European climate Initiatives and the future of LNG
The European Commission (EC)'s legislative package ‘Fit for 55’ confirms the European Union (EU)’s ambition to cut greenhouse gas emissions by 55% from its level of 1990 by the year 2030 with concrete measures on the pathway to climate neutrality. The climate action will have to tackle ‘hard-to-abate’ sectors such as maritime and heavy-truck road transport. Accordingly, the package proposes gradually integrating the maritime sector into the EU's existing emissions trading scheme (ETS) to make it fully compliant with the carbon market from 2026 onwards.
The carbon market will create market incentives for shipping companies to switch to low-carbon fuels including LNG and bio-LNG. For road transport, the ‘Fit for 55’ proposes banning the sale of new vehicles with internal combustion engines from 2035 onwards. These restrictions imply full electrification of road transport, even though heavy truck transport – the biggest incremental carbon dioxide emitter in Europe – is unlikely to be electrified.
The National Gas Company of Trinidad and Tobago Limited (NGC) NGC’s HSSE strategy is reflective and supportive of the organisational vision to become a leader in the global energy business.
From the very general overview of the proposal, natural gas is no longer defined as a transition fuel for transport. Even the use of biomethane when it is mixed with natural gas is questioned. The EU proposal also aims at ‘strengthened sustainability criteria’ for producing bioenergy. So presumably not all biomethane will be accepted.
The EC's proposal is still under discussion with EU member states and the parliament, and it is unlikely to be finalised before the end of 2022. This allows amendments to the text. Industrial groups have already expressed concerns about the future of natural and renewable gases. The lobby group Natural Gas Vehicle Association Europe has criticised the current version of the package for road transport because it excludes some specific technologies such as bio-CNG that give drivers a low-carbon option.
Some companies involved in liquefied biomethane development fear that existing ‘loopholes’ in the package do not give enough comfort to the biomethane industry in the long run. Finally, it remains largely unclear why the EC considers electric vehicles to be emissions-free, even though their environmental impact is potentially huge: from lithium mining at the start of the process to hazardous waste disposal at the other end.
But ships are the focus of an even greater worry. In fact, the EC wanted the package to include a proposal entitled ‘the uptake of renewable and low-carbon fuels in maritime transport’.
The draft directly addresses emissions reduction from the maritime sector and considers methane emissions from LNG and suggests carbon-emissions equivalence for methane emissions. Despite offering quite clear criteria for greenhouse gases in the maritime sector, the draft drew fire from environmental NGOs who took exception to the possibility that maritime transport could use natural gas and ‘doubtful’ biomethane. Ideally, according to their logic, the EU should directly focus on new fuels such as hydrogen and ammonia. Moreover the World Bank has taken a similar stance with its warning to the maritime industry of the risk of the long-term lock-in of LNG.
Even if hydrogen and ammonia were to be used in maritime and heavy-truck transport, there is still a need for decarbonisation because the two chemicals are conventionally produced from fossil fuels. But carbon-neutral hydrogen – which is the basic element for ammonia – remains a challenging target. The most ambitious industrial projects for carbon neutral hydrogen account only for 7mn metric tons, which is less than 10% of the existing global production levels. In turn, the size of the hydrogen market is far smaller than the natural gas market. Thus the, vague prospects for new gases push the gas industry to consider alternatives, including green LNG supplies.
Green LNG refers either to a direct reduction of greenhouse gas emissions in the LNG supply chain or to offsetting the greenhouse gas emissions with alternative projects outside the suppliers’ core activity. The concept of green LNG refers to the principle of ‘responsible investment’, and is certainly becoming a new reality in the industry worldwide. Can green LNG become part of the intra-EU policy debate? And if yes, how can it be made acceptable in light of the mounting criticism of the hydrocarbon industry?
Seeking a balance, a policy brief for the major EU energy policy think-tank Florence School of Regulation has been recently published which argues for life-cycle assessment (LCA) criteria for the carbon and methane footprint of a project. LCA is indeed the pivotal element in finding out if fossil and renewable gases – or electric vehicles – do have role to play in the efforts to mitigate pernicious climate change. However, a close examination of emissions-accounting shows that it is hard to measure them precisely.
When emissions are accounted, three sources of data have to be considered: (i) direct emissions with mandatory reporting (eg controlled by a company’s business units); (ii) indirect emissions with mandatory reporting (eg external electricity supply for LNG plants); and (iii) indirect emissions without mandatory reporting (emissions from sub-suppliers and consumption of products or services, emissions from waste, their impact on biosphere etc).
These distinctions mean that a large part of the emissions cannot be measured with 100% accuracy. Int the end, much depends on the variables chosen for the carbon accounting models. For example, if constant methane emissions are assumed – when industry makes no effort to reduce leaks – then natural gas cannot claim an advantage in the maritime sector. At the same time, other computational models still demonstrate a 76.2% chance that LNG has a lower global warming potential impact than other fossil fuels, even when methane emissions are considered. Further, the green LNG concept may incentivise direct emissions reduction where incentives are not evident (such as gas flaring and methane emissions from companies with no access to EU markets).
And yet incentivising shipping companies to switch to LNG has been a difficult process, mostly because of the competition from cheaper and more carbon-intensive fuels. Hence, there is need for a strategy if LNG is to penetrate into the maritime sector at the European level. However, a blunt rejection of short-term LNG strategies in transport in favour of even costlier solutions – such as green hydrogen and green ammonia – risk delaying European competitiveness amid the growing potential of LNG markets for the next decade.
A blend of natural gas and biomethane offers a tangible solution to emissions reduction in the LNG supply chain. Biomethane production involves removing emissions from other sectors such as agriculture, which can be accounted as negative emissions. The negative emissions concept has also been strongly criticised because it extends the use of natural gas.
However, if we look at the analysis provided directly by the Intergovernmental Panel for Climate Change (IPCC), we may see that negative emissions constitute a necessary factor when a quick reduction of direct fossil emissions is not achievable. Meanwhile, carbon-intensive fossil fuels still dominate the European primary energy mix and are still the only solution for maritime and heavy truck transport. Hence, if short term emissions reduction is to be tackled urgently along IPCC lines, then policy makers and industry will need to consider negative emissions for transport. A clear roadmap on negative emissions from biomethane could be a useful element in light of the debates on ‘Fit for 55’ and the forthcoming strategy on maritime transport.
Energy policies and markets analyst Andrei Belyi is adjunct Professor at the University of East Finland and the owner of Estonian management consulting company Balesene OU.
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