The European Commission says the EU is “determined to lead global action against methane emissions”. However, its new “solid legal framework” to better track and reduce this powerful greenhouse gas (GHG) is more akin to a softly, softly approach to a burning issue: the oversized methane footprint embedded in the EU’s oil and gas imports.
On 15 December 2021, the Commission unveiled a “first-ever” EU legislative proposal on methane emissions reduction in the energy sector. This legislation is supposed to put into action an EU Methane Strategy that was published in October 2020.
The strategy pledged, among other things, to “consider methane emission reduction targets, standards or other incentives for fossil energy consumed and imported in the EU in the absence of significant commitments from international partners”.
However, the Commission has decided that now is not the time to force Europe’s overseas energy suppliers to plug the many methane leaks in their oil and gas infrastructure. The prevailing view in Brussels seems to be that the EU must get its own house in order first.
To that end, the legislation focuses squarely on methane emissions inside the EU. It calls for an immediate reduction of emissions across the EU energy supply chain through mandatory leak detection and repair, and a ban on venting and routine flaring.
This is all very well. The avoidable waste from flaring, venting and leaking gas within Europe amounts to four billion cubic metres of natural gas per year – equivalent to the annual gas consumption of the Philippines or South Africa, according to flare capture specialist Capterio.
The value of this lost gas is estimated at nearly $700m per year, with a GHG emission load close to 120 million tonnes of CO2 equivalent. That equates to about 15% of all the emissions from the aviation industry.
This pales into insignificance when compared with the EU’s imports, however. The external carbon or methane emissions associated with EU fossil gas consumption (i.e. the emissions released outside the EU to produce and deliver fossil gas to the EU) are “between three to eight times the quantity of emissions occurring within the EU”, according to the Methane Strategy.
Europe imports 80% of the gas and 95% of the oil it consumes. Worse still, the EU imports oil and gas from notoriously dirty suppliers. Gas produced in Europe has a very low average flaring intensity of just 0.11%, compared with the global average of 3.2%, but Europe gets about half of its gas from Russia (3.5%), Algeria (10%), Nigeria (16%) and Libya (54%).
Europe’s imported oil also has worryingly high flaring rates. Capterio estimates that the embedded flaring intensity of EU oil imports is 7.2 cubic metres per barrel (m3/barrel), since the EU buys most of its oil from Russia, West Africa and the Middle East – all flaring hotspots. The global average is 5.1m3/barrel, while oil produced in the EU flares just 1.3m3/barrel on average.
A methane border tax à la CBAM
Flaring is both a methane and carbon problem, because inefficient combustion of gas at the flare tip releases unburned methane directly into the atmosphere, and because methane has a greenhouse intensity 82.5 times that of CO2 over a 20-year period, the total global warming impact of a flare stack increases by a whopping 194% with just a 3% methane slip.
The Commission knows this but has refrained from imposing European standards on overseas suppliers. This stands in stark contrast to its proposal for a Carbon Border Adjustment Mechanism (CBAM), which will force a carbon levy on imports of key goods equivalent to the prevailing price of allowances in the EU Emissions Trading System (ETS) unless a similar CO2 price was paid in the country of origin.
The CBAM will initially apply only to cement, iron and steel, aluminium, fertilisers and electricity, but it is expected to be widened to other energy imports over time. Raising the carbon bar on imports is a means of exporting EU emissions standards, and there are indications that the CBAM has prompted Russia to consider its own carbon tax.
So why not also pursue a methane border tax? In a word: data, or lack thereof. The EU’s legislative proposal on methane takes on this problem. It will establish a global methane monitoring tool based on satellite data, and a methane transparency database. Non-EU energy suppliers will be mandated to tell EU officials how much methane is embedded in their products and whether these have been independently verified.
Methane is a known unknown for the EU and filling in the blanks makes sense. You cannot tackle a problem effectively without knowing who the worst culprits are, or where they are located. However, it is a missed opportunity to legislate on methane without making a bold statement of intent to go after dirty operators as soon as the data is in.
This view is shared by the vast majority of stakeholders consulted by the Commission in formulating the legislation: 72% of respondents said energy imports should be forced to meet strict EU methane limits to create a level playing field. The Commission’s response was to insert a review clause allowing it to “impose more stringent measures on importers once better global methane emission data are available”.
There is no concrete timetable on when that might happen, if ever. The legislation says the Commission will review the legislation every five years, with ACER – the EU’s body of energy regulators – to advise on technical amendments every three years. Getting internal EU alignment on the best path forward could delay things further, pushing the prospect of a methane levy into the late 2020s or beyond.
That is another missed opportunity, because European companies could be exporting their methane detection technology and know-how to countries that really need it, perhaps with EU financial support. This might even be recouped from the proceeds of the levy once it is introduced, assuming not all importers achieve 100% compliance off the bat.
All this remains a distant prospect. In the meantime, oil and gas production within the EU will be shouldered with the added cost of methane leak detection and repair, while the EU waives through energy imports from countries that flare and vent vast amounts of gas unpenalised. This needs to change, fast.