02/01/25
Q&A: EU biomethane internal market challenged
London, 2 January (Argus) — The European Commission needs to provide clearer
guidance on implementing existing rules for the cross-border trade of biomethane
to foster a cohesive internal market as some EU member states are diverging from
these standards, Vitol's Davide Rubini and Arthur Romano told Argus. Edited
excerpts follow. What are the big changes happening in the regulation space of
the European biomethane market that people need to watch out for? While no major
new EU legislation is anticipated, the focus remains on the consistent
implementation of existing rules, as some countries diverge from these
standards. Key challenges include ensuring mass-balanced transport of biomethane
within the grid, accurately accounting for cross-border emissions and
integrating subsidised biomethane into compliance markets. The European
Commission is urged to provide clearer guidance on these issues to foster a
cohesive internal market, which is essential for advancing the EU's energy
transition and sustainability objectives. Biomethane is a fairly mature energy
carrier, yet it faces significant hurdles when it comes to cross-border trade
within the EU. Currently, only a small fraction — 2-5pc — of biomethane is
consumed outside of its country of production, highlighting the need for better
regulatory alignment across member states. Would you be interested in seeing a
longer-term target from the EU? The longer the visibility on targets and
ambitions, the better it is for planning and investment. As the EU legislative
cycle restarts with the new commission, the initial focus might be on the
climate law and setting a new target for 2040. However, a review of the
Renewable Energy Directive (RED) is unlikely for the next 3-4 years. With
current targets set for 2030, just five years away, there's insufficient support
for long-term investments. The EU's legislative cycle is fixed, so expectations
for changes are low. Therefore, it's crucial that member states take initiative
and extend their targets beyond 2030, potentially up to 2035, even if not
mandated by the EU. Some member states might do so, recognising the need for
longer-term targets to encourage the necessary capital expenditure for the
energy transition. Do you see different interpretations in mass balancing, GHG
accounting and subsidies? Interpretations of the rules around ‘mass-balancing',
greenhouse gas (GHG) emissions accounting and the usability of subsidised
biomethane [for different fuel blending mandates] vary across EU member states,
leading to challenges in creating a cohesive internal market. When it comes to
mass-balancing, the challenges arise in trying to apply mass balance rules for
liquids, which often have a physically traceable flow, to gas molecules in the
interconnected European grid. Once biomethane is injected, physical verification
becomes impossible, necessitating different rules than those for liquids moving
around in segregated batches. The EU mandates that sustainability verification
of biomethane occurs at the production point and requires mechanisms to prevent
double counting and verification of biomethane transactions. However, some
member states resist adapting these rules for gases, insisting on physical
traceability similar to that of liquids. This resistance may stem from
protectionist motives or political agendas, but ultimately it results in
non-adherence to EU rules and breaches of European legislation. The issue with
GHG accounting often stems from member states' differing interpretations of the
IPCC Guidelines for National Greenhouse Gas Inventories. Some states, like the
Netherlands, argue that mass balance is an administrative method, which the
guidelines supposedly exclude. Mass balancing involves rigorous verification by
auditors and certifying bodies, ensuring a robust accounting system that is
distinct from book and claim methods. This distinction is crucial because mass
balance is based on verifying that traded molecules of biomethane are always
accompanied by proofs of sustainability that are not a separately tradeable
object. In fact, mass balancing provides a verifiable and accountable method
that is perfectly aligned with UN guidelines and ensuring accurate GHG
accounting. The issue related to the use of subsidised volumes of biomethane is
highly political. Member states often argue that if they provide financial
support — directly through subsidies or indirectly through suppliers' quotas —
they should remain in control of the entire value chain. For example, if a
member state gives feed-in tariffs to biomethane production, it may want to
block exports of these volumes. Conversely, if a member state imposes a quota to
gas suppliers, it may require this to be fulfilled with domestic biomethane
production. No other commodity — not even football players — is subject to
similar restrictions to export and/or imports only because subsidies are
involved. This protectionist approach creates barriers to internal trade within
the EU, hindering the development of a unified biomethane market and limiting
the potential for growth and decarbonisation across the region. The Netherlands
next year will implement two significant pieces of legislation — a green supply
obligation for gas suppliers and a RED III transposition. The Dutch approach
combines GHG accounting arguments with a rejection of EU mass-balance rules,
essentially prohibiting biomethane imports unless physically segregated as
bio-LNG or bio-CNG. This requirement contradicts EU law, as highlighted by the
EU Commission's recent detailed opinion to the Netherlands . France's upcoming
blending and green gas obligation, effective in 2026, mandates satisfaction
through French production only. Similarly, the Czech Republic recently enacted a
law prohibiting the export of some subsidised biomethane . Italy's transport
system, while effective nationally, disregards EU mass balance rules. These
cases indicate a deeper political disconnect and highlight the need for better
alignment and communication within the EU. We know you've been getting a lot of
questions around whether subsidised bio-LNG is eligible under FuelEU. What have
your findings been? The eligibility of subsidised bio-LNG under FuelEU has been
a topic of considerable enquiry. We've sought clarity from the European
Commission, as this issue intersects multiple regulatory and legal frameworks.
Initially, we interpreted EU law principles, which discourage double support, to
mean that FuelEU, being a quota system, would qualify as a support scheme under
Article 2's definition, equating quota systems with subsidies. However, a
commission representative has publicly stated that FuelEU does not constitute a
support scheme and thus is not subject to this interpretation. On this basis,
FuelEU would not differentiate between subsidised and unsubsidised bio-LNG. A
similar rationale applies to the Emissions Trading System, which, while not a
quota obligation, has been deemed to not be a support scheme. Despite these
clarifications, the use of subsidised biomethane across Europe remains an area
requiring further elucidation from European institutions. It is not without
risks, and stakeholders require more definitive guidance to navigate the
regulatory landscape effectively. By Emma Tribe and Madeleine Jenkins Send
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