Policy

European Parliament approves hydrogen and low-carbon gas markets package, with focus on hard-to-abate industries

Regulations seek to prevent the formation of monopolies on H2 infrastructure

Lead MEP on the proposed hydrogen and decarbonised gas markets regulation Jerzy Buzek, during a debate on proposed energy market reforms.
Lead MEP on the proposed hydrogen and decarbonised gas markets regulation Jerzy Buzek, during a debate on proposed energy market reforms.Photo: Eric Vidal/European Union
Senior Reporter

The European Parliament has voted through the so-called hydrogen and decarbonised gas markets package, a pair of proposals for regulating infrastructure and trade as fossil gas is phased out of the bloc’s networks.

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This includes a definition for low-carbon H2 and its derivatives, such as synthetic methane, to have 70% fewer greenhouse gases throughout production compared to fossil fuels.
However, the proposals also require the European Commission to publish a methodology for assessing the carbon footprint of blue hydrogen that accounts for upstream methane emissions, H2 leakage, and the actual carbon capture rates for a given project, within a year of the package being signed into law.
While the package seeks to obligate gas transmission system operators to accept a hydrogen blend of up to 5% from 1 October 2025, with a 75% tariff discount for H2 and renewable gases accessing the gas grid, the wording of the proposals makes clear that these molecules should mainly go towards industrial decarbonisation rather than household heating.

“The use of hydrogen shall be targeted for customers in hard-to-decarbonise sectors with a high greenhouse gas abatement potential where no more energy- and cost-efficient options are available,” one of the Parliament’s proposals notes.

In a separate clause on government interventions into how gas prices are set, the body states: “Public service obligations in price setting should only concern the supply of natural gas, as household customers are not expected to use hydrogen for heating purposes on a wide scale. The market for hydrogen is expected to concern mostly industry, which does not require such public interventions.”

The package primarily focuses on putting regulations in place to prevent monopolies on hydrogen production, transportation and storage infrastructure, also known as “vertical unbundling”.

“With regard to the hydrogen sector, rules on vertical unbundling should be applied without delay,” one of the parliamentary proposals warns. “This is preferable to costly ex post unbundling that could be necessary in the event that the sector develops strong vertical integration.”
This means that member states will have to ensure that, two years from when the package is signed into law, the same entity cannot operate both production facilities and pipelines in an H2 gas grid.
The package also includes requirements for “horizontal unbundling”, which prevents gas transmission network operators from also operating H2 infrastructure.

Any exemptions “should be granted only on a temporary basis, subject to a positive cost-benefit analysis and an impact assessment by regulatory authorities”, although Lithuania, Estonia and Latvia are automatically allowed to exempt their gas grid operators up to 2031.

The proposals also require a default of “regulated third-party access” for hydrogen networks and storage infrastructure, where tariffs are set by the regulator, although it allows for “negotiated third-party access”, where prices are negotiated between the customer and hydrogen network operator, up to the end of 2032.

This clause has already seen pushback from industry, particularly developers for terminals importing ammonia and other hydrogen derivatives, who argue that this effectively restricts their ability to sign long-term bookings for capacity access — and without this revenue, banks will be unwilling to approve project finance.

Synthetic-methane start-up TES has already secured an exemption from regulated third-party access for its proposed terminal at Wilhelmshaven in Germany, while Air Products is seeking a similar exception for its planned ammonia terminals in Europe.

The package will have to be formally adopted by energy ministers in the Council of the EU before the legislation can be signed into law.

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EUEuropegasBlue H2e-methane
Published 12 April 2024, 13:13Updated 12 April 2024, 13:13