BotH2nia – Questions and Answers on the Decarbonised Gases and Hydrogen package.
The EU has adopted major electricity and gas market reforms and a new regulatory framework to promote the deployment of hydrogen and other low-carbon gases. A list of questions and answers from the European Commission on the new legislative package.
How will the revised legislation enable cross-border trade of renewable and low-carbon gases and facilitate their access into the market?
The revised gas market regulation and directive will substantially improve market and infrastructure access for renewable and low-carbon gases and hydrogen, contributing to decreasing emissions across the energy sector. In particular, it will ensure their connection and access to the existing gas grid and allow discounts to cross-border and injection tariffs for these cleaner gases. In practice, this means Member States can make it cheaper to flow renewable and low-carbon gases through the system, as national regulatory authorities can decide to apply discounts to various network tariffs. The regulatory framework makes sure that renewable and low-carbon gases have the required market access and can easily be traded.
To avoid market segmentation, the new rules introduce common standards for the quality of gas that can flow between Member States. Transmission operators are obliged to accept gas with a hydrogen content of up to 2%, with voluntary agreements for higher blends also possible. A dispute settlement mechanism is introduced for cases where disagreements arise between neighbouring transmission system operators about the quality of gas that they are willing to accept. Still, the quality of the gas is to be closely monitored. These norms will ensure that the divergence in the quality of gas does not become an obstacle to cross-border trade. This is in line with the EU Hydrogen Strategy of July 2020 to reflect the priority to use hydrogen in its purest form.
The revised framework also sets out a process to agree on the practical aspects of implementation, that is to say securing financing and finding technical solutions, with clear roles set out for businesses and regulators.
How will the revised legislation enable cross-border trade of renewable and low-carbon gases and facilitate their access into the market?
The revised gas market regulation and directive will substantially improve market and infrastructure access for renewable and low-carbon gases and hydrogen, contributing to decreasing emissions across the energy sector. In particular, it will ensure their connection and access to the existing gas grid and allow discounts to cross-border and injection tariffs for these cleaner gases. In practice, this means Member States can make it cheaper to flow renewable and low-carbon gases through the system, as national regulatory authorities can decide to apply discounts to various network tariffs. The regulatory framework makes sure that renewable and low-carbon gases have the required market access and can easily be traded.
To avoid market segmentation, the new rules introduce common standards for the quality of gas that can flow between Member States. Transmission operators are obliged to accept gas with a hydrogen content of up to 2%, with voluntary agreements for higher blends also possible. A dispute settlement mechanism is introduced for cases where disagreements arise between neighbouring transmission system operators about the quality of gas that they are willing to accept. Still, the quality of the gas is to be closely monitored. These norms will ensure that the divergence in the quality of gas does not become an obstacle to cross-border trade. This is in line with the EU Hydrogen Strategy of July 2020 to reflect the priority to use hydrogen in its purest form.
The revised framework also sets out a process to agree on the practical aspects of implementation, that is to say securing financing and finding technical solutions, with clear roles set out for businesses and regulators.
Will this package phase out fossil gas from the EU market?
Whilst recognising the transitional role of fossil gas, the package creates the framework for its gradual phase-out by enabling the integration of renewable and low-carbon gases into the energy system. The uptake of these cleaner gases will be key for the EU to achieve its 2030 climate objectives and climate neutrality by 2050.
Crucially, the reform will avoid lock-in effects and stranded assets, by introducing a time limit for long-term gas contracts. More specifically, long-term contracts for unabated fossil gas should not last beyond 2049. This will avoid locking Europe into fossil gas imports while incentivising the use of renewable and low-carbon gases, which will be in large part domestically produced and thus reinforce our energy security.
How will the revised gas legislation impact prices and protect European consumers?
The revised gas legislation strengthens consumer rights and protection, mirroring the benefits that already exist in the electricity market. Consumers will receive clearer information on contracts and bills, and switching suppliers will be faster and easier. They will also have better access to tools helping them compare prices and get fair, accurate and transparent billing so they can choose the best deal for them. With clearer information and enhanced protection, consumers, and particularly the most vulnerable and those affected by energy poverty, will be able to switch more easily to more sustainable heating solutions.
The revised legislation also gives consumers better access to data and new smart technologies to monitor consumption more easily. In addition, in case of a natural gas price crisis, Member States will be able to introduce effective measures to protect consumers and ensure they have access to affordable energy and essential social services, including through interventions on price settings to shield consumers from excessively high prices.
How will the package support the development of hydrogen infrastructure?
The new hydrogen framework introduced by this gas market reform ensures that hydrogen will be cost-effectively brought from areas where it can be easily produced to the industrial customers that need it. It streamlines network planning procedures while fostering cross-border coordination.
At national level, all hydrogen transmission network operators are to submit a Ten-year Network Development Plan, and to update it every two years, after consulting stakeholders. Each Member State will have a single network development plan for hydrogen or, as an option, a joint plan for natural gas and hydrogen, where the specific needs of the hydrogen sector are identified and addressed separately. Stronger coordination of infrastructure planning among the electricity, hydrogen and gas sectors is also encouraged. As regard the development of the distribution network, the legislation ensures that operators submit a network development plan every four years.
In addition to the national network development plans, a separate EU-wide Ten-Year Network Development Plan for hydrogen will provide the necessary transparency on infrastructure needs. Its development will be handled by a new, independent EU association gathering hydrogen transmission network operators called ENNOH (European Network for Network Operators of Hydrogen). This will help promoting dedicated hydrogen infrastructure and aligning it better with national plans. To ensure energy system integration and contribute to cost-efficient infrastructure development, ENNOH, the ENTSO for Electricity and the ENTSO for Gas will cooperate to deliver EU-level integrated network planning, with joint scenarios across the electricity, hydrogen and gas sectors.
The reform also introduces a market design for hydrogen in Europe with a gradual phase-in of rules in two phases, before and after 2033. In the ramp-up phase only a simplified framework will apply, while already providing clear visibility about the future rules for a developed hydrogen market. These provisions cover notably access to hydrogen infrastructures, separation of hydrogen production and transport activities (so-called “unbundling”) and tariff setting.
How will the certification system for low-carbon hydrogen and synthetic fuels work in practice?
The reform introduces a certification system for low-carbon gases, including hydrogen, which complements the certification of renewable gases and hydrogen under the revised Renewable Energy Directive. It will ensure a level playing field and consistency in assessing the full greenhouse gas emissions footprint of different gases and allow Member States and consumers to effectively compare and consider them in their energy mix. The certification rules will apply both to imports and to domestic production in order to ensure a level-playing field and avoid carbon leakage. The system reflects the one used for the certification of biofuels.
The Commission assesses and recognises so-called Voluntary Schemes for the certification of low-carbon fuels. Producers of low-carbon fuels can hence rely on a well-established system of certification by third parties, the Voluntary Schemes, which are international companies with over a decade of experience in certifying biofuels, biomass and other products worldwide. Member States are required to accept evidence from the Voluntary Schemes recognised by the Commission.
Under the revised legislation, low-carbon hydrogen is defined as a fuel generating 70% greenhouse gas emissions savings compared to fossil. The exact methodology to assess emissions for low-carbon hydrogen will be developed though a Delegated Act to be presented by the end of 2024.
How will the legislation improve Europe’s energy security?
Building on the lessons from the energy crisis, the reform reinforces the existing solidarity framework to secure supplies for all Member States. In case of an emergency, when a severe gas shortage would occur, Member States are required to provide solidarity gas to a Member State in need. The existing rules for this solidarity mechanism have been operationalised, in particular when two Member States have not signed a bilateral agreement to agree on technical, legal and financial details. In case no bilateral agreements are signed, default solidarity rules will apply in cases of emergency, automatically protecting vulnerable customers, including between Member States that do not have a direct connection.
Crisis management procedures have also been strengthened by adding safeguards for the cross-border flows of gas during an emergency and by reducing non-essential consumption.
New rules are also introduced to cover emerging cybersecurity risks. In particular, the Commission is empowered to adopt specific rules for the cybersecurity of cross-border gas flows. Member States will have to take such risks into account when preparing their preventive action plans and emergency plans.
Will the revised legislation support the phaseout of Russian gas in the EU?
Under the REPowerEU Plan, the EU is committed to phasing out all fossil fuel imports from Russia as soon as possible.
This legislation empowers Member States with a legal tool to limit capacity bookings for Russian and Belarusian gas when this impacts their essential security interests. Access to Russian and Belarusian gas can be restricted at their borders and at the LNG terminals, based on clearly defined criteria and in consultation with the other Member States concerned. Member States are required to consult the Commission before making use of this mechanism and to take utmost account of its opinion to ensure European coordination.
In addition, natural gas or LNG supplies originating in Russia, or Belarus, will be automatically excluded from the demand aggregation and joint purchasing platform until 31 December 2025. After that, the Commission may impose additional restrictions for up to one year in case it is necessary to protect the essential security interests or security of energy supply in Member States. This will help to ensure supplies are diversified and Russian natural gas phased out in Member States.
How will the revised legislation facilitate demand aggregation and joint purchasing of gas and hydrogen?
To further strengthen security of supply, building on the experience of the EU Energy Platform, the reform establishes a permanent mechanism for demand aggregation and joint purchasing of gas, for voluntary use.
In addition, the Commission is empowered to develop a 5-year pilot mechanism to support the market development of hydrogen to ensure market transparency, decarbonisation and security of supply.
This mechanism will help hydrogen off-takers and suppliers to connect, and will improve hydrogen market transparency. More specifically, under the European Hydrogen Bank, the mechanism could: collect and process market data; assess demand from off-takers; collect offers from suppliers; and provide access to this knowledge to the market participants. The Commission is currently designing and preparing the pilot mechanism with a view to launching it in 2025.
Whilst recognising the transitional role of fossil gas, the package creates the framework for its gradual phase-out by enabling the integration of renewable and low-carbon gases into the energy system. The uptake of these cleaner gases will be key for the EU to achieve its 2030 climate objectives and climate neutrality by 2050.
Crucially, the reform will avoid lock-in effects and stranded assets, by introducing a time limit for long-term gas contracts. More specifically, long-term contracts for unabated fossil gas should not last beyond 2049. This will avoid locking Europe into fossil gas imports while incentivising the use of renewable and low-carbon gases, which will be in large part domestically produced and thus reinforce our energy security.
How will the revised gas legislation impact prices and protect European consumers?
The revised gas legislation strengthens consumer rights and protection, mirroring the benefits that already exist in the electricity market. Consumers will receive clearer information on contracts and bills, and switching suppliers will be faster and easier. They will also have better access to tools helping them compare prices and get fair, accurate and transparent billing so they can choose the best deal for them. With clearer information and enhanced protection, consumers, and particularly the most vulnerable and those affected by energy poverty, will be able to switch more easily to more sustainable heating solutions.
The revised legislation also gives consumers better access to data and new smart technologies to monitor consumption more easily. In addition, in case of a natural gas price crisis, Member States will be able to introduce effective measures to protect consumers and ensure they have access to affordable energy and essential social services, including through interventions on price settings to shield consumers from excessively high prices.
How will the package support the development of hydrogen infrastructure?
The new hydrogen framework introduced by this gas market reform ensures that hydrogen will be cost-effectively brought from areas where it can be easily produced to the industrial customers that need it. It streamlines network planning procedures while fostering cross-border coordination.
At national level, all hydrogen transmission network operators are to submit a Ten-year Network Development Plan, and to update it every two years, after consulting stakeholders. Each Member State will have a single network development plan for hydrogen or, as an option, a joint plan for natural gas and hydrogen, where the specific needs of the hydrogen sector are identified and addressed separately. Stronger coordination of infrastructure planning among the electricity, hydrogen and gas sectors is also encouraged. As regard the development of the distribution network, the legislation ensures that operators submit a network development plan every four years.
In addition to the national network development plans, a separate EU-wide Ten-Year Network Development Plan for hydrogen will provide the necessary transparency on infrastructure needs. Its development will be handled by a new, independent EU association gathering hydrogen transmission network operators called ENNOH (European Network for Network Operators of Hydrogen). This will help promoting dedicated hydrogen infrastructure and aligning it better with national plans. To ensure energy system integration and contribute to cost-efficient infrastructure development, ENNOH, the ENTSO for Electricity and the ENTSO for Gas will cooperate to deliver EU-level integrated network planning, with joint scenarios across the electricity, hydrogen and gas sectors.
The reform also introduces a market design for hydrogen in Europe with a gradual phase-in of rules in two phases, before and after 2033. In the ramp-up phase only a simplified framework will apply, while already providing clear visibility about the future rules for a developed hydrogen market. These provisions cover notably access to hydrogen infrastructures, separation of hydrogen production and transport activities (so-called “unbundling”) and tariff setting.
How will the certification system for low-carbon hydrogen and synthetic fuels work in practice?
The reform introduces a certification system for low-carbon gases, including hydrogen, which complements the certification of renewable gases and hydrogen under the revised Renewable Energy Directive. It will ensure a level playing field and consistency in assessing the full greenhouse gas emissions footprint of different gases and allow Member States and consumers to effectively compare and consider them in their energy mix. The certification rules will apply both to imports and to domestic production in order to ensure a level-playing field and avoid carbon leakage. The system reflects the one used for the certification of biofuels.
The Commission assesses and recognises so-called Voluntary Schemes for the certification of low-carbon fuels. Producers of low-carbon fuels can hence rely on a well-established system of certification by third parties, the Voluntary Schemes, which are international companies with over a decade of experience in certifying biofuels, biomass and other products worldwide. Member States are required to accept evidence from the Voluntary Schemes recognised by the Commission.
Under the revised legislation, low-carbon hydrogen is defined as a fuel generating 70% greenhouse gas emissions savings compared to fossil. The exact methodology to assess emissions for low-carbon hydrogen will be developed though a Delegated Act to be presented by the end of 2024.
How will the legislation improve Europe’s energy security?
Building on the lessons from the energy crisis, the reform reinforces the existing solidarity framework to secure supplies for all Member States. In case of an emergency, when a severe gas shortage would occur, Member States are required to provide solidarity gas to a Member State in need. The existing rules for this solidarity mechanism have been operationalised, in particular when two Member States have not signed a bilateral agreement to agree on technical, legal and financial details. In case no bilateral agreements are signed, default solidarity rules will apply in cases of emergency, automatically protecting vulnerable customers, including between Member States that do not have a direct connection.
Crisis management procedures have also been strengthened by adding safeguards for the cross-border flows of gas during an emergency and by reducing non-essential consumption.
New rules are also introduced to cover emerging cybersecurity risks. In particular, the Commission is empowered to adopt specific rules for the cybersecurity of cross-border gas flows. Member States will have to take such risks into account when preparing their preventive action plans and emergency plans.
Will the revised legislation support the phaseout of Russian gas in the EU?
Under the REPowerEU Plan, the EU is committed to phasing out all fossil fuel imports from Russia as soon as possible.
This legislation empowers Member States with a legal tool to limit capacity bookings for Russian and Belarusian gas when this impacts their essential security interests. Access to Russian and Belarusian gas can be restricted at their borders and at the LNG terminals, based on clearly defined criteria and in consultation with the other Member States concerned. Member States are required to consult the Commission before making use of this mechanism and to take utmost account of its opinion to ensure European coordination.
In addition, natural gas or LNG supplies originating in Russia, or Belarus, will be automatically excluded from the demand aggregation and joint purchasing platform until 31 December 2025. After that, the Commission may impose additional restrictions for up to one year in case it is necessary to protect the essential security interests or security of energy supply in Member States. This will help to ensure supplies are diversified and Russian natural gas phased out in Member States.
How will the revised legislation facilitate demand aggregation and joint purchasing of gas and hydrogen?
To further strengthen security of supply, building on the experience of the EU Energy Platform, the reform establishes a permanent mechanism for demand aggregation and joint purchasing of gas, for voluntary use.
In addition, the Commission is empowered to develop a 5-year pilot mechanism to support the market development of hydrogen to ensure market transparency, decarbonisation and security of supply.
This mechanism will help hydrogen off-takers and suppliers to connect, and will improve hydrogen market transparency. More specifically, under the European Hydrogen Bank, the mechanism could: collect and process market data; assess demand from off-takers; collect offers from suppliers; and provide access to this knowledge to the market participants. The Commission is currently designing and preparing the pilot mechanism with a view to launching it in 2025.
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BotH2nia – Questions and Answers on the Decarbonised Gases and Hydrogen package. source
