A market-based approach to decarbonising the gas sector

A market-based approach to decarbonising the gas sector

The European Federation of Energy Traders (EFET) publishes Frontier report on market-based approaches to ensure decarbonisation of the gas sector and facilitate sector coupling

Unabated natural gas likely has a limited long-term role in a decarbonised EU energy system. However, low-carbon gases can contribute to resolving challenges regarding the transportation and storage of energy that are likely to become increasingly relevant in the transition to a low carbon economy.

The report builds on Frontier’s work to date in the area of renewable and low-carbon gases (including our recent report for the European Commission).

Christoph Riechmann, a Director in Frontier’s energy practice said: “Our report for EFET sets out a blueprint for European policymakers for decarbonising the gas sector and the wider economy in a cost-effective manner. It covers a number of issues relevant for the ‘European Green Deal’, one of the key priorities for the current Commission.

Our key recommendations include the following:

  • Define a credible harmonised EU-wide carbon pricing scheme as the long term driver for decarbonisation across the economy. This regime could be anchored in the EU Emissions Trading System (ETS), with an expansion of the ETS to buildings and transport (including maritime) being a key step on the way.
  • In the interim period (particularly while technology costs are still falling quickly) support mechanisms for low carbon gas production could be accepted, provided that they are market-based, technology-neutral and open across borders, and do not undermine prices in the EU Emissions Trading System.
  • Policymakers should plan for an eventual exit from support mechanisms and for merging national carbon pricing schemes with an EU-wide scheme.
  • To underpin both carbon pricing and any market-based support mechanisms, a consistent mechanism needs to be developed to certify the relative greenhouse gas content of gases on a consistent basis (ideally based on existing EU instruments such as guarantees of origin or sustainability certificates).
  • Network infrastructure development needs to be optimised across electricity and gas. This can be supported by regulatory and institutional measures at the national and EU level, including cross-sector cost-benefit analyses.
  • The impact that market participants’ investment and operational choices have on energy networks and system balancing across the energy system should be reflected in the signals they face. Moreover, tariff and levy structures that distort participants’ choices should be avoided.

Frontier regularly advises clients on energy issues, and has been at the forefront of the debate on issues related to gas decarbonisation and sector coupling.

For more information, please contact media@frontier-economics.com or call +44 (0) 20 7031 7000

Gas decarbonisation and sector coupling - EN/DE