Labelling unabated gas as ‘green’ risks diverting finance from essential renewables

DISCLAIMER: All opinions in this column reflect the views of the author(s), not of EURACTIV Media network.

Russia's invasion of Ukraine has already prompted changes in European energy policy. That needs to be reflected in a revised Green deal, writes Alena Mastantuono. [THINK A / Shutterstock]

By encouraging investment in ‘transitional’ gas infrastructure, we risk losing sight of the critical priority: channelling finance toward a massive build-out of renewable power generation, writes Faustine Delasalle.

Faustine Delasalle is director of the Energy Transitions Commission, a global coalition of leaders from across the energy landscape committed to achieving net-zero emissions by mid-century, in line with the Paris climate objective.

The European Commission and Member States are currently debating whether to include natural gas in the EU’s new rule book on environmentally sustainable investments – the ‘EU taxonomy for sustainable activities’. Its aims are to define the types of investments that can be considered sustainable and to mobilise private investment into activities required to achieve Europe’s carbon neutrality by 2050.

But the move to label some investments in natural gas – a fossil fuel which causes both CO2 and methane emissions – as climate-friendly risks detracting the finance community’s attention from the highest investment priority for Europe’s energy transition. Above all else, investment is needed in the massive renewable electricity generation required to decarbonise the economy.

Current drafts of the EU’s taxonomy recognise that gas should only play a ‘transition’ role in Europe’s energy system. Member States have already seen guidance that unabated gas investments can only qualify if they meet a number of criteria. These include that projects displace dirtier fuels (in particular coal), emissions are limited to 270g of CO2e/kWh, turbines are ready to switch to cleaner gases like hydrogen in the future, and no new projects can be developed after 2030. However, these criteria still appear to be both insufficient in their limitations on the role of gas and are not compatible with Europe’s climate goals.

Clean electrification is the primary route to decarbonisation. Access to abundant, cheap, clean electricity is essential to reducing the cost of the transition for all sectors of the economy, including buildings, transport and industry. Zero-carbon renewable generation, especially wind and solar, can and must meet the bulk of Europe’s energy needs.

Following a decade of sharp cost decreases, renewables are now the cheapest way to generate electricity, and this cost advantage will only expand over time. Europe’s own Fit-for-55 strategy recognises that Europe must reduce by 30% its gas use by 2030. Its positioning of gas as an alternative to coal in the taxonomy however fails to recognise that renewable electricity generation can already displace coal generation at a cheaper cost.

The impact of the continued use of gas, even within new suggested limits, also threatens to work against Europe’s climate commitments. While burning gas produces roughly 40% less CO2 than burning coal, methane leakage during production and distribution of gas also occurs. Methane is a hugely powerful greenhouse gas, which the IPCC estimates has accounted for about 40% of global warming to date. Measured over a 100-year period, a tonne of methane produces as much global warming effect as 28 tonnes of CO2. As a ‘short-lived’ gas, this means over 20 years the impact is in fact equivalent to 84 tonnes of CO2.

At current leakage rates, gas used to generate electricity in Europe can be expected to contribute additional life-cycle emissions averaging 90g of CO2e per kWh measured over a 20-year timeframe, and up to 290g of CO2e per kWh if LNG is used. However, methane leakage during natural gas production and distribution is hard to trace and accounting is often limited. This means a gas investment using the currently proposed taxonomy, limiting emissions to 270g CO2e/kWh, could often underestimate amounts of methane leakage.

At the Energy Transitions Commission, our work has shown that there is still a role for gas in the net-zero transition. While new zero-carbon balancing and storage solutions for the power system are brought online, the flexible use of gas plants will play a critical role in balancing electricity networks increasingly dominated by variable wind and solar generation, especially to meet seasonal demand peaks.

However, there is actually little need for investments in new gas infrastructure in Europe, as almost all countries have sufficient gas capacity already in place to play this role – even in hugely expanded electricity systems. New unabated gas generation would only be required in very specific circumstances, for instance in countries where replacing ageing gas plants approaching retirement would be necessary to provide flexible balancing in a future renewables-dominated system.

Including unabated gas in Europe’s sustainable investment taxonomy therefore risks encouraging a wave of investments in a sector where needs are in reality limited, channelling financial flows away from the clean technologies of the future. It is these technologies that urgently need a massive investment ramp-up – wind, solar, energy storage and grid assets.

Europe will only be able to reach its net-zero target if cumulative investment in renewable power generation reaches in excess of USD 2.6 trillion by 2050. At least 210 GW of solar and 230 GW of wind generation capacity is already needed to be built this decade. The reinforcement and expansion of grid networks is also a top priority, including both long-distance transmission lines that balance varying sources of renewable supply with demand across the continent, and distribution networks needed to support the increased electrification of many applications.

It is crucial the EU taxonomy plays a key role in unlocking investment at scale in these areas, which can make or break Europe’s energy transition to net-zero.

As for investments in unabated gas, the EU could envision qualifying ‘transition investments’ as those that truly prepare Europe’s gas infrastructure for its new role in a renewables-dominated electricity grid. In particular, this could include reinvestment in existing gas plants to reduce their emissions (including via CCS) and to increase their ability to operate flexibly, plus investments to reduce methane leakage across the gas value chain.

These types of investments would help minimise the climate impact of the remaining use of natural gas over the coming decades and prepare the sector for a progressive ramp-down of its activities.

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