On the other note, methane has commercial value in itself as it is the main component of natural gas - so the efforts to capture it can be monetized. Waste emissions of methane from the oil and gas value chain represent roughly $34 billion of lost revenue per year, at average 2017 delivered prices[1].
Moreover, the emissions from agricultural waste can be captured to produce biogas, which is a form of renewable energy. Therefore effective management of methane emissions can also generate revenues and play a major positive role in the energy transition.
Then there is also a question of methane that has already been emitted and is present in the atmosphere. While deployment of methane removal technologies might not be easy, it might be rewarded through voluntary or compliance greenhouse gases markets. According to Stanford Woods Institute for the Environment study “If market prices for carbon offsets rise to $100 or more per ton this century, as predicted by most relevant assessment models, each ton of methane removed from the atmosphere could then be worth more than $2,700 ”[2] .
The main sources of methane emissions
59% of methane emissions found in the atmosphere are anthropogenic - i.e. they are generated through human activity. The remainder is the result of processes that occur in nature (biogenic emissions).
Similarly to the rest of the word, in the EU 53% of anthropogenic methane emissions come from the agricultural sector, 26% from waste (solid and water waste) and 19% from energy (oil, gas and coal)[3].
While reducing large-scale biogenic methane emissions can be unattainable at a reasonable cost, most of the emissions from agriculture and industry can be tackled with a relatively quick payback.
Although the agriculture is contributing the largest amount of man-made emissions, followed by the waste sector, these are the energy-related methane emissions that currently present the most cost effective abatement action – in particular in the oil and gas sector which accounts for approximately 63% of the total methane emissions from fossil fuels. If no further action on methane is taken, increasing attention to methane emissions can undermine the role of gas as a lower-carbon transition fuel.
However, the EU’s climate target plan impact assessment[4] indicates that oil and gas is the only sector for which the majority of emissions can be reduced not only in a cost-effective manner but also with technologies that exist today. Therefore, the oil and gas industry is the sector with the greatest potential for methane emissions reduction. The IEA estimates that it is technically possible to achieve a roughly 75% reduction - and over 40% just by implementing solutions that have no net costs, taking into account the value of the gas saved[5].
Current EU policies impacting methane emissions
A number of pieces of the EU legislation have had an impact on methane emissions. However, up to the launch of Methane Strategy in October 2020 there was no EU-wide policy specifically and comprehensively targeting this greenhouse gas, with the efforts to reduce methane emissions having been mostly business-led and voluntary.
While the Communication on the European Green Deal of late 2019 indicated that energy-related methane emissions need to be addressed as part of the commitment to reach climate neutrality by 2050, methane has not been included in the EU Emission Trading Scheme (EU ETS) which is currently undergoing revision, and was also left out of the scope of the border adjustment mechanism.
Human made methane emissions alongside other greenhouse gases not covered by the EU ETS are still accounted for under the national emission reduction targets set forth by the Effort Sharing framework, which leave the design of concrete policies and measures up to the Member States. As a result, the Member States frequently have given priority to other GHG, postponing actions on methane emissions.
Also, the regulation (EU) 2018/1999 on the governance of the Energy Union and Climate Action requires Member States to establish national inventories to estimate anthropogenic emissions of greenhouse gases and to report their national projections. However, the methane reporting under this regulation has been often based on default emission factors rather than source-level measurements, resulting in the lack of knowledge of the precise origin, frequency, and scope of emissions.
Some other EU policies contain methane-related provisions mostly related to specific sectors and not embracing the entire value chain, i.e. Directive 2010/75/EU (Industrial Emissions Directive, IED) and Regulation (EC) 166/2006 (European Pollutant Release and Transfer Register, E-PRTR), currently under revision, regulate pollutant emissions from industrial installations but do not cover fossil gas upstream, mid and downstream.
Directive (EU) 2018/2001 (Renewable Energy Directive, RED II) which is the main EU legislation on the promotion of energy from renewable sources, also uses estimations of methane losses as the basis for calculating greenhouse gas savings that qualify for incentives.
Methane emissions generated by heating and cooling appliances are covered by several ecodesign and energy labelling regulations, which provide rules for improving the environmental performance of products.
As regards the agriculture sector, methane is addressed by the Farm to Fork strategy, which proposes measures to limit methane emissions from livestock by producing biogas.
Methane emissions in the waste sector are covered by existing and planned reviews of the Landfill Directive which regulates the management of landfill gas. Also, the implementation of the Urban Waste Water Treatment Directive has significantly helped to prevent methane emissions from waste water.
Last but not least, in the Horizon Europe Strategic Plan 2021-2024, the Commission will consider proposing research targeting different factors that lead to methane emission reductions.
Building on those fragmented policies, a dedicated Methane Strategy, published in October 2020, provides the first comprehensive regulatory framework, combining concrete cross-sectoral and sector-specific actions both in Europe and internationally.
The Methane Strategy - paving the way for mandatory methane regulations
The Methane Strategy sets out dedicated measures to cut methane emissions in Europe and internationally in the energy, agriculture and waste industries, but also across the economy and in different policy areas.
While in the short term the Strategy encourages global voluntary and business-led initiatives to immediately close the gap in terms of emissions monitoring, verification and reporting, as well as reduce methane emissions in all sectors, it has paved the way for the current EU legislative proposals that will make such efforts compulsory.
The Methane Strategy identifies three sets of actions to tackle methane emissions, namely: cross-sectoral actions within the EU, sector specific actions in energy, agriculture and waste, and climate diplomacy actions aimed at collaboration with partner countries and international organizations.
1. Cross-sectoral actions within the EU
A priority objective of the Strategy is to ensure that companies apply considerably more accurate measurement and reporting methodologies for methane emissions across sectors than is currenty the case.
The goal is to establish a new OGMP standard building on OGMP 2.0 that will increase the accuracy and granularity of the methane emissions reporting. Another objective stipulated in the Methane Strategy is the launch of an independent international methane emissions observatory (IMEO) that would be tasked with collecting, reconciling, verifying and publishing anthropogenic methane emissions data at a global level.
The Commission will also strengthen satellite-based detection and monitoring of methane emissions through the EU’s Copernicus programme, with a view to contribute to an EU-coordinated capability for detecting and monitoring global super-emitters.[6]
In order to deliver on the increased climate ambition the Commission will review some of the methane-related legislation mentioned above, namely the Industrial Emissions Directive and the European Pollutant Release and Transfer Register. The Commission will also provide targeted support to accelerate the development of the market for biogas from agricultural waste.
2. Actions in the energy, agricultural and waste sector
Energy
The Strategy foresees compulsory measurement, reporting, and verification (MRV) for all energy related methane emissions, building on the Oil and Gas Methane Partnership (OGMP 2.0) methodology. It also highlights the need to improve leak detection and repair (LDAR) on all fossil gas infrastructure, and elimination of routine venting and flaring in the entire energy sector supply chain. More information on the legislation that is to implement these objectives is provided below.
Agriculture
The Commission plans to work on setting up a life cycle methodology regarding the overall emissions for livestock, and developing an inventory of best practices and available technologies to explore and promote the wider uptake of innovative mitigating actions. These actions will have a special focus on methane from enteric fermentation[7]. The Commission will promote the uptake of mitigation technologies through the wider deployment of ‘carbon farming’ in Member States and their Common Agricultural Policy Strategic Plans.
Waste
The Commission will continue to tackle unlawful practices and provide the technical assistance to Member States and regions. This assistance will address issues such as sub-standard landfills. The Commission will also help Member States and regions to stabilise biodegradable waste prior to disposal, increase its use for the production of climate-neutral, circular bio-based materials and chemicals, and divert this waste to biogas production. In the Strategic Plan 2021-2024 of Horizon Europe, the Commission will consider proposing targeted research on waste to biomethane technologies.
3. International Action
OGMP 2.0.
The OGMP 2.0 is the new gold standard reporting framework launched in 2020 that will improve the reporting accuracy and transparency with regard to anthropogenic methane emissions in the oil and gas sector. The current legislative proposal on compulsory measurement, reporting and verification for all energy-related methane emissions, discussed below, builds on the OGMP methodology. Moreover, the proposed revision of the Non-Financial Reporting Directive (NFRD) that will lead to the development of the comprehensive European non-financial reporting standards, takes into account OGMP approach for supply chains in oil, fossil gas and coal. On the international arena, the European diplomatic outreach campaign to fossil fuel producing countries and companies aims to encourage them to become active in the Oil and Gas Methane Partnership (OGMP).
Many of the largest oil and gas companies have committed to methane reduction targets based on OGMP, and governments are beginning to develop methane reduction policies and strategies that follow this methodology.
International Methane Observatory (IMEO)
International Methane Observatory was launched at the G20 Summit in October 2021 as an initiative by the UN Environment Programme (UNEP), with the support from the European Commission. IMEO is an independent entity aimed at integrating methane related data from multiple sources to create a public dataset of empirically verified methane emissions. The key to the IMEO data approach is company-level data collected through OGMP (bottom-up methodology). Through IMEO, the company data will be verified against other data sources e.i. satellite imagery (top-down methodology) and others: drones, scientific studies, national inventories.
As the largest 5% of methane leaks in the coal, oil and fossil gas sectors contribute to 50% of the energy sector’s emissions, satellite technology is key to identifying these hotspots. Improved top-down data from satellites and aerial monitoring will help to target bottom-up leak detection on the ground.
Also, the Commission will work with the IMEO to set up a ‘Methane Supply Index’, as explicitly referred to in the Communication on the EU Methane Strategy. This will empower buyers of fossil energy to make informed purchasing decisions on the basis of the methane emissions of fossil energy sources.
Global Methane Pledge
Global Methane Pledge is so far the biggest success of the EU methane diplomacy. It is a joint initiative by European Union, United States and partner countries launched at COP 26 in November 2021 in Glasgow. Its objective is to reduce global methane emissions to keep the goal of limiting global warming to 1.5 degrees Celsius. The initiative was joined by more than 100 countries representing 70% of the global economy. Nearly half of the anthropogenic methane emissions have now been covered by the Pledge.
To assist in the implementation of the Pledge, 328 million in funding was collected by global philanthropies with the goal to support scaling up methane mitigation strategies worldwide. Participants joining the Pledge agree to take voluntary actions to contribute to a collective effort to reduce global methane emissions by at least 30 percent from 2020 levels by 2030, which could eliminate over 0.2˚C warming by 2050. The annual minister level meetings will be convened to review the progress in methane emission reductions.
4. Proposal for a Regulation of the European Parliament and of the Council on methane emissions reduction in the energy sector
Objectives
This legislative proposal constitutes the first-ever effort by any jurisdiction in the world to regulate methane emission measurement and abatement. Another novelty of this legislative initiative is that it embraces the reduction of methane emissions in oil, fossil gas and coal along their entire value chains.
The general objective of this draft regulation is to improve the accuracy of information on the main sources of methane emissions associated with energy produced and consumed within the EU by introducing a compulsory MRV methodology built on OGMP 2.0 standard. It also aims to subsequently ensure reduction of methane emissions across the energy supply chains in the EU and provide incentives for the reduction of methane emissions related to fossil energy imported to the EU, by creating transparency in the market and obligation for importers to report on purchasing sources.
Specifically, three Policy areas have been addressed in the proposal:
1. Compulsory, detailed (asset-level) monitoring, reporting and verification obligation on methane emissions from oil, gas and coal in the EU energy sector based on OGMP 2.0. standard.
2. General methane emissions mitigation obligations in connection with oil, gas and coal used in the EU energy sector, in terms of:
a) leak detection and repair measures (LDAR)[8]
b) ban of venting[9] and flaring[10] (subject to some exemptions)[11].
3. Rules aimed at reducing methane emissions related to imported fossil energy (occurring outside the EU), including:
a) Information obligations imposed on importers of fossil fuels with regards to methane emissions.
b) The use of transparency tools serving as a source of information for the purchasing decisions of importers, other stakeholders and public at large:
- Methane Transparency Database: a transparency list of the EU importing companies, and countries and companies exporting fossil energy to the Union, including information on their international reporting obligations with respect to methane emissions and detailing whether the exporting companies have signed up to the OGMP.
- Methane Emitters Global Monitoring Tool: providing information on the magnitude, recurrence and location of high methane-emitting sources.
c) Diplomatic action[12].
Information obligations imposed on the importers bear some resemblance with the proposed Carbon Border Adjustment Mechanism, which in its transitional phase will also take the form of mandatory reporting. It can’t be excluded that the collection of information from the importers under this proposal will also with time lead to a similar intervention for methane.
Governance
According to the proposal each Member State should appoint at least one competent authority to ensure compliance with the requirements set out in the regulation. Taking into account the cross-border character of energy sector operations and methane emissions, competent authorities should cooperate with each other and the Commission.
The main mechanism available to the competent authorities should be inspections, including examination of documentation and records, emissions measurements and site visits. Where they identify a serious breach of the requirements they should issue a notice of remedial actions.
Another actor in the proposed system will be independent verifiers who should be accredited by accreditation bodies in accordance with Regulation (EC) 765/2008 of the European Parliament and of the Council. Verifiers shall be separate from competent authorities and independent from the operators of energy value chain. They should issue verification statements for the emissions reports.
Moreover, the information in the emission reports submitted to the competent authorities should be also provided to the Commission to be fed into the International Methane Emissions Observatory (IMEO).
Last but not least, the guiding principles on penalties, the types of infringements to be penalized, criteria on maximum fines, as well as the possibility to impose periodic penalty payments are included in the regulation proposal.
[1] Methane: Everything You Need to Know | UNEP - UN Environment Programme
[3] eu_methane_strategy.pdf (europa.eu)
[4] eu_methane_strategy.pdf (europa.eu)
[5] Challenge | OGM Partnership
[6] High-end members of the dataset, “hot spots.” Responsible for most of the emission.
(70%-30%, 80%-20% rules, etc.)
https://www.epa.gov/sites/default/files/2015-09/documents/mansfield_pres.pdf
[7] Enteric fermentation is a natural part of the digestive process in ruminant animals such as cattle, sheep, goats, and buffalo. Microbes in the digestive tract, or rumen, decompose and ferment food, producing methane as a by-product.
Enteric fermentation | Climate & Clean Air Coalition (ccacoalition.org)
[8] Compulsory LDAR surveys are primarily aimed at finding and fixing leaks, rather than quantifying them
[9] Venting=release of uncombusted methane in the atmosphere either intentionally (from processes) or unintentionally (from malfunction)
[10] Flaring= the controlled combustion of methane for the purpose of disposal
[11] Re-injection, utilisation on-site or dispatch of the methane to a market are preferred options
[12] Where the tool identifies a new major emission source, the Commission shall alert the relevant country with a view to promoting awareness and remedial actions
Summary
The fact that methane emissions are driving climate change has been underestimated by the lack of methane-related binding regulations and standards for a long time. It has only been recently that policies and initiatives targeting methane have started to emerge, and clearly have some distance to cover compared to advanced legislation on carbon dioxide. The EU is paving the way towards a comprehensive legislation on methane emissions, with considerable extraterritorial outreach. Reducing methane emissions from the energy sector is considered to be the low hanging fruit that can significantly accelerate global efforts to fight climate change. Notwithstanding that, the EU is also taking an action towards limiting methane emissions in agriculture and waste sector.
At EY, we are ready to help companies understand the emerging laws on methane emissions and assist in compliance obligations. Our EU Green Deal Center of Excellence helps private and public stakeholders navigate the complexities of all of the EU Green Deal policies, as well as manage the ensuing legal risks and take full advantage of the opportunities.
