31.05.2024 | EU internal gas market: More green & low-carbon molecules

Gas decarbonisation and hydrogen package formally adopted.

Following the European Parliament, the Council has now also formally adopted the gas decarbonisation and hydrogen package. It is part of the Fit for 55 package and aims to reduce the EU's greenhouse gas emissions by 55% by 2030 by replacing natural gas with green hydrogen and biogas, among other things. The rules for the development of a European hydrogen economy also concern the import of green hydrogen from third countries, e.g. Switzerland.  

The natural gas package presented by the European Commission on 15 December 2021 originally only aimed to decarbonise the EU internal gas market. The core element is the development of a European hydrogen economy, including the associated infrastructure. In connection with the gas crisis since February 2022, the EU has adopted emergency measures to improve the security of supply of natural gas: these will be consolidated through the gas decarbonisation and hydrogen package.  

Building a European hydrogen economy 

The package updates EU legislation on the internal gas market from 2009. Among other things, it introduces specific rules for the transport, distribution and storage of hydrogen and the establishment of an independent agency for hydrogen infrastructure operators - ENNOH - modelled on the associations of electricity transmission system operators (ENTSO-E) and natural gas transmission system operators (EN-TSOG).  In addition, the European Distribution System Operators' Association (EU-DSO-entity) will also take care of natural gas and hydrogen distribution grids in future (previously only electricity distribution grids). 

A central aspect of the package is integrated network planning: gas and hydrogen network operators must prepare a 10-year network development plan for the EU. Smaller plants connected to the distribution grid are to be given equal access to the wholesale markets. In the long term, the current gas infrastructure is to be converted into a hydrogen infrastructure.    

Cross-border trade in renewable and low-carbon molecules 

The package provides for the possibility of concessions for cross-border trading in renewable and low-carbon molecules. This includes discounts on entry tariffs and the abolition of border tariffs in the grid. To boost the market for renewable and low-carbon molecules, a certification scheme based on an EU-wide database will be introduced.  

Joint gas purchasing  

The platform for joint gas purchasing at EU level (AggregateEU), which was introduced as an emergency measure, will also be stabilised by the package; the purchase of Russian gas via this platform is excluded until the end of 2025. The platform will also be used to purchase hydrogen from 2030.  

Supplies delivered to Switzerland cannot be procured via the platform

With regard to the wholesale business, there is a ban on long-term natural gas supply contracts with a term beyond 31 December 2049; the EU fears that very long contracts will make the switch to renewable and low-carbon molecules more difficult and prevent the achievement of climate neutrality by 2050 in accordance with the European Green Deal. 

In connection with economic sanctions against Russia, the package also provides for the possibility of EU member states preventing the import of Russian gas via pipeline or liquefied natural gas into their territory, provided that this does not lead to a deterioration in the security of supply in other EU member states.  

Improved consumer protection 

In line with the rules for improved consumer protection in the electricity sector, EU member states will now have the option of introducing regulated prices below the market price for household customers, social organisations and SMEs during a natural gas price crisis. Similar to the electricity sector, it should be possible to switch suppliers more quickly in future: Within 24 hours from 2026.   

Assessment and impact on Switzerland    

According to the EU hydrogen strategy, 40 GW of renewable hydrogen electrolysers are to be built by 2030 and an annual production of 10 million tonnes of green hydrogen per year is to be achieved.  For comparison: As of September 2023, around 280 MW of electrolysis capacity was in operation. Today, this figure is probably already higher.  

Whether these ambitious targets can be achieved remains to be seen. One controversial issue is the distinction between renewable and low-carbon hydrogen and, in particular, pink hydrogen - i.e. hydrogen produced using electricity from nuclear power plants. The EU has yet to present the necessary implementing legislation: EU member states that rely on nuclear power or carbon capture and storage (CCS) are hoping that this will stimulate the production of hydrogen based on the corresponding technology. The delegated act for the production of renewable hydrogen (Renewable fuels of non-biological origin / RFNBO) already came into force in July 2023. 

Switzerland's final negotiating mandate for the ongoing negotiations with the EU, published on 8 March 2024, has since included a request for an evolutionary clause to enable negotiations on hydrogen to be opened if this is in Switzerland's interests. Due to its central geographical location in Europe, Switzerland could become a European hub not only for electricity and natural gas, but also for hydrogen.  

Next steps 

The package is expected to be published in the Official Gazette by the summer. The regulation will enter into force six months after publication and is directly applicable. The EU member states have two years to adapt their national legislation to the provisions of the directive.  

 

Further information:

Regulation (as of 7 May 2024)

https://data.consilium.europa.eu/doc/document/PE-105-2023-INIT/en/pdf

Directive (as of 7 May 2024)

https://data.consilium.europa.eu/doc/document/PE-104-2023-INIT/en/pdf

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