Consensus grows for green gas policy in Germany

Market: Hydrogen, Natural gas
28/10/24

Germany's two main political parties are beginning to back a national green gas sales quota, increasing the likelihood of its development after the 2025 general election.

The German government is yet to put forward a green gas quota proposal, unlike several European neighbours such as Denmark, the Netherlands and Austria. Economy and climate ministry BMWK — led by the Greens — has opted for more active industrial policy to ensure the ramp-up of hydrogen production, rather than a broader green gas policy that would let market prices have more decisive influence over whether hydrogen or alternative green gases prevail.

But politicians from the centre-left SPD and centre-right CDU are increasingly referring to a green gas quota as an attractive policy option. The SPD is in government but not in charge of BMWK, while the centre-right CDU is leading the polls for the general election.

SPD politicians Bengt Bergt and Andreas Rimkus last year put forward the most concrete proposal yet for such a policy, and it has since found some resonance among politicians and industry. Bergt, the SPD's energy spokesperson, told Argus that he had heard "from a well-placed and high-up source in BMWK that there was ongoing work on a quota solution". BMWK declined to comment on this.

CDU politicians too have repeatedly voiced interest for some form of green gas quota. A green gas quota is one option for creating a "lead market" to ensure the most cost efficient delivery of the energy transition, the CDU's deputy head Jens Spahn said in an energy policy paper seen by Argus. The green gas quota is "clearly in the CDU's programme" as a solution, the SPD's Bergt told Argus.

With the CDU, SPD and the green-led ministry working towards the plans, Berg said he is looking "quite positively into the future even if it does not come to fruition within this legislative period".

The proposal itself

Bergt proposes to mandate any supplier of gas to end consumers to evidence a certain proportion of carbon-free or low-carbon gas in its portfolio. This is different to the green gas blending model proposed in other countries.

The required proportion of green gas would rise slowly at first to allow for the ramp-up of the hydrogen economy, and takes into account expectations of falling demand later in the next decade, Bergt told delegates at the Handelsblatt Jahrestagung Gas in Berlin earlier this month (see graph).

The policy foresees that only renewable gases can be used in German gas grids from 2045. Any low-carbon gases could also be used to fulfil this quota, as long as the CO2 savings are equivalent to what they would be if the quota were fulfilled completely with climate-neutral gases. Gases that have lower CO2 emissions per kWh than methane derived from fossil fuels could be used to fulfil the quota for a certain period, including blue hydrogen. But when the CO2-savings targets are high enough, only carbon-neutral renewable gases such as hydrogen or biomethane could be used to meet the quota. In case of non-compliance, utilities would be penalised according to the amount of surplus CO2 emitted compared with the legal pathway, at a minimum cost of €1,200/t CO2.

This policy approach would allow Germany to meet its climate goals, ensure security of supply and low energy prices, all while avoiding carbon lock-in effects, at no extra cost to the German state, Bergt said.

Gas industry welcomes planning security

Several gas industry members agreed with the basic points of the proposal, welcoming the long-term security it could provide for planning horizons.

The proposal would answer the hydrogen industry's calls for a policy that supports demand in Germany, panellists at the conference said. But the policy would at the same time allow for price-driven competition between hydrogen and biogas, ensuring the lowest societal cost for decarbonisation, panellists said.

Panellists warned against overcomplicating the policy, in light of the general bureaucratic burden.

Swiss trading firm MET chief strategy and business development officer Joerg Selbach-Roentgen told Argus in February that the firm was in favour of a green gas blending obligation as it provided a more reliable regulatory framework.

A green gas quota is a "valuable instrument to reach the market ramp-up for new gases of all kinds", gas and hydrogen association Zukunft Gas executive director Timm Kehler said at a parliamentary committee hearing late last month. Zukunft Gas praised Bergt's proposal in a position paper in March but asked for further freedoms in compliance, whether through trading of quotas or taking into account uncertain weather-dependent aspects of demand each year.

By Till Stehr

Percentage of green gas in suppliers' portfolio by year %

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