Pricing Methane Emissions from the Energy Sector

Consideration of options for the EU

Publication: Report
Citation: Piria ,Raffaele, Benjamin Görlach (2024): Pricing methane emissions from the energy sector: consideration of options, for the EU. Ecologic Institute, Berlin.

Stronger policies to reduce methane (CH4) emissions from the energy sector are urgently needed. The EU Methane Regulation (EU-MER) is a great opportunity and must be thoroughly implemented, as discussed in our previous reports. However, even with optimal implementation, significant emissions will persist.

This paper examines whether an EU-wide pricing mechanism should be introduced and explores feasible design options. It concludes that the EU should price CH4 emissions from the energy sector to complement the EU-MER, providing an economic incentive to reduce CH4 emissions beyond the mandated level.

An EU CH4 pricing mechanism is unlikely to take effect before 2030. Its main benefit will be in the 2030s, when the EU still consumes significant amounts of fossil fuels, and a large share of imports under legacy contracts will not yet be subject to the future EU-MER CH4 intensity thresholds, which will only cover contracts signed after 5 August 2030. The pricing mechanism will also provide insurance against the political risk of the EU-MER CH4 intensity thresholds being set at an unambitious level.

The most promising and practical option is to expand the EU ETS and CBAM to cover energy-related CH4 emissions. This would involve extending the cap and other arrangements already tested during previous scope extensions. Building on a well-established instrument, this option could be implemented more easily and rapidly, and would likely generate additional public revenue.

The best alternative would be to complement the Emission Performance Standard established by the EU-MER CH4 intensity thresholds with a Bonus-Malus element based on a CH4 intensity benchmark set at a more ambitious level than the future EU-MER thresholds. However, this approach might require a net inflow of public funds, and political acceptance of a mechanism that transfers EU public funds to fossil fuel producers outside the EU is questionable.

The paper concludes that the EU should consider expanding the EU ETS to cover CH4 emission from the energy sector from 2030 onwards. This requires immediate action, as the next review of the EU ETS is scheduled for 2026.

Penalties and Selected Legal Issues

Implementing the EU Methane Regulation Working Paper N° 3

Year 2024

Publication:Report

The EU Methane Regulation (EU-MER) is crucial for reducing methane (CH4) emissions from the energy sector, thereby enhancing our chances at achieving the climate targets. This paper discusses the respective roles of the responsible ministries (RM) and the competent authorities (CA) and examines how the CA's tasks can be allocated to various pre-existing agencies at the national or regional level. Additionally, the working paper discusses the importance of political autonomy for CA and how MS can prevent undue influence.

Governance at the National Level: Responsible ministries and competent authorities

Implementing the EU Methane Regulation Working Paper N° 2

Year 2024

Publication:Report

The EU Methane Regulation (EU-MER) is crucial for reducing methane emissions from the energy sector, thereby enhancing our chances at achieving the climate targets. This paper describes the tasks of the Member States' responsible ministries and competent authorities, analyses the resources they will need to accomplish them, and provides recommendations for effective planning.

Tasks and Resources Needed at the National Level

Implementing the EU Methane Regulation Working Paper N° 1

Year 2024

News

Three working papers aim to support the responsible ministries and competent authorities of EU Member States in implementing the EU Methane Emission Regulation (EU-MER), expected to enter into force in July 2024.

Implementing the EU Methane Regulation

Series of working papers on the implementation of the EU-at the national level MER published

19 June 2024

Project

This project identifies and develops EU policy opportunities to mitigate methane (CH4) and hydrogen (H2) emissions from the energy sector.

EU Policies to Reduce CH4 and H2 Emissions from the Energy Sector

Aug 2023 - Sep 2024

Language: English
Authorship: Raffaele Piria

Benjamin Görlach
Funding: Stichting Environmental Defense Fund Europe (EDF Europe), Netherlands
Published by: Ecologic Institute, Germany
Year: 2024
Dimension: 32 pp.
Project: EU Policies to Reduce CH4 and H2 Emissions from the Energy Sector
Project ID: 50155
Table of contents: Click to show full table of contents

Introduction
The case for pricing CH4 emissions from the energy sector
1.1 Arguments for a CH4 emissions pricing mechanism
1.2 Counterarguments to be considered and pre-empted through design
Interfaces with the EU Methane Regulation
2.1 The CH4 intensity framework
2.2 Pricing domestic CH4 emission sources
2.3 Pricing CH4 emissions embedded in imported fossil fuels
2.4 The link between the EU-MER CH4 intensity thresholds and the case for a CH4 emission pricing mechanism
How could CH4 emission pricing be implemented in the EU?
3.1 Evaluation criteria
3.2 EU ETS and CBAM
3.2.1 Description of the approach
3.2.2 Core design challenges
3.2.3 Assessment of the approach
3.3 (Tradable) Emission Performance Standard
3.3.1 Description of the approach
3.3.2 Core design challenges
3.3.3 Assessment of the approach
Conclusions and recommendations
Keywords: Climate

Energy

EU

EU, methane, methane emissions, CH4 emissions, greenhouse gas, EU policies, emissions, climate mitigation, EU Methane Emission Regulation, EU Methane Regulation, ETS, EU ETS, emission pricing, carbon pricing, methane pricing, policy instrument(s), Emission Performance Standards, policy analysis, policy advice, 2030 targets, 2040 targets

Europe