EU Methane Regulation: Evaporation of the 2020 Methane Strategy?

Methane (CH₄): a formidable greenhouse gas, air pollutant, major component of natural gas and second-largest contributor to climate change after carbon dioxide[1]. It can also be emitted during the production and transportation of oil and natural gas, both unintentionally from equipment imperfections, operations and maintenance, or equipment designed to vent methane for operational purposes.

Combined with its significantly higher global warming potential (“GWP”), which reflects methane’s warming impact relative to carbon dioxide, many analysts suggest that curbing methane emissions could significantly accelerate efforts to achieve global climate targets[2]. Despite the widespread acknowledgement of methane’s deleterious climate effects, and the launch of the Global Methane Pledge (through which over 150 countries commit to collectively reduce man-made methane emissions by 30% by 2030 compared to 2020 levels), only a small proportion of countries have implemented methane reduction measures[3].

Operating in this context, and alongside the European Green Deal, the EU Methane Regulation (the “Regulation”), which came into force on the 4^th of August 2024, imposes new obligations on both operators (of coal, oil, and gas assets) and Member States, such as:

1. quantification, monitoring, reporting, verification, and mitigation of methane emissions associated with the extraction, transport and end-use of fossil fuels; and 
2. phased implementation of methane-related reporting requirements on EU importers of crude oil, natural gas and coal products. 

This blogpost firstly situates the Regulation in the context of the 2020 Methane Strategy, before analysing its key requirements and some areas which would benefit from further clarification by the European Commission.

How the Regulation aligns with the 2020 Methane Strategy

The decarbonisation of the gas sector was identified as a key priority to achieve climate neutrality in the EU by 2050. The EU Commission consequently adopted the 2020 Methane Strategy to cut methane emissions, including a binding EU reduction commitment of net GHG emissions of at least 55% below 1990 levels by 2030. The Regulation effectively builds on the 2020 Methane Strategy by setting out a legal framework with specific measures for the reduction of anthropogenic methane emissions in the energy sector.

Despite being proposed via the hydrogen and decarbonised gas package[4], the final agreement on the legislation was only reached in November 2023. This delay can be explained because of the imperative to focus policy on the security of energy supply. The Council’s nearly unanimous approval, with only Hungary voting against it[5], took place on the 27^th of May. It was published on the Official Journal of the 15th of July, with the Regulation entering into force on the twentieth day after this[6]. Additional technical details and colour to the Regulation will be provided by the newly elected European Commission via implemented acts.

The major requirements introduced for operators 

The Regulation imposes new Monitoring, Reporting and Verification (“MRV”) obligations on oil, gas and coal mine operators relating to all methane emissions associated with the extraction, transport, and end-use of fossil fuels. It prescribes further duties on these actors to observe the highest monitoring standards, as well as minimise routine flaring and venting[7].

For these purposes, the Regulation defines an operator as “any natural or legal person who operates or controls an asset or, where provided for under national law, to whom decisive economic power over the technical functioning of an asset has been delegated”[8]. A noteworthy feature of this definition is that it comprises both operated and non-operated assets. Accordingly, the Regulation applies to: 

1. operators active in oil and gas exploration and production (onshore or offshore), gas gathering and processing, gas transmission, distribution, underground storage, and operations in LNG facilities e.g., onshore and floating terminals; and
2. wells which are no longer in operation, inactive wells, temporarily plugged wells, and permanently plugged and abandoned oil and gas wells.

1. Improved MRV of energy sector methane emissions[9]

Operators shall submit a report to the competent authorities (“CAs”) of the Member State where the asset is located, detailing the amounts of methane emitted from each covered source and site. This report is subject to verification prior to submission, which must occur within 30 months for operated assets or 48 months for non-operated assets from the date of entry into force of this Regulation[10].

The report must contain[11]:

1. the type and location of the emission sources; 
2. detailed data for each type of emission source; 
3. detailed information on the methodologies used to quantify methane emissions; 
4. all methane emissions for operated assets; 
5. the share of ownership and methane emissions from non-operated assets, multiplied by the share of ownership; and 
6. a list of the entities with operational control of the non-operated assets.

The introduction of the obligation to quantify methane emissions at source level e.g., direct measurements, modelling and/or engineering calculations[12] is more robust than current industry practice. However, it is inevitably more expensive and time-consuming and does not fully eliminate measurement uncertainty, despite the requirement to compare results with independent site-level measurements through as a form of self-verification[13].

2. Mitigation of emissions through mandatory Leak Detection and Repair (“LDAR”) and a ban on venting and flaring practices for oil and gas[14]

Companies are required to frequently survey their equipment to detect leaks as part of the newly introduced LDAR. If a leak is detected, it must be repaired within a maximum of 30 days of detection if the leak is above a certain level[15]. Operators must also survey components that were previously found to be emitting within 45 days to ensure that the repair was successful[16].

Routine flaring is also prohibited[17], whilst venting is only allowed in cases of an emergency or malfunction[18]. Flaring is only allowed if reinjection, utilisation on site, or transport of the methane to a market are not technically feasible. When unavoidable, highly efficient flaring (>99% efficiency for new and modified sites) is preferred over venting[19].

3. A methane transparency requirement on imports

The EU is one of the largest fossil fuels importers e.g., second to China as a crude oil importer and largest LNG importer in 2023[20]. This, coupled by falling production, has increased EU import dependence to 98% for crude oil and 97% for natural gas[21]. The 2020 EU Methane Strategy was therefore focused on the mitigation of energy-related emissions domestically, but also of those associated with fossil fuel imports[22].

The Regulation requires importers to prove MRV equivalence and report methane intensity. The data will in turn be used by the EU Commission to establish a methane transparency database and methane performance profiles[23]. In the case of existing contracts, importers only need to “undertake reasonable efforts” to meet MRV and methane intensity requirements. Failure to comply leads to a financial penalty and reputational damage.       

Areas requiring further clarification

With only 6 years to go until 2030, the Regulation is arguably not clear enough in its obligations, thereby giving credence to the view that the 2020 Methane Strategy is increasingly evaporating from our sights. With a revision of the Regulation expected in 2028, this blogpost proposes improvements in the following areas:

1. introduction of reduction targets, standards or incentives, in line with the European Parliament’s initial push for binding standards on imports;
2. creation of a publicly available methodology to calculate the methane intensity of the production of crude oil, natural gas and coal;
3. drafting of common standards for LDAR surveys and venting and flaring equipment;
4. clarification of the consequences of importers not providing MRV equivalence information;
5. specification of the verification standard for domestic and imported emissions;
6. explanation of how emissions will be allocated between two fuels in cases of associated gas production; and
7. provision of greater nuances to the timelines for different supply chains, especially taking account of the complexity of LNG export chains and the US as a key player.

These clarifications, which have the potential of increasing obligations on operators and importers, should be paired with an assessment of their impact on the security of energy supply and the EU economy’s competitiveness.

Conclusion

The Regulation has been introduced against the backdrop of the energy crisis in 2022 and the consequent replacement of pipeline imports from Russia by US LNG. The decreased ambition of the final form cannot be understood without this wider geopolitical context. Compromises like non-compliance only leading to a penalty as opposed to conditioning access to the EU market are designed to safeguard the security of energy supply. However, it is likely that the EU will continue to leverage its position as the world’s largest fossil fuel importer to lead the charge against methane emissions. The US, Canada and Australia have also implemented or are intending to introduce similar methane-related measures. 

Progress in MRV standards and the inclusion of the coal sector in the Regulation are welcome, but further work by the European Commission is required to clarify how it will be enforced in practice. For example, there is a danger that variable approaches by Member States, especially those concerned with natural gas prices or energy security, could undercut the Regulation’s overall effectiveness. Looking to the future, the European Commission’s piloting of the EU’s joint purchase initiative to promote natural gas produced with low methane emissions, coupled by the roadmap for the “You Collect, We Buy” scheme, is expected to incentivise third countries to reduce methane emissions. This could serve as a helpful “carrot” to complement the Regulation’s obligations.

With thanks to Julius Stecher for his contribution to this article.

[1]Council of the EU, “Fit for 55: Council gives green light to cut methane emissions in the energy sector”, 27 May 2024

[2]The Oxford Institute for Energy Studies, “Analysing the EU Methane Regulation: what is changing, for whom and by when?”, June 2024

[3] Maria Olczak, Andris Piebalgs and Paul Balcombe, “A Global Review of Methane Policies Reveals That Only 13% of Emissions Are Covered with Unclear Effectiveness”, One Earth 6, no. 5, May 2023

[4]European Commission, “Proposal for a regulation of the European Parliament and of the Council on methane emissions reduction in the energy sector”, December 2021

[5] Reuters, “EU approves law to hit gas imports with methane emissions limit”, May 2024

[6] Bunkerspot, “Europe: EU Regulation on methane emissions moves closer to enforcement”, 15 July 2024

[7]European Commission, “Methane Emissions”, June 2024

[8] Art. 2(3), European Union, “Regulation of the European Parliament and the Council on the reduction of methane emissions in the energy sector and amending Regulation (EU) 2019/942”, 7 May 2024

[9]Art. 12, Ibid

[10] Art. 12(3), Ibid

[11]Art. 12(4), Ibid

[12] Art. 2(20), Ibid

[13]The Oxford Institute for Energy Studies, op. cit.

[14]Art. 13-7, op. cit.

[15]Art. 14(9), op. cit.

[16]Art. 14(12), op. cit.

[17]Art. 15(1), op. cit.

[18]Art. 15(2), op. cit.

[19]Art. 23(1), op. cit.

[20]Eurostat, “EU Imports of Energy Products – Latest Developments”, March 2024

[21] Ibid

[22] European Commission, “Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions on an EU strategy to reduce methane emissions”, October 2020

[23]Art. 30, op. cit.