“The sustainability of cogeneration is not about cogeneration itself, it is about the energy that is used by cogeneration. If cogeneration uses decarbonised energy, cogeneration becomes zero-emission. Don’t change the car, change the fuel…,” COGEN Europe said.

“Do no harm” and hydrogen

The EU’s green finance taxonomy is not all bad news for the gas industry though.

Under the draft rules, fuels emitting less than 262gCO2e/kWh would not be considered as doing “significant harm” to the EU’s climate objectives, opening the door for gas to be labelled as such.

“262g would be in line with the EIB’s 250g threshold for power generation, so it could be worse,” said Watson from Eurogas.

“Some argue 262g CO2 is too low for the transition away from coal. But on the other side, it also encourages blending of biomethane or renewable and low-carbon hydrogen into natural gas, which helps in the transition to decarbonised gases,” Watson added, saying a threshold of 262g would be roughly equivalent to a 30% blend for low-carbon gases into natural gas.

Elsewhere, the draft taxonomy establishes an emission limit of 94gCO2e/MJ to consider hydrogen as green, a threshold the industry says is achievable with carbon capture and storage technology to bury the emissions underground.

“Manufacturing of hydrogen would become sustainable if you are utilising CCS to get down to those thresholds. At Eurogas, we consider that up to 90% of greenhouse gas emissions can be cut with a combination of steam methane reforming and CCS. So, we think the draft proposal is more or less in line with this,” Watson said.

“Overall, our feeling is that there are good parts in this draft proposal but that other parts need further assessment of the implications for the transition to zero carbon energy,” he said.

Pascal Canfin: On gas and nuclear, EU must apply green finance taxonomy

Whether in the European recovery plan or the just transition fund, Pascal Canfin says he is in favour of applying the EU sustainable finance taxonomy, which allows drawing a line between gas projects that merit public funding and those that don’t.

[Edited by Zoran Radosavljevic]

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