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首页文档碳中和资料研究报告能源脱碳：为欧盟碳中和确定稳健的能源载体组合（英）-欧洲议会

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Decarbonisation of
Energy
Determining a robust mix of energy
carriers for a carbon-neutral EU
STUDY
Requested by the ITRE committee
Policy Department for Economic, Scientific and Quality of Life Policies
Directorate-General for Internal Policies
Authors: Georg ZACHMANN et al., Bruegel
PE 695.469 - November 2021
EN
DO NOT DELETE PAGE BREAK
Abstract
Decarbonising the energy system requires a fundamental
transformation in the way societies provide, transport and
consume energy. Disagreement exists over how this system should
look in 2050. The large-scale expansion of low-carbon electricity,
phase-out of unabated fossil fuels, and widespread direct
electrification are uncontroversial. In more controversial areas, like
the deployment of hydrogen and synthetic methane, policy should
forcefully explore options and be willing to accept and learn from
failures. This report discusses concrete policy options for doing so.
This document was provided by the Policy Department for
Economic, Scientific and Quality of Life Policies at the request of the
committee on Industry, Research and Energy (ITRE).
Decarbonisation of
Energy
Determining a robust mix of energy
carriers for a carbon-neutral EU
/128
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DecarbonisationofEnergyDeterminingarobustmixofenergycarriersforacarbon-neutralEUSTUDYRequestedbytheITREcommitteePolicyDepartmentforEconomic,ScientificandQualityofLifePoliciesDirectorate-GeneralforInternalPoliciesAuthors:GeorgZACHMANNetal.,BruegelPE695.469-November2021ENDONOTDELETEPAGEBREAKAbstractDecarbonisingtheenergysystemrequiresafundamentaltransformationinthewaysocietiesprovide,transportandconsumeenergy.Disagreementexistsoverhowthissystemshouldlookin2050.Thelarge-scaleexpansionoflow-carbonelectricity,phase-outofunabatedfossilfuels,andwidespreaddirectelectrificationareuncontroversial.Inmorecontroversialareas,likethedeploymentofhydrogenandsyntheticmethane,policyshouldforcefullyexploreoptionsandbewillingtoacceptandlearnfromfailures.Thisreportdiscussesconcretepolicyoptionsfordoingso.ThisdocumentwasprovidedbythePolicyDepartmentforEconomic,ScientificandQualityofLifePoliciesattherequestofthecommitteeonIndustry,ResearchandEnergy(ITRE).DecarbonisationofEnergyDeterminingarobustmixofenergycarriersforacarbon-neutralEUThisdocumentwasrequestedbytheEuropeanParliament'scommitteeonIndustry,ResearchandEnergy(ITRE).AUTHORSGeorgZACHMANN,BruegelFranziskaHOLZ,DIWBerlinAlexanderROTH,DIWBerlinBenMCWILLIAMS,BruegelRobinSOGALLA,DIWBerlinFrankMEISSNER,consultantClaudiaKEMFERT,DIWBerlinADMINISTRATORSRESPONSIBLEFrédéricGOUARDERESMatteoCIUCCIEDITORIALASSISTANTIreneVERNACOTOLALINGUISTICVERSIONSOriginal:ENABOUTTHEEDITORPolicydepartmentsprovidein-houseandexternalexpertisetosupportEuropeanParliamentcommitteesandotherparliamentarybodiesinshapinglegislationandexercisingdemocraticscrutinyoverEUinternalpolicies.TocontactthePolicyDepartmentortosubscribeforemailalertupdates,pleasewriteto:PolicyDepartmentforEconomic,ScientificandQualityofLifePoliciesEuropeanParliamentL-2929-LuxembourgEmail:Poldep-Economy-Science@ep.europa.euManuscriptcompleted:November2021Dateofpublication:November2021©EuropeanUnion,2021Thisdocumentisavailableontheinternetat:http://www.europarl.europa.eu/supporting-analysesDISCLAIMERANDCOPYRIGHTTheopinionsexpressedinthisdocumentarethesoleresponsibilityoftheauthorsanddonotnecessarilyrepresenttheofficialpositionoftheEuropeanParliament.Reproductionandtranslationfornon-commercialpurposesareauthorised,providedthesourceisacknowledgedandtheEuropeanParliamentisgivenpriornoticeandsentacopy.Forcitationpurposes,thepublicationshouldbereferencedas:Zachmann,G.;Holz,F.;McWilliams,B.;Meissner,F.;Roth,A.;Sogalla,R.,Kemfert,C.,2021,DecarbonisationofEnergy,PublicationforthecommitteeonIndustry,ResearchandEnergy(ITRE),PolicyDepartmentforEconomic,ScientificandQualityofLifePolicies,EuropeanParliament,Luxembourg.©CoverimageusedunderlicencefromAdobeStockDecarbonisationofEnergy3PE695.469CONTENTSLISTOFFIGURES6LISTOFTABLES7LISTOFABBREVIATIONS8EXECUTIVESUMMARY101.INTRODUCTION131.1.Objective,scope,andtargetedoutputoftheStudy131.2.Background131.3.Recentandupcomingdevelopments152.HIGHLEVELSCENARIOSFORCOAL,METHANEANDHYDROGENDEMAND182.1.TotalEUenergyconsumptionpathwaysupto2050182.1.1.Top-down:EU182.1.2.Bottom-up:MemberStates202.1.3.Result232.2.EUenergyconsumptionpathwaysbysectorupto2050232.3.Cornerscenarios242.3.1.All-electricworld252.3.2.HydrogenimportstofueltheEU262.3.3.Greengasesinexistingpipelines263.PHASINGOUTCOALINEUROPE273.1.Statusquoofcoalusetoday283.1.1.Powersectorandheatgeneration293.1.2.Coaluseinindustryandothersectors313.1.3.Greenhousegasemissionsfromcoal313.2.TheeffectsofEuropeanenvironmentalpoliciesoncoal333.2.1.EUETS333.2.2.Otherpollutionlimits363.2.3.Methaneregulation363.3.Statusquoofnationalcoalphase-outpolicies363.4.Effectsofupcomingcoalphase-outsinEUMemberStates393.4.1.Effectsonthepowersector393.4.2.Othereconomiceffectsandtransitionincoal-miningregions433.5.Conclusions:coalphaseoutunderwaybutneedssomeadditionalsupport45IPOLPolicyDepartmentforEconomic,ScientificandQualityofLifePoliciesPE695.46944.DECARBONISATIONOFMETHANEUSEINEUROPE474.1.Naturalgasuse,supplyandinfrastructuretoday484.1.1.Supplyofnaturalgasandbiogas/biomethaneintheEUtoday504.1.2.Infrastructurevaluechain524.1.3.Utilisationofmethanegastoday534.1.4.Greenhousegasemissionsfromthenatural-gasvaluechain544.2.Decarbonisationpotentialofnaturalgas564.2.1.Naturalgasandcarboncaptureandstorage564.2.2.Substitutionofnaturalgasbyothergases(hydrogen,syngas,biomethane)584.2.3.Substitutionofnaturalgasbyelectricity634.3.Developmentofmethanesupplyanddemandinthreeextremescenarios644.3.1.Allelectric-world664.3.2.HydrogenimportstofueltheEU664.3.3.Greengasesinoldpipelines674.4.Conclusions:nextstepsinEUgaspolicy675.THEROLEOFHYDROGENINDECARBONISATION705.1.Situationtoday705.2.Futuresforhydrogen715.2.1.Demand715.3.Supply765.3.1.Domesticproduction765.3.2.Foreignproduction(imports)785.3.3.Transmissionanddistribution795.3.4.Storage805.4.Hydrogeninthethreeextremescenarios815.5.Frameworkforhydrogen815.5.1.Hydrogenstrategies815.5.2.Aframeworkforthinkingabouthydrogen825.5.3.Marketdrivers845.5.4.Policyissues856.ASSESSMENTOFDIFFERENTDEVELOPMENTPATHWAYS906.1.Methodology906.2.Hydrogen916.2.1.Downstream916.2.2.Mid&upstream926.3.Methane94DecarbonisationofEnergy5PE695.4696.3.1.Downstream946.3.2.Mid-&upstream956.4.Electricity956.4.1.Downstream956.4.2.Mid-&upstream976.5.User-sideinvestments986.6.Comparisonofscenarios1007.RECOMMENDATIONS1047.1.1.Ensuretheuncontroversialpartsofthesolutionareeffectivelyandefficientlydeployed1057.1.2.Forcefullyexplorethebestwaytomeetenergyserviceneedsintheresidualareas,106106acceptingfailures7.1.3.Activelylearnontheway7.2.Policytools1077.2.1.Greenhousegaspricing1077.2.2.EUenergyinfrastructure1087.2.3.EUEnergyMarketDesign1087.2.4.Cleanappliancessupport1097.2.5.Speedupthedeploymentofrenewables110REFERENCES111APPENDIX118A1.MODELDESCRIPTIONDIETER118A2.METHANEEMISSION118A.METHODOLOGYFORSCENARIOANALYSIS(EXTENDEDDESCRIPTION)121IPOLPolicyDepartmentforEconomic,ScientificandQualityofLifePoliciesPE695.4696LISTOFFIGURESFigure1-1:EUenergymixevolutioninoneofthescenariosleadingtoaGHGemissionsreductionof55%in2030comparedto1990levelsandtoclimateneutralityin205014Figure2-1:JRCFinalEnergyConsumptionbyFuel(TWh)19Figure2-2:JRCScenarios–Energyforelectricity,heatandderivedfuels20Figure2-3:FinalEnergyConsumption(FEC)ProjectsNECPsandJRC2030(inTWh)21Figure2-4:ComparisonofFECfuelshares:NECPsvsJRC22Figure2-5:ComparisonofFECsectorshares:NECPsvsJRC23Figure2-6:JRCenergyscenarios,finalenergyconsumptionbysector(TWh)24Figure2-7:Stylisedscenariologic24Figure3-1:Coalinenergysupplyovertime28Figure3-2:Shareofcoalinenergysupplyin201928Figure3-3:Usageofcoal29Figure3-4:Shareofcoal(hardcoalandlignite)indomesticgrosselectricityproductionin2019(in%)30Figure3-5:Shareofcoal(hardcoalandlignite)indomesticgrossheatgenerationin2019(in%)30Figure3-6:Shareofcoalinemissionsandelectricityandheatproduction31Figure3-7:EUETSCO2priceandtwohypotheticalfuelswitchingprices(2010-2019)33Figure3-8:Baseload(a)andpeakload(b)spreadsforcoalfiredelectricityplants(darkspreads),includingtheCO2price(cleandarkspread),inGermany2013-202134Figure3-9:Coalphase-outstatusinEUMemberStatesasofSeptember202137Figure3-10:InstalledcapacityinMWofcoal-firedpowerplantsin201940Figure3-11:UseofligniteandhardcoalintheEUin201940Figure3-12:Optimalpowerplantfleetsindifferentyears42Figure3-13:RenewableinstallationratesintheEUneededtoachievedecarbonisationofenergy43Figure3-14:Cumulativetechnicalpotential(GW)forground-mountedsolarPVincoalregions44Figure4-1:Naturalgasvaluechain49Figure4-2:Shareofnaturalgasinenergysupplyin201950Figure4-3:Naturalgasinenergysupplyovertime50Figure4-4:ExportersoffossilnaturalgastotheEUin201951Figure4-5:BiogasproductionintheEU27(1990-2019)51Figure4-6:UtilizationofnaturalgasintheEuropeanUnion(EU27)in201953Figure4-7:Industrialusageoffossilnaturalgas54Figure4-8:CO2emissionsfromnaturalgasovertime54Figure4-9:CO2emissionsfromcombustingnaturalgasinMtbycountryin201955DecarbonisationofEnergy7PE695.469Figure4-10:Overviewofscenariotrajectoriesandmethanesectoroutcomes66Figure5-1:Bulgariaaveragedailyelectricitydemandvsdailytemperature75Figure5-2:Lowcarbonproductionroutesforhydrogen76Figure5-3:HydrogenProductionCostDecomposition(EUR/kg)77Figure5-4:Additionaltransportcosts(€/kg)79Figure5-5:Hydrogenmarketframework82Figure5-6:Electrolytichydrogenfromaveragegridintensity87Figure6-1:Averageannualinvestments(supply&demandsectors)2021-203099Figure6-2:Averageannualinvestments(supply&demandsectors)2031-205099Figure6-3:Averageannualinvestmentsandfuelimportcosts100Figure6-4:Averageannualinvestmentsandfuelimportcosts101Figure6-5:Annualsystemcostssensitivitytoimportprices103Figure7-1:ShareofmethaneintotalGHGemissionsintheEU27in2019(byGWPassumptionformethane)119LISTOFTABLESTable1-1:Coalphase-outsinEUcountries15Table1-2:TheEuropeanCommission’shydrogenstrategyforaclimate-neutralEurope16Table2-1:Keyfeaturesofconsideredscenarios25Table5-1:Bottom-upestimationsforpotentialhydrogendemand2050(TWh)72Table5-2:Keymarketfeaturesfordifferenthydrogenscenarios84Table6-1:Hydrogenconsumption2030&2050byscenario(rounded,inTWh)91Table6-2:Hydrogenconsumption/generation2030&2050(rounded,inTWh/GW)92Table6-3:Hydrogengeneration&infrastructureinvestments2021-2030&2031-205093Table6-4:Synthetichydrocarbonsconsumption2030&2050scenario(rounded,inTWh)94Table6-5:Synthetichydrocarbonsimportcosts(rounded,in€bn)95Table6-6:Electricityconsumption2030&2050byscenario(rounded,inTWh)96Table6-7:Electricitygeneration2030&2050(rounded,inTWh)97Table6-8:Electricitygeneration&infrastructureinvestments2021-2030&2031–2050(rounded,in€bn)98Table6-9:Averageannualinvestmentsandfuelimportcosts(€bn)102IPOLPolicyDepartmentforEconomic,ScientificandQualityofLifePoliciesPE695.4698LISTOFABBREVIATIONSBCMBillioncubicmetresBOFBlastOxygenFurnaceCAPEXCapitalExpenditureCCSCCUCarboncaptureandstorageCarboncaptureandutilisationCO2CarbondioxideDRIDirectReducedIronEAFElectricArcFurnaceECEuropeanCommissionENTSO-EEuropeanNetworkofTransmissionSystemOperators–ElectricityEUEuropeanUnionEUETSEuropeanUnionEmissionsTradingSystem(addressingthegreenhousegasemissionsCO2,N2O,andperfluorocarbons)FECFinalenergyconsumptionFF55Fitfor55(EUenergypackage)GWGigaWatt(unitforelectricitygenerationcapacity)GWPGlobalWarmingPotentialGHGGreenhousegas(es)GDPGrossDomesticProductH2HydrogenIPCCInter-governmentalPanelonClimateChangeIEAInternationalEnergyAgency(anOECDagency)JRCJointResearchCentreMWhMegaWatthour(quantityofelectricitygenerated)MtMtCO2eqMegatonne(milliontons)MegatonneofcarbondioxideorequivalentCH4MethaneMRVMonitoring,reporting,verification(ofemissions)OPEXOperatingExpenditurePVPhotovoltaicDecarbonisationofEnergy9PE695.469PPCAPoweringPastCoalAllianceSMRSteammethanereforming(ahydrogenproductionprocess)SyngasSyntheticgas(methane)TRLTechnologicalReadinessLevelTWhUNFCCCTerawattHourUnitedNationsFrameworkConventiononClimateChangeIPOLPolicyDepartmentforEconomic,ScientificandQualityofLifePoliciesPE695.46910EXECUTIVESUMMARYBackgroundTheEuropeanUnion(EU)aimstobecomethefirstclimate-neutralcontinentby2050.Todeliveronthisambition,decarbonisingtheenergysectoriscrucialbecausetheproductionanduseofenergyaccountsformorethan75%oftheEU’sgreenhousegasemissions(EEA,2021).Today,almostthree-quartersoftheEUenergysystemreliesonfossilfuels.TheEuropeanGreenDealcanthusonlybesuccessfulwhentheunabatedcombustionofoil,naturalgasandcoalisphasedout.ButEuropeanswillcontinuetodemandenergy-basedservicessuchastransport,heating,cooling,lightingandmanufacturing.Foralloftheseenergy-basedservices,anumberofalternative,climate-friendlytechnologyoptionsandenergycarriersarepossible,rangingfromelectrificationtosyntheticmethanegasandothersynthetichydrocarbonstohydrogen.AimOurstudyprovidesEuropeanlawmakerswithscience-basedrecommendationsonadaptingtheregulatoryframeworkforthegas,coalandhydrogensectorstowardsclimateneutrality.Therecommendationsarebasedonanextensiveanalysisofpossibledevelopmentpathwaysforthesethreefuels.Basedontransparentassumptions,wehavedevelopedthreescenariosonthecontributionofhydrogen,methaneandelectricitytofinalEUenergyuse.Foreachscenario,wedescribethedemandforeachfuelineachsector,theimpliednecessaryupstreaminvestments(e.g.,electrolysersforhydrogenproduction)andtheimpliednecessaryinvestmentsininfrastructure(e.g.,hydrogenfuelstations).Thisallowsustoidentifyanumberofuncontroversialelementsthatwillberequiredforcost-effectivedecarbonisationoftheEuropeanenergysector.Butouranalysisalsohighlightsforwhichelementsoftheenergysectorthemostsuitablesolutionisnotyetclear.Thisallowsustoformulaterecommendationsonaresilientenergysystemdecarbonisationstrategyandthetranslationintosensiblepolicies.KeyFindingsDecarbonisationoftheenergysystemwillrequireamassivetransformationinthewayenergyisprovided,transportedandused.However,viewsonwhatthesystemshouldorwouldlooklikein2050stillstronglydiverge.Whileacost-minimalenergysystemisnotpossibletodetermine(becausetoomanydrivingfactorsareuncertain)wearesufficientlyconfidentonafewimportantbuildingblocks.First,thehighefficiencyofdirectelectrificationintransportandheatingimpliesthatinmostcasesitisthepreferablesolution.Second,electrificationoftransportandheating,butalsoanyproductionofhydrogenorsyntheticfuelsinEurope,willultimatelyrequireamassivebuild-upofrenewableelectricitygeneration.Accordingly,installingtoomuchrenewablegenerationcapacitywillbealmostimpossible.Third,asageneralrulethereshouldbenoinvestmentsinfossil-fuelproduction,transmissionorutilisation,asmostofthemwouldhavetobequicklydecommissionedwithinthenextdecades.Investmentinsuchassetsshouldonlybeacceptedinexceptionalcircumstances.Fourth,currentnationalenergyandclimateplansareinsufficienttoachieveacost-efficientpathwaytoEU-wideclimateneutralityby2050.Consequently,astrongcommitmentframeworkisneededtoensurethatMemberStates’policiesarealignedwiththeEuropeantargets.DecarbonisationofEnergy11PE695.469Fifth,asthebulkofinvestmentindecarbonisationwillhavetocomefromend-users,theyquicklyneedclearsignalsonthedirectionoftravel.Hence,2021-2030shouldbethedecadeofinfrastructureinvestments.TheabovebuildingblockswillnotbesufficienttoensurethedecarbonisationofEurope’senergysystem.Hard-to-abatesectorsinindustry,heavytransport,aviationaswellasperiodsofrenewableenergydroughtsposechallengesthatcannotbesolvedbythe‘uncontroversial’solutions.Itislikelythathydrogenandsyntheticfuelswillbeusefultotacklesomeoftheseissues.Butwecannotyetpredictanoptimalmixofsolutions.However,wedonothavethetimetowaituntilclearwinnersemerge.Moreover,systemandlearningeffectsthatbringdownthecostoftechnologiesastheyaredeployedmakeitimpossibletocomprehensivelyassessthepotentialofdifferentsolutionsexante.Hence,weneedcourageousdeploymentofdifferentsolutions,knowingthatsomewillturnouttobedead-ends.Accordingly,policiesshouldleaveroomfornumerousandsufficientlysizeableregulatory1andtechnologyexperimentation–EuropewithitssizeanddifferentMemberStatesisaveryfertilegroundforthis.Butitisasimportanttotestmanydifferentsolutionsinparallel,sothatunfitsolutionsareidentifiedandeliminated.Asomewhatsoberingresultofouranalysisisthatlargeamountsoftheknowledgerequiredtofacilitatethistransitionarestilllacking.Muchcrucialinformationonthecurrentenergysystemandtheassumptionsunderlyingthepolicyplansisnotaccessible.CurrentlytheEUhasnoappropriateknowledgeinfrastructurethatcollects,structuresandensuresthequalityoftheavailableenergysectordataandmakesitpubliclyaccessible.Inordertoimprovetheanalyticalbasisandmakeitrelevantforthepoliticaldebate,theEUcouldseekinspirationfromtheUSEnergyInformationAdministration,theIntergovernmentalPanelonClimateChangeandtheInternationalEnergyAgency.Moreover,theEUMemberStatesNationalEnergyandClimatePlans(NECPs),whicharealreadyaveryusefultooltoputdifferentnationalplansinperspective,canbemademoreusefulbycarefullyreviewingthedatathatMemberStatesprovide,andencouragingthemtouseaharmonisedreportingsystem.Finally,regulatoryandtechnicalexperimentationshouldbebetteraccompaniedbyrobustex-anteandex-postanalysis,sothatitservesthepurposeofidentifyingsolutions.WhilewecannotprovideacomprehensiveassessmentofthemassiveEuropeanGreenDealproposal,wethinkitaddressescrucialelements.Toensurethattheabove-describeddecarbonisationpathwayisimplemented,theexistingproposalscouldbestrengthenedinthefollowingway:Greenhousegaspricingshouldcoverallsectorsandgreenhousegases,providemorelong-termpriceguidance,andpricesindifferentsegmentsshouldconvergeovertime.UpcomingrevisionsoftheEUETShavetoensurethealignmentwiththelong-termgoalofclimateneutrality.Theclimatebalanceofenergyimportsshouldbecertifiedaccordingtostrictcriteriathatencouragesupplierstoensurelowcarbon/carbon-neutralvaluechains.Europewillrequireanenergynetworkinfrastructurethatenablesafundamentaltransition–includingasubstantialincreaseinelectricitygenerationfromrenewables.AdeeprethinkofhowenergyinfrastructureisincentivisedandfinancedintheEUisneeded.Internalenergymarketprinciplesmustbeensured,alsofornewnetwork-basedenergyindustriessuchashydrogen.Onekeychallengeinthenewenergyworldishowtocarryabundantlyavailablerenewableenergy(especiallyinsummer)overtoperiodswhenenergyislessavailable(especiallyinwinter).1Byregulatoryexperimentationwemeanaregularprocessofrepeatedevaluationandrevisionofthepoliciesinplace.IPOLPolicyDepartmentforEconomic,ScientificandQualityofLifePoliciesPE695.46912Thisinvolvesthequestionofhowdifferentenergymarketsareco-designed(sectorcoupling).InvestorswillrequireclarityonhowEuropeanenergymarketdesignwillensuretheprofitabilityofinvestmentsthataddressthedescribedchallenge.Appliancesandindustrialprocessesbasedoncleanfuelsneedtobedeployedearlyontoencouragelearningandtoidentifythemostsuitable.Policycanhelpherebyofferingcommercialisationcontractsforindustryandhouseholdsthatguaranteethatcleansolutionsarecompetitivewithcarbon-emittingtechnologies–evenwhencarbonpricesarenotyethighenough.Thetransitionwillrequireamassivedeploymentofrenewableelectricity.StrengtheningtheEUgovernanceoftherenewablestargetwillincentivisefurtherinvestmentintocorrespondingassets.DecarbonisationofEnergy13PE695.4691.INTRODUCTION1.1.Objective,scope,andtargetedoutputoftheStudyThisstudyprovidesscience-basedrecommendationsforadaptingtheEuropeanregulatoryframeworkforthegas,coalandhydrogensectorstoincreaseddecarbonisation2ambition.Basedontransparentassumptions,wedevelopthreescenariosofthecontributionofhydrogen,naturalgasandelectricitytofinalEuropeanUnion(EU)energyuse.Foreachscenario,wedescribethedemandforeachfuelbysector,theimpliednecessaryupstreaminvestments(e.g.,electrolysersforhydrogenproduction),theimpliedinvestmentneededforinfrastructure(e.g.,hydrogenpipelines)andtherequiredannualpaymentsforimportswhereappropriate.Bycomparingscenarios,weoutlinetrade-offsintermsofspeedofdecarbonisation,securityofsupply(importshares),volumeandtimingofinvestmentneeds,correspondinginvestmentgapsandtotalcost(chapter6).Foreachofthefuels(hydrogen,naturalgasandcoal)aseparatechapterdescribesinadetailedandillustrativewaytheimpactoftheindividualscenarios.Thereby,crucialelementsofthecurrentregulatoryframework,aswellascurrentCommissionproposals,arediscussedwithrespecttotheiradequacyandconsistencywiththeoutlinedscenarios.Thisallowsustoidentifypolicygaps.Basedontheabove,wemakeclearrecommendationsonhowtoensurethatEuropeanpolicyenablesthemosteffectiveandefficienttransformationofthecoal,naturalgasandhydrogensectors.1.2.BackgroundWiththeEuropeanGreenDeal(EGD),theEUaimstobecomethefirstclimateneutralcontinentby2050.Thisvision,alsofosteredbytheEuropeanParliament’sclimateemergencydeclarationofNovember2019,wasenshrinedintolegislationwiththeEuropeanClimateLaw3.ThistransformedtheEU’sclimate-neutralitypledgeintoabindingobligation,andincreasedtheEU’s2030emissionsreductionstargetfrom40%toatleast55%comparedto1990levels.Todeliveronitsclimateobligations,theEUmustpursueonemaingoal:makeitsenergysectorclimateneutral.Theproductionanduseofenergyacrosseconomicsectorsaccountsformorethan75%oftheEU’sgreenhousegas(GHG)emissions4.2Throughoutthepaper,weusethetermdecarbonisationreferringtoamovetowardclimateneutrality.Thatis,byusingdecarbonisationwedonotintendbiasagainstsynthetichydrocarbonmoleculesinthecasesthattheyhaveanet-zerocarbonemissionseffect.3Seehttps://ec.europa.eu/clima/eu-action/european-green-deal/european-climate-law_enforadescriptionoftheEU’sClimateLaw.4Seehttps://www.eea.europa.eu/data-and-maps/data/data-viewers/greenhouse-gases-viewerforanoverviewoftheEU’sgreenhousegasemissionsasreportedtotheUNFCCC.KEYFINDINGSTheFitfor55packageforeseesasignificantspeedingupofEuropeandecarbonisation.Thisrequiresmanynewandupgradedpolicyframeworks.TheEuropeanCommissionhasalreadyproposedextensivereformstotheEU’senergyandclimatepolicyframework,andmoreareforthcomingbeforetheendof2021.Thepurposeofthisreportistoprovideinsightintotherationalebehindtheserevisions.Specifically,thisisdonebyinformingpolicymakersabouttheimplicationsofdifferentfuelmixesinadecarbonisedEUin2050.Weexplorethreescenarioswithdifferingdemandassumptionsforelectricity,hydrogenandalternativegreengases.IPOLPolicyDepartmentforEconomic,ScientificandQualityofLifePoliciesPE695.46914Today,almostthree-quartersoftheEUenergysystemreliesonfossilfuels.OildominatestheEUenergymix(withashareof35%),followedbynaturalgas(24%)andcoal(14%).Renewablesaregrowinginsharebutstillplayamorelimitedrole(14%),asdoesnuclear(13%)5.ShouldtheEGDbesuccessfullyimplemented,thissituationwouldbetransformedby2050.Butchangewillnothappenovernight.AccordingtoEuropeanCommission(EC)projections,fossilfuelswillstillcontributetohalfoftheEU’senergymixin2030(EC,2020).Whilecoal–themostpollutingelementintheenergymix–hastobesubstantiallyreducedbefore2030,oilandespeciallynaturalgascanbephasedoutlatertoachievetheclimatetargets.Itisindeedbetween2030and2050thatmostofthechangeforoilandnaturalgasisexpectedtohappen.Withinthistimeframe,oilisexpectedtobealmostentirelyphasedout,whilenaturalgasisexpectedtocontributeatenthoftheEUenergymixby2050(Figure1-1).Figure1-1:EUenergymixevolutioninoneofthescenariosleadingtoaGHGemissionsreductionof55%in2030comparedto1990levelsandtoclimateneutralityin2050Source:BruegelbasedonEC(2020).Note:amongthevariousscenariosconsistentwithEUclimatetargetsusedbytheECwepickedtheMIXscenario.Note:e-liquidsande-gasaresyntheticfuels,resultingfromthecombinationofgreenhydrogenproducedbyelectrolysisofwaterwithrenewableelectricityandCO2capturedeitherfromaconcentratedsourceorfromtheair.Bioenergyincludessolidbiomass,liquidbiofuels,biogas,waste.Toachievetherequiredenergy-mixtransformation,theCommissionon14July2021proposedtheFitfor55package,coveringabroadrangeofpolicyareas.ArevisionoftheEuropeanUnionEmissionTradingSystem(EUETS)isproposed,withtheinclusionofmaritimeemissionsandareducednumberofannualallowances.AsecondEUETSisproposedforroadtransportandbuildings.Boththerenewableenergydirectiveandenergyefficiencydirectiveseestrengthenedtargets,whiletheenergytaxationdirectivewillberevisedandCO2emissionstandardsforroadvehicleswillbetightened.5DataaremadeavailablebyEurostat,here:https://ec.europa.eu/eurostat/statistics-explained/index.php?title=Energy_statistics_-_an_overview#Final_energy_consumption.0102030405060708090100200020152030MIX2050MIXNon-energyuse(oil)Non-energyuse(gas)CoalOilNaturalgasNucleare-liquidse-gasOtherrenewablesBioenergyDecarbonisationofEnergy15PE695.4691.3.RecentandupcomingdevelopmentsTheuseofcoalinEurope’senergysectorhassubstantiallydecreasedinthelastdecades,foreconomicreasons,becauseofemissionsregulationandfollowingnationalphase-outpolicies.Theshareofcoal(ligniteandhardcoal)inelectricitygenerationintheEUhasbeenreducedsignificantlyinthepasttwodecades,from31%in2000to19%in2018and14%in2019.Recently,theEUETSreformfurtherdeterioratedtheeconomicsofcoal.Importantly,national,coal-sector-specificpoliciesnowleadtothedefinitephase-outofcoalinmanyEUMemberStates.Often,nationalpoliciestaketheformofmandatedphase-outscheduleswithplannedclosuresofcoalpowerplantsandminingsites.Onlyrarelyarealternativepolicies,suchasemissionperformancestandards,chosenasaphase-outpolicy.Table1-1reportsontheprogressofthecoalphase-outinEUMemberStates.Nineofthe27MemberStatesarealreadycoal-freeandelevenmorewillhaveshutdownalltheircoal-firedpowerplantsby2030.Germany,Romania,PolandandtheCzechRepubliccurrentlyplanforaphase-outlaterthan2030.Bulgaria,CroatiaandSloveniahavenotyetdecidedonthetimingoftheircoalphase-out.Table1-1:Coalphase-outsinEUcountriesCoalfreeCoalphase-outachievedCoalphase-outby2025Coalphase-outby2030Coalphase-outby2040Coalphase-outlaterthan2040Coalphase-outunderconsiderationNocoalphase-outplannedCyprusAustriaFranceDenmarkCzechRepublicPolandBulgariaEstoniaBelgiumHungaryFinlandGermanyCroatiaLatviaSwedenIrelandGreeceRomaniaSloveniaLithuaniaItalyNetherlandsLuxembourgPortugalSpainMaltaSlovakiaSource:Updatedfromhttps://ec.europa.eu/energy/topics/oil-gas-and-coal/EU-coal-regions/coal-regions-transition_en,https://beyond-coal.eu/wp-content/uploads/2021/03/Overview-of-national-coal-phase-out-announcements-Europe-Beyond-Coal-22-March-2021.pdf.Fornaturalgasandhydrogen,incontrast,therelevantpolicydevelopmentstakeplaceattheEUlevel.TheEChasalreadystartedtheprocessofreviewingandrevisingtheGasDirective2009/73/EC6andtheGasRegulation(EC)No715/20097,generallyreferredtoasthehydrogenanddecarbonisedgasmarketpackage.TheCommissionhasalreadypresentedahydrogenstrategy8andanenergy-systemintegrationstrategy9,whichwillserveasbuildingblocksfortheforthcomingpackage.6Availablehere:https://eur-lex.europa.eu/legal-content/EN/ALL/?uri=CELEX%3A32009L0073.7Availablehere:https://eur-lex.europa.eu/legal-content/EN/ALL/?uri=celex%3A32009R0715.8Availableherehttps://ec.europa.eu/energy/sites/ener/files/hydrogen_strategy.pdf.9Availablehere:https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:52020DC0299&from=EN.IPOLPolicyDepartmentforEconomic,ScientificandQualityofLifePoliciesPE695.46916IthasalsopresenteditslegislativeproposalfortherevisionofRegulation(EU)No347/201310onguidelinesfortrans-Europeanenergyinfrastructure(theTEN-ERegulation).ThehydrogenstrategypresentedbytheCommissioninJuly2020identifiesthetoppriorityfortheEUasdevelopmentofrenewablehydrogen(i.e.,producedusingrenewablesources),asthisistheoptionwhichisthemostcompatiblewiththeEUclimateobjectives.However,thedocumentalsooutlinesthatintheshortandmediumterms,otherformsoflow-carbonhydrogenmightbeneeded,primarilytorapidlyreduceemissionsfromexistinghydrogenproductionandsupporttheparallelandfutureuptakeofrenewablehydrogen.TheCommissionthusforeseesagradualtrajectoryforhydrogendeploymentinEurope,characterisedbydifferentspeedsdependingonsectorandregion.TheCommissionexpectsthistrajectorytounfoldinthreephases(table1-2).Table1-2:TheEuropeanCommission’shydrogenstrategyforaclimate-neutralEuropePeriodInstalledrenewablehydrogenelectrolysers(Gigawatt)Renewablehydrogenproduction(TWh)MainsectorialtargetPhase12020-2024633DecarboniseexistinghydrogenproductioninindustryPhase22025-203040333Take-upinnewend-useapplicationsPhase32031-2050Large-scaleLarge-scaleReachallhard-to-decarbonisesectorsSource:BruegelbasedonEC(2020).Inparallelwiththehydrogenstrategy,theCommissionalsopresentedinJuly2020anenergy-systemintegrationstrategy,aimedatproposingpolicymeasurestoabatetechnicallyandeconomicallyinefficientsilosandcoordinatetheplanningandoperationoftheenergysystem‘asawhole’,acrossmultipleenergycarriers,infrastructuresandconsumptionsectors.Thestrategyhasthreekeyprinciplesandrelatedactions:•Energy-efficiency-firstandcircularenergysystem;•Greaterdirectelectrificationofend-usesectors;and•Useofrenewableandlow-carbonfuels,includinghydrogen,forend-useapplicationswheredirectheatingorelectrificationarenotfeasible.Thestrategyalsofocusesontheinfrastructureaspectsofsystemintegration,highlightingthat,whilenaturalgasnetworksmightbeusedtoenableblendingofhydrogentoalimitedextentduringatransitionalphase,dedicatedinfrastructuresforlarge-scalestorageandtransportationofpurehydrogenmaybeneeded.ThestrategyremainsvagueontheroleofCO2-dedicatedinfrastructure,limitingitselftoflaggingtheneedforreflectiononhowtotransportCO2betweenindustrialsitesforfurtheruse,ortolarge-scalestoragefacilities.ThisinfrastructuredimensionwasalreadydevelopedbytheCommissioninDecember2020,withinitslegislativeproposalfortherevisionoftheTEN-ERegulation.Thisincludedanumberofproposals,fromobligingallprojectstomeetmandatorysustainabilitycriteria,toanupdateoftheinfrastructurecategorieseligibleforsupportthroughtheTEN-Epolicy.10Availablehere:https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32013R0347&from=en.DecarbonisationofEnergy17PE695.469Importantly,theproposalendssupportfornaturalgasinfrastructureandintroducessupportfornewandrepurposedhydrogentransmissioninfrastructureandstorage,aswellaselectrolyserfacilities.Finally,theCommissionraninearly2021apublicconsultationontherevisionofthehydrogenanddecarbonisedgasmarketpackage,basedonaninceptionimpactassessment11,whichforeseestherevisionfocusingonthefollowingfourproblemareas:i)Hydrogeninfrastructureandhydrogenmarkets;ii)Accessforrenewableandlow-carbongasestotheinfrastructureandthemarket;iii)Consumerrights,competitionandtransparency;iv)Lackofintegratedenergymarkets,inparticularthroughnetworkplanning.Theresultsoftheconsultation,whichclosedinJune,willfeedtheCommission’sworkonthepackage,whichwillbeadoptedinlate2021.11Availablehere:https://ec.europa.eu/info/law/better-regulation/have-your-say/initiatives/12911-Gas-networks-revision-of-EU-rules-on-market-access_en.IPOLPolicyDepartmentforEconomic,ScientificandQualityofLifePoliciesPE695.469182.HIGHLEVELSCENARIOSFORCOAL,METHANEANDHYDROGENDEMAND2.1.TotalEUenergyconsumptionpathwaysupto2050Futurerequirementsforinfrastructureandregulationdependonhowmuchofeachfuel(coal,methaneandhydrogen)willbeconsumedineachsector.ThesedemandswillchangedrasticallyasEuropedecarbonisesoverthenextthreedecades,buttheend-positionisveryuncertain.Coalwillhavetobephasedout.Thesameholdsforlargevolumesofnaturalgas.Somenaturalgasmaypotentiallybereplacedbyothermethanesources,suchasbio-methaneorsyntheticmethane,orhaveitsemissionscaptured.Finally,hydrogenmightemergeasanewenergycarrier.Alargeshareofenergydemandtodayarisesinthetransportationsectorandiscoveredbyoilandoilproducts.Thetransportationsectorisonlyindirectlycoveredbythisstudyassyntheticfuels(includinghydrogen)orelectricitymightreplaceoilproductsasdecarbonizedfuelalternatives.Moreover,differentMemberStatesmightadoptdifferentroutes–increasinguncertaintyevenmore.Notwithstandingthis,presentfueldemand,existinginfrastructureandcurrentnationalandEuropeanplans(especiallyfortheperiodupto2030)arestillvaluableindicatorsofthefuture.InthischapterweexploreEuropeanandnationalprojectionsforsectoralfueldemandupto2030(and,ifavailable,2050).ThemainbasesaretheNationalEnergyandClimatePlans(NECPs)andoneofthescenariosbytheJointResearchCentre(JRC).TheJRCscenarioFF55MIXunderpinstheimpactassessmentaccompanyingtheEC’s-55%by2030proposal,andisbasedonexpandingcarbonpricingcombinedwithintroductionofotherdecarbonisationpolicies.Comparisonallowsustooutlinenationaldifferencesinstartingpointsandtransitionandenablesustoidentifyinconsistenciesbetweennationalplans(which,accordingtotheCommission,fellshortofmeetingtheoldtargets)andtheEU-widescenario(thatimpliesmeetingthemoreambitiousnewtargets).2.1.1.Top-down:EUFinalenergyconsumption(FEC)intheEU27wasaround11,000TWhin201912.Morethan35%ofthisenergywasprovidedbyoil,withsignificantfurthersharesfromcoalandnaturalgas,and20%was12Throughoutthepaperweconsolidateallenergyreportednumbersintoterawatthours(TWh)toallowforcomparisonacrossscenariosandfuels.OneTWhisequalto86,000tonnesofoilequivalent(toe)or3,600terajoules(TJ).KEYFINDINGSThedecarbonisationpathwaysenvisagedbyMemberStatesintheirNationalEnergyandClimatePlans(NECPs)arenoticeablydifferenttothepathwaysmodelledbytheJRC.Inparticular,NECPsforeseehigherlevelsofenergyconsumptionin2030,highersharesoffossil-fuelcombustioninfinaldemand,andlowerlevelsofelectricity.Relativelyspeaking,alargershareoffinalenergyconsumptionliesinthetransportsectorinNECPscomparedtoJRC.ItislikelythatthisisdrivenbyslowerelectrificationoftransportinNECPs.TheconclusionsofthisanalysisarethatnationalplansandEUtop-downtargetsarenotyetaligned.AnequallystrongconclusionisthatthetransparencyandharmonisationofNECPdataneedstobeimproved.DecarbonisationofEnergy19PE695.469providedbyelectricity.Figure2-1representstheevolutionofFECfuelsharesfortheFF55scenariosin2030and2050.Therearesubstantialsignificantdropsinconsumptionoffossilfuelsandincreasesinproductionfromelectricity.Thereisagradualtransformationto2030,beforetransitiontoafuelmixvastlydifferentfromthatoftodayby2050.Figure2-1:JRCFinalEnergyConsumptionbyFuel(TWh)Note:EstimationsareourbestunderstandingofthenumbersreportedbyJRC13.Toourknowledge,nosetofcomprehensivefinalenergyconsumptionindicatorshaveyetbeenpublished.Internationalaviation,maritime,andnon-energyfuelusesarenotincludedinthefigure.Whilesomefuels,suchasoil,aredirectlyconsumed,theuseofelectricityfirstrequiresthetransformationofaseparateenergyinput,forexample,solar,windornaturalgas.InFigure2-2,weshowthechangingenergyinputsfortheproductionofelectricity,heat14andelectrically-derivedfuels(hydrogenandsynthetichydrocarbons).Themixshiftsfrombeingdominatedbyfossilfuelsin2019torenewablesourcesin2050.Thebigincreaseinenergyinputrequiredby2050arisesfromtheincreasinginvolvementofsynthetichydrocarbonsandhydrogeninfinalenergyconsumption.Togiveoneexample,toproducepigironfromironore,blastfurnacesarecurrentlyused.Muchofthecoalusedinthoseisnotcountedasenergyasthecarbonisnotusedtoheattheironbuttocatchtheoxidemolecules.Inthefuture,hydrogenmightdothis.Thehydrogenusedforthereductionofiron-oxideisnotcountedasenergy,buttheproductionofhydrogenfromelectricityiscountedasenergyusage.Hence,therewillappeartobeasignificantincreaseinenergyuse.13Seehttps://visitors-centre.jrc.ec.europa.eu/tools/energy_scenarios/app.html#today:EU27/today:EU27.14Heatreferstocentralheatandpowerunitsaswellasdistrictheating.02000400060008000100001200020192030(JRC)2050(JRC)ElectricityHeatHydrogenSynthetichydrocarbonsRenewablesPetroleumproductsNaturalGasSolidFossilFuelsIPOLPolicyDepartmentforEconomic,ScientificandQualityofLifePoliciesPE695.46920Figure2-2:JRCScenarios–Energyforelectricity,heatandderivedfuels(TWh)Source:https://visitors-centre.jrc.ec.europa.eu/tools/energy_scenarios/app.html#today:EU27/today:EU27.2.1.2.Bottom-up:MemberStatesBytheendof201915,MemberStateswererequiredtosubmittotheCommissiontheirNECPs,detailingtheirplansforthetransformationoftheirenergysystemsupto2030.TheNECPsweredrawnupbeforethedecisiontospeed-updecarbonisationwasconfirmed16.Theplanstypicallycontaintwosetsofestimations,onebasedonexistingmeasures(WEM),andonebasedonthepossibleinclusionofadditionalmeasures(WAM).WeconsolidatedataacrossNECPs,andcomparethemwithcentralisedscenariosdevelopedbytheJRC.Figure2-3showsthatJRCscenariosseelargerreductionsinfinalenergyconsumptionthanNECPs(onaverageabout-14%).Inotherwords,currentNECPsimplyapproximately20%higherfinalenergyconsumptionby2030thantheJRCscenarios,whicharecompliantwiththenewclimatetargets.15Thiswasthedeadline,althoughsomewerelate.16On11December2020;seehttps://www.bbc.com/news/world-europe-55273004.020004000600080001000012000201920302050NuclearCoal&WasteOilGasHydro&OceanBiofuelSolarWindGeothermal&AirDecarbonisationofEnergy21PE695.469Figure2-3:FinalEnergyConsumption(FEC)ProjectsNECPsandJRC2030(inTWh)Note:JRCdataforfinalenergyconsumptionbyMemberStateinthefitfor55scenarioareavailablehere:https://ec.europa.eu/energy/content/excel-files-mix-scenario_en.NECPnumbersarebycollationofrespectivecountrydocuments.ThepercentagesshowthereductionindemandforJRCscenariocomparedwithNECPexistingmeasures.TheNECPsforwhichcomparabledataareavailablediffernotonlyintotalfinalenergyconsumptionbutalsointhestructureofthefuelmix.UsingtheexamplesofGermany,Italy,PolandandSpain,ageneraltrendisrevealed.TheNECPsplanhigherlevelsoffossilfuel,andlowerlevelsofelectricity(Figure2-4).JRCscenariosalsoseehighersharesofrenewablesinFEC.21%20%14%24%23%4%14%11%9%17%11%27%13%12%10%19%7%-60%43%05001000150020002500GermanyFranceItalySpainPolandBelgiumRomaniaAustriaFinlandCzechiaHungaryGreeceDenmarkIrelandBulgariaSlovakiaCroatiaSloveniaLithuaniaLatviaEstoniaLuxembourgNECP(WithExistingMeasures)NECP(WithAdditionalMeasures)JRCFF55MixIPOLPolicyDepartmentforEconomic,ScientificandQualityofLifePoliciesPE695.46922ForGermany,theJRCscenariowouldseeanalmostcompletecoalphaseoutinFECalreadyby2030,whiletheNECPstillexpectsalmost100TWh.Fornaturalgas–ahotlydebatedfuelintheGermandebate17–thevaluesoftheJRCandtheGermanNECPcloselyalign(400TWh).Figure2-4:ComparisonofFECfuelshares:NECPsvsJRCNote:Thegraphshowsfinalenergyconsumption.Fossilfuelsincludessolidfossilfuels,petroleumproductsandnaturalgas.HeatandrenewablesreferstobiofuelsandtheuseofrenewablesinFECthatisnotfortheproductionofelectricity.ThesectoralcompositionofFECisalsoanareaofdivergence.Lowerfinalenergydemand,higherrenewablesandlowerfossilfuelsharesarepartiallyexplainedbydifferenttakesontransportsectordecarbonisation.ManyNECPsexpecttransportenergyconsumptiontobesignificantlyhigherintheircountryin2030thanassumedintheJRCscenario(700TWhvs450TWhforGermany,forexample).Thisislikelyduetolowerelectrificationoftransport,whichwouldimplyreducedFECgiventhegreaterefficienciesofelectrictransportcomparedtofossil-fuelledtransport.Hence,thereisnotyetaconsensusviewonhownationalenergyconsumptionwilldevelopupto2030,howfuelshareswilldevelopandwhichsectorswillswitchfuels.NECPsandtheJRCseesimilarrelativelevelsofdemandintheindustrialsector.Relativelyspeaking,levelsofconsumptionwillbehigherintheresidentialandtertiarysectorsforJRCscenarios(Figure2-5).17See,forexample,thediscussionoverNordStream2(https://www.cleanenergywire.org/factsheets/gas-pipeline-nord-stream-2-links-germany-russia-splits-europe).DecarbonisationofEnergy23PE695.469Figure2-5:ComparisonofFECsectorshares:NECPsvsJRCNote:Thenumbersarepercentagesofshowndataandnotquitetotaldemand.ThatisduetoinconsistenciesacrossNECPS.Forexample,fishingandagricultureareexcludedastheyarenotreporteduniformlyacrossthestudies.2.1.3.ResultNationalplansandEUtargetsarenotyetaligned.NECPsstillforeseemuchhigherlevelsoffinalenergydemand,andhighersharesoffossilfuelconsumptiontomeetthatdemand.TheydonotenvisagethelevelsofelectrificationasJRCmodelling.However,anequallystrongconclusionisthatthetransparencyandharmonisationofNECPdataneedstobeimproved.NECPsareaveryusefultooltobetterinformcoordinationofclimatepolicyacrossMemberStates.Currently,thedocumentsareofteninconsistentanddonotreportsimilarmetricsinatransparentmanner.2.2.EUenergyconsumptionpathwaysbysectorupto2050Beyondthefourcountriesconsideredabove,JRCmodellingalsoprovidesanindicativepathwayfortheevolutionofsectoralenergydemandintheEU(Figure2-6).Itisclearthatthebigreductionsinfinalenergyconsumption(FEC)willcomefromthetransportsector,largelyowingtoelectrification.TherearealsosizeablereductionsinbuildingsFEC,whilethereductionsinindustrydemandaremodestincomparison.IPOLPolicyDepartmentforEconomic,ScientificandQualityofLifePoliciesPE695.46924Figure2-6:JRCenergyscenarios,finalenergyconsumptionbysector(TWh)Note:OurinterpretationofthefiguresreportedbyJRC18.Non-energyuseofindustryisexcluded,andinternationalaviationandmaritimetoo.2.3.CornerscenariosModellingstudies,suchastheJRC’s,performscenarioanalysistoprovideinsightsintoavarietyoffuturepathways.Dependingontechnologicaldevelopments,consumerpreferencesandpoliticalchoices,therearearangeofpossiblenet-zeroscenarios.Thesecomprisedifferentlevelsofgrossproduction,energyefficiencyandfuelconsumption.Figure2-7:StylisedscenariologicSource:Authors’owndepiction.Thethreescenariosdifferinamultitudeoffactors.They-axisisnotsupposedtorepresentanyoneindividualvariablebutrathertherangeofvariableswhichdifferacrossscenarios.18https://visitors-centre.jrc.ec.europa.eu/tools/energy_scenarios/app.html#today:EU27/today:EU27.020004000600080001000012000201920302050transportbuildingsindustryDecarbonisationofEnergy25PE695.469Weexplorethree“cornerscenarios”whichassumeaplausiblepathwayforenergysystemevolutionwhenallindicatorsarebiasedtowardthedevelopmentofonefuel(Figure2-7).Thatis,ineach‘cornerscenario’wemakestrongassumptionsfortherespectivefuelstopenetrateenergysystems.Theyarenotintendedtobeoptimalpathways,butratherallowforthecomparisonofdifferentfuelsinextremescenarios.Weinvestigatethreesystems:oneofdeepelectrification,onereliantontheuseofhydrogenasafuel,andonesignificantlydependentontheuseof“greengases”.Table2-1providesanoverviewofeachscenario.Table2-1:KeyfeaturesofconsideredscenariosGreengasesHydrogenRenewableelectricityAll-electricworldGastransmissionanddistributioninfrastructureislargelydecommissioned[consumedwhereitisproduced]Hydrogenclusterswithveryconcentratedpipelinenetwork;somehydrogenstorageforelectricityseasonalstorageSignificantupgradingofEuropeantransmissionanddistributiongridHydrogenimportstofuelEUGastransmissionanddistributioninfrastructureislargelyrepurposed(i.e.,greengasisconsumedwhereitisproduced)MeshedEuropeantransmissioninfrastructureconnectedtoimportpointsandhydrogendistributiongridsinrepurposedmethanepipelines,hydrogenfuellingstationinfrastructureElectricitydistributiononlystrengthenedwherenohydrogenisavailable,ElectricitytransmissionmodestlystrengthenedGreengasesinoldpipelinesGastransmissionanddistributioninfrastructureislargelymaintainedandusedbygreenmethaneHydrogenclusterswithveryconcentratedpipelinenetworks;somehydrogenstorageforseasonalelectricitystorageElectricitydistributiononlystrengthenedwherenomethaneisavailable;electricitytransmissionmodestlystrengthenedSource:Authors’ownelaboration.2.3.1.All-electricworldInthisscenario,theoverwhelmingshareofend-usedemandshiftstoelectrification.Thisinvolvesalmostallroadtransport,aswellassharesofwaterandairtransport,alargeshareofbuildingsdemand,andwherepossibleindustrialcases.Thisresultsinhugeincreasesinaverageandpeakelectricitydemand.Largevolumesofrenewableelectricitygenerationwouldneedtobedeployedannually,andsignificantinvestmentinthecapacityandresilienceofelectricitygridswouldberequired.Moreover,sourcesofseasonalandshort-termflexibilitywouldneedtobedevelopedtoensurethatelectricitygridscanmeetdemandatalltimes.Finally,end-usesectorsneedtoinvestinelectrificationequipment.Inthisscenario,hydrogenplaysanicheroleintheenergysystem(andnon-energy)forsomeparticularusecases.Syntheticgaseswouldhaveanevenmorelimitedrole.IPOLPolicyDepartmentforEconomic,ScientificandQualityofLifePoliciesPE695.469262.3.2.HydrogenimportstofueltheEUInthisscenario,hydrogenemergestobecomeasignificantfuelintheEUenergymix.Hydrogenwouldbeusedtopowerasignificantshareoftransport,industrialusecasesandbuildingsdemand.Domestically,hydrogenwouldbeusedatlarge-scaletobalanceseasonaldemandforrenewably-poweredelectricitygrids.Thisscenariowouldrequirecoordinatedinfrastructureinvestmentstoretrofitnaturalgaspipelinestocarryhydrogen,andtheconstructionofnewhydrogenpipelines.Additionally,ifhydrogendemandacceleratesrapidly,itisunlikelythatproductionwithintheEUwillbesufficient.ProductionwithintheEUwouldplacesignificantstrainsonelectricitygrids(assumingthatmethane-derivedhydrogenisnotfeasibleby2050).Inthiscase,theEUwouldneedtoimportsignificantvolumesofhydrogenfromneighbouring,andrenewably-attractivecountries.2.3.3.GreengasesinexistingpipelinesThisscenarioinvolvestheuseofexistingnaturalgasgrids.Today’snaturalgaswouldbereplacedbylow-carbonalternatives:syntheticgasesandbiogases.Syntheticgasesinvolvesomecombinationofindustrialprocessestorecreatethenaturallyoccurringfossilgasesconsumedtoday(theinputtedCO2isremovedfromelsewheretheoreticallyleadingtonet-zeroemissions).Biogasesareproducedfromthebreakdownoforganicmatter.Suchgasescanbeusedinexistingnaturalgasgridsandsotransmission/distributioninfrastructurecostswouldnotbelarge.However,theproductionofsuchgaseswouldbehighlyenergy-intensiveandexpensive.Inthisscenario,significantsharesofresidentialandindustrialusecaseswouldremainonthegasgrid.Syntheticliquidfuelswouldalsoplaysomeroleindecarbonisingthetransportationsector19.19Fortheremainderofthepaper,wewillrefertothethreescenariosas“all-electricworld”’,“hydrogenimport”and“greengases”,respectively.DecarbonisationofEnergy27PE695.4693.PHASINGOUTCOALINEUROPEThereisnowawidespreadunderstandingthatendingtheuseofcoalinEurope’senergysectoriscrucialinordertoachievequickandsubstantialGHGemissionreductions.Althoughtheshareofcoal(ligniteandhardcoal)inelectricitygenerationintheEUalreadydecreasedsubstantially,from31%in2000to14%in2019,arelativelysmallnumberofcoal-firedpowerplantsarestillresponsibleforsizableGHGemissions.AseriesofEUETSreformsthatledtosubstantiallyhigherCO2pricesandhaveworsenedtheeconomicsofcoalsince2018andhaveplayedanimportantroleinrecentreductionsincoaluse20.Inadditiontoeconomicforces,andaftermorethanadecadeoflowCO2prices,manyEUcountrieshavepresentedambitiousnationalplanstophaseoutcoalfromtheelectricitysector.NineEUMemberStatesarealready“coal-free”and11morewillshutalltheircoal-firedpowerplantsby2030.Usinganopen-sourcenumericalmodelling,weshowhowtheEU’sdemandforelectricitycanbemetwithouttheuseofcoal-firedpowerplants.Basedonthis,westresstheimportanceofacceleratingthedeploymentofrenewableenergysources.ManyoftheEUMemberStateswithlatecoalphase-outplanshavedomesticminingsectors.EUsupportforthetransitioninminingregionsusingtheJustTransitionMechanismeffectivelyprovidesadditionalincentivestotheseMemberStatestoadvancethecoalphase-out.20Atthepointofdraftingthereport,increasinggaspriceshavesomewhatreversedthattrendascoalpowerplantsbecamerelativelycheapercomparedtogaspowerplants.KEYFINDINGSTheuseofcoalintheelectricitysectorhastobephasedoutinordertoreachtheEU’sclimate-neutralitytarget.CoalisresponsibleforlessthanafifthoftheEU’selectricityandheatgenerationbutforhalfoftheassociatedgreenhousegasemissions.MostEUMemberStatesalreadyhavenationalphase-outpolicies,usuallywithaphase-outscheduleforcoal-firedpowerplantsandaterminaldate.OnlyafewMemberStatesinCentralandEasternEuropedonothaveanenddateorhaveaverylateenddateforphasingouttheirnationalcoal-firedelectricity.Resultsfromourelectricitysectormodelshowhowthefuturesystemmightlooklikewithoutcoal-firedpowerplants.Ensuringasubstantiallyincreasingspeedofrenewableexpansioninthecoalcountriesiscrucial.EUpoliciessuchasstringentCO2emissiontargets(EUETS),otherpollutiontargetsandmethaneregulationcomplementnationalphase-outpoliciesbyprovidingadditionaleconomicrationale.EUsupportforcoal-miningregionsintheframeworkoftheJustTransitionMechanismfurtherhelpsaffectedcoalcountriestoengageintheclimatefriendlytransition.WhilethetotalnumberofemployeesinEUcoalminingissmall,miningregionsmaystronglydependoncoalandneedsupporttore-orienttheireconomies.IPOLPolicyDepartmentforEconomic,ScientificandQualityofLifePoliciesPE695.469283.1.StatusquoofcoalusetodayTheuseofcoal21intheEUhasdecreasedenormouslyinthelastfewdecades22.Since1990,theshareofcoalintheenergysupply23ofthe27EUMemberStateshasmorethanhalvedbothinabsolutenumbers(from4900TWhin1990to2200TWhin2019)andrelativeterms.Comparedto24%oftheenergysupplyrelyingoncoalin1990,coalwasonlyresponsiblefor10%in2019(Figure3-1).However,coal’sshareinenergysupplyvariesacrosstheMemberStates:sevencountriesinCentralandEasternEurope–Poland,Czechia,Bulgaria,Germany,Slovakia,Romania,Slovenia–stillrelystronglyoncoal,whichprovidesmorethan10%oftheirprimaryenergysupply(Figure3-2).Mostly,thisdependenceoncoalcoincideswithstrongusageofcoalintheelectricityandheatsector.Inallofthesecountries,coalisalsomineddomestically,i.e.,thecoalsectoralsocontributestonationalemploymentandGrossDomesticProduct(GDP)morethanincountriesthatrelyexclusivelyonimportedcoal24.Figure3-1:CoalinenergysupplyovertimeFigure3-2:Shareofcoalinenergysupplyin2019Source:Authors’owncalculationsbasedonEurostat(databasengr_bal_c).WithrespecttotheoriginofthecoalusedintheEU,therearesignificantdifferencesbetweenthetypeofcoal25.Ligniteistypicallyused‘mine-mouth’,i.e.,closetotheextraction(production)site.Hence,alloftheligniteconsumedintheEUisproducedintheEU.21Throughoutthischapter,theterm“coal”compriseshardcoalandlignite(alsocalledbrowncoal)alike/together.Ifoneofthesubcategoriesismeantspecifically,wementionit.22Inthissection,wediscusstheentiretyofcoaluse,i.e.,inpowergenerationandindustry,unlessindicatedotherwise.23Energysupplyisdefinedasthesumofprimaryproduction,recoveredandrecycledproductsandimports.24CoalminingstilltakesplaceinthefollowingEUMemberStates:Bulgaria,Czechia,Germany,Greece,Hungary,Poland,Romania,SloveniaandSlovakia.25BasedontypicalEuropeancoalstatistics,wedifferentiatebetweenlignite,hardcoalandcoalproducts.Lignitecontainsalsosmallquantitiesofsub-bituminouscoal.Hardcoalcomprisespredominately“(other)bituminouscoal”(thatisoftencalledsteamcoalorthermalcoalintheinternationalmarket)aswellascokingcoalandanthracite.Coalproductsemergefromtheprocessingofcoalandincludebrowncoalbriquettes,patentfuels,cokeovencoke,gascoke,andcoaltar.01.0002.0003.0004.0005.0006.0000%5%10%15%20%25%19901997200420112018ShareofcoalinenergysupplyTotalinputofcoalinTWh0%0%1%1%1%1%1%3%3%3%3%3%3%4%4%5%5%5%6%7%10%11%12%13%16%22%32%44%0%10%20%30%40%50%MaltaEstoniaLatviaCyprusLuxembourgLithuaniaIrelandFranceNetherlandsSwedenBelgiumSpainItalyCroatiaDenmarkPortugalFinlandHungaryAustriaGreeceEU27SloveniaRomaniaSlovakiaGermanyBulgariaCzechiaPolandNote:Basisforthesharecalculationisimports+productionDecarbonisationofEnergy29PE695.469Incontrast,68%ofthehardcoalconsumedintheEUisimported.OnlyPolandstillhassignificantdomesticextractionofhardcoal,representing94%ofthehard-coalextractionintheEU.Mostofthesteam(thermal)coalisimportedfromRussia,Colombia,theUnitedStatesandSouthAfrica.Cokingcoal,whichisaboutonethirdoftotalhard-coalimportstotheEU,isprimarilyimportedfromAustralia,RussiaandtheUS(IEA,2019a).Ligniteispredominantlyusedinthepowersectortogenerateelectricity(65%oftheconsumedlignite)andheatandelectricitycombined(24%)(Figure3-3).Mostoftheremainingligniteistransformedintobrowncoalbriquettes.Amajorpartofthehardcoal(44%)servesasaninputforthegenerationofheatandelectricity,andalmostthesamefractionisusedinindustrialprocesses.Inindustry,hardcoalisusedbothforprocessheatgenerationandalsoasfeedstock,inparticularintheproductionofcoke-ovencokeandblastfurnacegasfortheironandsteelindustry.Figure3-3:UsageofcoalSource:Authors’owncalculationsbasedonEurostat(databasengr_bal_c).Remainingusageofcoaltoaddupto100%arestatisticaldifferences,energysectorusageandchangesinstock3.1.1.PowersectorandheatgenerationMostofthecoalburnedintheEUisusedtogenerateelectricityandheat(Figure3-3)26.Inparalleltoitsshrinkingroleinthetotalenergysupply,theshareofcoalinthegenerationofelectricityandheathasalsodecreasedinthelastfewdecades.Whilein1990around35%ofgrosselectricitywasgeneratedbycoal,thissharehaddroppedto15%by2019.Heatsupplysawasimilardecouplingfromcoal.However,thespeedofreductionhassloweddowninrecentyears,andaround22%ofheatin2019wasstillsuppliedbycoal.Whilehardcoalandligniteareequallyusedinelectricity,hardcoalisthemaincoaltypeinthegenerationofheat.Althoughcoalhasbecomemarkedlylessimportant,itisstillavitalforsomeMemberStates’electricitysystems.In2019,insevenEUMemberStates(Poland,Czechia,Bulgaria,Germany,Slovenia,GreeceandRomania)morethan20%oftotalelectricitywasstillproducedfromcoal(Figure3.4).Whilemostofthesecountriesrelyonburningdomesticlignite,Polanduseslargequantitiesofhardcoal,alsomineddomestically,forelectricityproduction.Inadditiontothesevenheavycoal-usingMemberStates,anothertwelveMemberStatesusecoal(usuallyimportedhardcoal)insmallquantitiesintheirelectricitymixes.26Sincethepredominantpartofheatsupplyderivedfromcoalisproducedbycombinedheatandelectricityplants,thissectioncoverstheroleofcoalinthepowerandheatingsectorjointly.8%15%2%33%41%7%23%22%24%35%20%65%0%10%20%30%40%50%60%70%80%90%100%TotalHardCoalLigniteElectricityonlyCombinedheatandelectricityHeatonlyIndustryOtherIPOLPolicyDepartmentforEconomic,ScientificandQualityofLifePoliciesPE695.46930Figure3-4:Shareofcoal(hardcoalandlignite)indomesticgrosselectricityproductionin2019(in%)Source:Authors’owncalculationsbasedonEurostat(datasetngr_bal_peh).Withrespecttoheat(spaceheatingandindustrialheat),theEUpictureisevenmorevariable.WhilemostEUcountriesproduceheatfromotherfossilfuels(naturalgas,oil/oilproducts)orrenewablesources,afewMemberStatesrelyheavilyoncoal:Greece,Poland,Czechia,Slovenia,GermanyandSlovakiaproducemorethan20%oftheirheatfromcoal.Greeceproducesalmost100%ofitsheatfromlignite,Poland76%fromhardcoal,whileCzechiaandSloveniabothhavesharesofaround50%(mostlyusinglignite)(Figure3-5).Figure3-5:Shareofcoal(hardcoalandlignite)indomesticgrossheatgenerationin2019(in%)Source:Authors’owncalculationsbasedonEurostat(ngr_bal_peh).ThesefiguresshowthatthechallengeofphasingoutcoalintheEUisfocusedonasmallnumberofMemberStates.ForaroundtwothirdsoftheMemberStates,coalplaysonlyaminorroleinelectricityandheatgeneration.However,thecoal-dependentcountriesrelyheavilyonitandonseverallevels:electricitygeneration,spaceheatingandindustrialuse,aswellasdomesticminingandemployment.0%20%40%60%80%100%PolandCzechiaBulgariaGermanySloveniaGreeceRomaniaEU27NetherlandsCroatiaHungaryDenmarkPortugalSlovakiaItalyFinlandSpainAustriaIrelandFranceSwedenBelgiumLatviaCyprusEstoniaLithuaniaLuxembourgMaltaHardCoalLigniteCoalproductsOtherfossilsOther(non-fossil,non-renewable)Renewablesandbiofuels0%20%40%60%80%100%GreecePolandCzechiaSloveniaGermanySlovakiaEU27RomaniaFinlandBulgariaDenmarkAustriaFranceNetherlandsSwedenHungaryItalyLatviaLithuaniaBelgiumCroatiaCyprusEstoniaLuxembourgMaltaPortugalIrelandSpainHardCoalLigniteCoalproductsOtherfossilsOther(non-fossil,non-renewable)RenewablesandbiofuelsDecarbonisationofEnergy31PE695.4693.1.2.CoaluseinindustryandothersectorsAsFigure3-3shows,asubstantialshareofhardcoalisusedinindustrialprocesses.Whileinthepowerandheatingsector,steamcoal(thermalcoal)isthepredominanttypeofcoal,cokingcoalplaysakeyroleinindustrialprocesses.Almost70%oftheindustrialhardcoalconsumediscokingcoal,whichservespredominatelyasaninputforcokeovensinthesteelindustry.TheusageofhardcoalforsteelproductionismainlypresentinGermany,followedbytheNetherlands,PolandandSlovakia.Whilewedonotfocusontheuseofcoalinindustryinthisreport,decarbonisationofindustrialdemandisanothermajorchallenge(see,e.g.,Batailleetal,2018).Ofcourse,therequirementtodecarbonisetheenergyinputasmuchaspossibleinordertomeettheEU’sclimateneutralitytargetalsoincludestheenergyusedinsteelproductionandotherindustry.Forthesteelsectorspecifically–themostimportantcoalconsumingindustrialsector–technologydevelopmentisongoingtoreplacetraditionalprocesseswithprocessesthatusehydrogen(seeChapter5).Coaluseinothersectorsisverysmall.Privatehouseholdsconsumearound77TWhofcoalintheEU,othersectorsevenless:agriculture(9TWh),services(8TWh),fishingandrailtransport(1TWh).Inmanyofthesesectors,coalcanbereplacedbyelectricityorby(green)gas.3.1.3.Greenhousegasemissionsfromcoala.CO2emissionsCoal,especiallylignite,isoneofthemostCO2-emittingfossilfuelsusedtogenerateelectricity.Togenerate1MWhofelectricity,emissionsfromlignitearearound1,000kgCO2,whileemissionsfromhardcoalarearound750kgCO2.Togeneratethesameamountofelectricity,emissionsfromburningnaturalgasareonly350-500kgCO2–lessthanhalfthanlignite27.Consequently,coalisresponsibleforlessthanafifthoftheelectricityandheatgeneratedintheEU,butforhalfoftheemissionsfromtheelectricityandheatsector.Figure3-6:ShareofcoalinemissionsandelectricityandheatproductionSource:Authors’owncalculationsbasedonEurostat(ngr_bal_peh)&EUCRFTablesreportedtoUNFCCC(at:https://www.eea.europa.eu/ds_resolveuid/550712a8ce11432ab2cb7f0143ac478e).Renewablesarewithoutbiomassandrenewableswaste;biomassincludesrenewableswaste;Otherfossilfuelsincludesnon-renewablewaste.27DataoncarboncontentistakenfromKunzetal.(2017),dataonthermalefficiencycomesfromSchröderetal.(2013).Coal;17%Coal;50%Gas;24%Gas;25%Oil;2%Oil;2%Nuclear;22%Nuclear;0%Biomass;10%Biomass;19%Renewables;24%Renewables;0%0%10%20%30%40%50%60%70%80%90%100%ShareinelectricityandheatproductionShareinemissionsCoalGasOilOtherfossilfuelsNuclearBiomassRenewablesIPOLPolicyDepartmentforEconomic,ScientificandQualityofLifePoliciesPE695.46932InlinewiththereduceduseofcoalintheEuropeanenergysystem,CO2emissionsfromsolidfossilfuels28havedecreasedovertime.Comparedto1990,theCO2releasedfromsolidfossilfuelsdecreasedby65%fromalmost1700Mttobelow750Mtin2019.Despitethelong-termdecrease,CO2emissionsfromsolidfossilfuelsarestillresponsiblefor20%ofthetotalGHGemissionsoftheEUMemberStates.Similarly,tothedifferenceinthedependenceoncoaloftheenergysupply,CO2emissionsfromtheuseofcoalvarystronglyacrossMemberStates.Thus,GermanyandPolandtogetheremitmorethan50%oftheCO2fromsolidfossilfuelsintheEU.Thesixlargestemitters29ofCO2fromsolidfossilfueluseareresponsibleformorethan75%oftheseemissions,andthe14largestfor94%oftheseCO2emissions.AlthoughtheEUETSreformin2018andtheincreasingCO2pricethereafterreducedtheeconomicviabilityofcoal(section3.2.1),phasingoutcoalwillbecentraltothereductionofEU’sgreenhousegasemissions.b.MethaneemissionsInthelastdecade,globalenvironmentalresearchhasincreasinglyaddressedmethane(CH4)emissionsandtheirgreenhousegaseffect(UNEP,2021).Itisnowclearthattheenvironmentallyharmfuleffectofmethane–itsso-calledglobalwarmingpotential(GWP)–issubstantiallyhigherthantheGWPofCO2.Inparticularintheshortrun(within20years),theGWPofmethaneis81timesgreaterthanthatofCO2(IPCC,2021).Over100years,themethaneGWPisstill28timesgreaterthanthatofCO2.Inotherwords,thereleaseofmethanehasanenormousimpactonglobalwarmingintheveryshortrun–aneffectwhichwasunderestimateduntilrecentlyandhashardlybeenaddressedinenvironmentalandclimatepolicy30.Forexample,despitebeingagreenhousegasandoneoftheso-calledKyotogasesofwhichemissionsarereportedtotheUNFCCC,methaneisnotregulatedbytheEUETS31.Thefocusofongoingpolicymakingisonaddressingmethaneemissionsfromagriculture,wastefacilities,andtheoilandgassector(seesection4).However,methaneemissionscanalsooccurinthecoalsectorwheretheyhavetraditionallybeentreatedprimarilyasasecurityriskinmining.Fugitivemethaneemissionsfromsolidfuels(i.e.,coal)intheEU27areevenslightlygreaterthanallthefugitiveemissionsfromoilandnaturalgas.AccordingtoUNFCCCdata,theyrepresentabout6%oftotalEU27methaneemissions,andabout36%ofallmethaneemissionsfromtheenergysector32.Thisisabout1.8%oftheEU27totalgreenhousegasemissions(seeAppendixA1formoredetails).Methaneemissionsfromthesolidfuelsectorhavedeclinedbytwo-thirdssince1990–whentheywereresponsibleforalmosthalfofallmethaneemissions–inlinewiththedecreasingroleofcoaloverthesametimeperiod.However,thedecreasingtrendoffugitivemethaneemissionsfromsolidfuelshasslowedsincethelate2000s.Thisreflectsthefactthatmethaneleakagedoesnothappeninthesamewayatallcoalproductionsites,butdependsonthegeology(methanecontent)ofthecoaldeposits.MostmethaneemissionsintheEU’scoalsectorcomefromPolishundergroundcoalmines(KasprzakandJones,2020).28Thecategory‘solidfossilfuels’usedinemissionstatisticscompriseshardcoal,ligniteaswellascoalproductssuchascokeovencokeorcoalbriquettes.Inadditiontocoal,itincludespeatandoilshalesandsands,whichallhaveaverysmallroleintheEU.29Germany,Poland,CzechRepublic,Italy,FranceandtheNetherlands.30Inaddition,methanehasanenvironmentalimpactbecauseitcontributestotheproductionofozone,whichisalsoapotentairpollutant.31ThereisastructuraldifferencebetweenCO2emissionsascoveredintheEUETSandfugitivemethaneemissions.TheEUETSaddressespointemissionsources,whilefugitivemethaneemissionsoftenarisealongtheinfrastructurechainandcannotalwaysbeattributedtoonesingleemissionlocation.32AccordingtoUNFCCCdata,fugitivemethaneemissionsfromthecoalsectorintheEUareabout3%(1%)thelevelofCO2emissionsintheEUiftheshort-termGWPof81(thelong-termGWPof27)isusedforcalculatingthemethaneemissions’CO2equivalent.DecarbonisationofEnergy33PE695.469UnlikeotherEUMemberStates,Polandhascontinuedtoproduceandusecoalinlargeamounts,andhasthuscontinuedtoemitfugitivemethanefromsolidfuels.However,fugitivemethaneemissionsalsoarisefromabandonedcoalminesandrequiremonitoringandfurtheractions(OlczakandPiebalgs,2021).3.2.TheeffectsofEuropeanenvironmentalpoliciesoncoal3.2.1.EUETSFormanyyearsaftertheestablishmentoftheEUETSin2005,theCO2priceremainedtoolowanddidnotprovideagreatenoughincentivetocrowd-outtheuseofcoalintheEU33.Onthecontrary,thelowCO2priceratherprovidedanincentivetousecoal,whiledisincentivisingtheuseofnaturalgas.Moreover,freeallowancesfromthenewentrantsreserveinthe2000sprovidedincentivestobuildnewcoalplants,suchasHamburg-MoorburginGermany(Pahle,2010).Sincethe2018EUETSreform,theEuropeanCO2allowancepricehasrisensubstantially:fromwellbelow€10/tCO2untilearly2018,toapricearound€25/tCO2in2019andevenabove€60/tCO2inSeptember202134.Thishasaffectedtheeconomicsofcoalincomparisonwithnaturalgasandotherlow-carbon/no-carbonelectricitygenerationoptions.Theswitchingpriceisthepriceatwhichitiseconomicallyattractivetochange(switch)fromcoal-firedpowergenerationtonaturalgas-firedpowergeneration35.IthasbeenexceededbytheCO2pricesince2019,atleastwhencomparingolder,lessefficientcoalpowerplantstomodern,efficientnaturalgaspowerplants(figure3-7,lightgreyline)36.Eventhoughligniteismorecarbon-intensivethanhardcoal,itsverylowproductionandtransportcostsmakeitlesssensitivetoanincreasingCO2price.Therefore,itisestimatedthatphasing-outligniteoneconomicgroundsrequiresanevenhigherCO2pricethanseeninthelastthreeyears.Figure3-7:EUETSCO2priceandtwohypotheticalfuelswitchingprices(2010-2019)Source:Marcuetal.(2019)33Inthissection,wefocusoncoalintheelectricitysector.34QuotedpricesareEUAllowanceprices.35TheswitchingpricetakesintoaccounttheaggregatedcostsofgeneratingelectricityandindicatesatwhichCO2pricelevelgeneratingfromeithercoalornaturalgashasequalcosts.AbovethisCO2pricelevel,itismoreeconomictoswitchtoelectricitygenerationfromnaturalgas.Thecostsincludedinthecalculationarethefuelprices(coalornaturalgas),theoperationalcostsandefficienciesofthepowerplants(i.e.,howmuchelectricitycanbeproducedfromtheinputfuel),aswellastheCO2pricewhichisproportionaltothefuelinput.Inaninefficientplant(i.e.,withlowerthermalefficiency),morefuelneedstobeusedwhichthereforeleadstohigherCO2emissionsandhigherexpendituresforCO2allowancesthanamoreefficientplant(i.e.,withhigherthermalefficiency).36Thedarkgreylineshowstheswitchingpricebetweenamoreefficientcoal-firedpowerplantandalessefficientnaturalgas-firedplant.IPOLPolicyDepartmentforEconomic,ScientificandQualityofLifePoliciesPE695.46934Figure3-8:Baseload(a)andpeakload(b)spreadsforcoalfiredelectricityplants(darkspreads),includingtheCO2price(cleandarkspread),inGermany2013-2021a)DarkSpreadsBASELOADb)DarkSpreadsPEAKLOADSource:EnergieInformationsdienst.Notes:NCGgasprices.Here,representativepowerplantshaverepresentativeefficiencyratesof49%(naturalgasfiredpowerplant)and38%(hardcoalfiredpowerplant.Darkspreadsarecalculatedasdifferencebetweentheelectricitypriceandthecoalprice.ForCleandarkspreadstheCO2emissionallowancepriceofthesamedayisfurthersubtracted.-40,00-30,00-20,00-10,000,0010,0020,0030,0040,0050,0060,00€/MWhDarkSpreadbaseCleanDarkSpreadbaseCoalplantsareunprofitableduetocarbonprices-20,00-10,000,0010,0020,0030,0040,0050,0060,0070,00€/MWhDarkSpreadpeakCleanDarkSpreadpeakDifferencebetweenthespreadsrepresentstheCO2allowancepriceDecarbonisationofEnergy35PE695.469ThelongperiodoflowCO2pricesandfavourablemarketconditionsforcoalcanalsobeobservedinthecleandarkspreadsshowninFigure3-8.Thecleandarkspreadisastandardindicatorusedinenergytradingwhichshowsthestylisedgrossprofitsforarepresentativecoalpowerplant(“dark”)37.Morepreciselyit’sthedifference(“spread”)betweentheelectricityprice(i.e.,therevenueofthepowerplantoperator)andthesimplifiedcostsincurredbythepowerplantoperatorwhicharemadeupbyfuel(coal)priceandtheCO2emissionallowanceprice(“clean”).Allothercosts(maintenance,staff,capitalcosts,etc.)areignoredbytheindicatorandmustbecoveredbythespread.TheindicatorwithouttheCO2pricecostiscalledthe“darkspread”andisalsoshowninFigure3-8.Until2018,thecleandarkspread(greyline)wasalwayspositive,meaningthatcoalpowerplantoperatorsearnedapositiveprofit.Onlysince2019hasthecleandarkspreadbecomenegative,becauseofthecontinuousriseoftheCO2price.Thegapbetweenthedarkspread(electricitypriceminuscoalprice)andthecleandarkspread(electricitypriceminuscoalpriceminusCO2price)showstheeffectoftheCO2price.Thisgaphaswidenedsubstantiallysince2019andevenmoresince2020.Thebroadtrendshavebeenthesameforbaseloadandpeakloadhours38.However,inpeakdemandperiods,evenveryrecentlywhenCO2priceswereabove€60/tCO2,thecleandarkspreadwasstillpositivebecausethepeakelectricitypricewashigherthanthecombinedfuelandCO2costs.ThisshowsthatafurtherriseofCO2priceswouldberequiredtoeffectivelyphaseoutcoalduringalltimeperiods.ThelowEUETSpricelevelinthepreviousdecade–consistentlybelow€10/tCO2betweenend2011andearly2018–stoppedcarbonpricingfromhavinganeffectiveimpactonelectricitygenerationfromcoal,bothinshort-rundispatchandlong-terminvestmentdecisions.Inthisenvironment,manyEUMemberStatesfavouredalternativepoliciestoreducetheroleofcoalsuchasregulatedphase-outpolicies.However,thesephase-outpolicieshavesomedisadvantagescomparedtoprice-basedmechanisms.First,theycontrolemissionsonlyindirectlybylimitingtheinstalledcapacityinsteadoftheactualgenerationofelectricityfromfossilfuels.Second,theyleadtocompensationpaymentstoplantowners,whereasaprice-basedmechanismallocatesthecoststothepollutingunits.ApartfromtheEUETS,suchaprice-basedinstrumentcouldbeimplementedbyMemberStatesindividuallythrough,forexample,nationalcarbonpricefloors,i.e.,aminimumpriceoncarbonemissions(e.g.,Oeietal,2015).ForGermany,apriceofaround€34/tCO2wouldbesufficienttoreachthe2030climatetargetwhereasthecurrentcoalphase-outschedulemissesthistarget(Osorioetal,2020).ThehigherCO2pricelevelsince2018,inturn,haseffectivelydeterioratedtheeconomicsofcoalpowerintheEU.Forexample,itislikelytohavecontributedtothehighparticipationratesintheGermanhard-coalphase-outauctionsin2020and2021,inwhichevenrecentlyopened,modernandhighlyefficienthard-coalpowerplantssuchasHamburg-Moorburg(openedin2015)bidtostopoperationsforabonuspayment39.TheCO2priceisprojectedtoincreasefurtherwiththetighteningoftheEUETScapenvisionedintheEC’s‘Fitfor55’package.Someanalystsarguethatthiswillleadtoanalmostentirecoalphase-outby2030(e.g.,Pietzckeretal,2021),whichwouldbeinlinewiththeParisAgreement(ClimateAnalytics,2017).37Spreadindicatorsalsoexistforothertypesofpowerplants:naturalgas(“sparkspread”),nuclear(“quarkspread”),biomass(“barkspread”).Onlyforcoal-firedpowerplants,itiscalled“darkspread”.38Peakloadisaperiodofveryhighdemandwhenelectricitypricesareusuallyhigh(higherthanduringbaseloadtime).39TheGermanregulatorBundesnetzagenturprovidesalistofcoal-firedinstallationsthatsuccessfullybidforbonuspaymentsiftheycloseearly(inGerman),availableat:https://www.bundesnetzagentur.de/DE/Sachgebiete/ElektrizitaetundGas/Unternehmen_Institutionen/Kohleausstieg/start.html.IPOLPolicyDepartmentforEconomic,ScientificandQualityofLifePoliciesPE695.46936Lastly,fortheEUETStomaintainahighpricelevel,itisessentialthattheemissionrightsofclosedcoal-firedpowerplantsarecancelledandnottransferredbackintothemarkettootheremitters.Thishasbeenhighlightedby,forexample,Ankeetal(2020)andKelesandYilmaz(2020),andisapplied,forexample,intheGermancoalphase-outlaw40.3.2.2.OtherpollutionlimitsReplacingtheLargeCombustionPlantDirective(LCPD,inforceuntilend2015)41,theIndustrialEmissionsDirectiveregulatespollutionfromsulphurdioxide(SO2),nitrogenoxides(NOx),dustandavarietyofotherpollutants(e.g.,heavymetals)42.Forcoalandlignitecombustionplantsspecifically,italsoincludesrequirements,fromsummer2021,onthecontrolofmercuryemissions.WhileseveralMemberStatestemporarilyappliedforderogations43,theemissionlimitswillultimatelyforceoperatorstochoosebetweenpollution-reducingcostlyretrofitsoftheiroldplantsorspeedinguptheretirementoftheirplants.3.2.3.MethaneregulationMethaneemissionsfromthecoalsectorhavenotbeenregulatedsofar.However,forclimatereasonsandacknowledginglatestresearchfindings,methaneemissionsfromcoalmustbeincludedincurrentandfuturemethaneregulation.TheEChasproposedtoincludeitinitsmethanestrategyupdatefromwhichconcretepolicyproposalaredueattheendof202144.Giventheurgencyofreducingmethaneemissions,regulationshouldgobeyondestablishingstandardsformonitoring,reportingandverification(MRV).InordertoachievetheEUclimateneutralitytarget,methaneemissionsshouldbecappedassoonaspossibleandapolicytoreducetheemissionsintroduced.Suchapolicycould,forexample,followtheexampleoftheEUETSwithamethanecap-and-tradesystem,orintegratemethaneintotheEUETS,ortakeadifferentapproach,suchascappingmethaneintensitiesof(coal)productionunits.3.3.Statusquoofnationalcoalphase-outpoliciesCoalphase-outdecisionsprovideasignalaboutclimatepolicycredibilitytothemarketandtheinternationalpolicycommunity,whichisonemajorreasonwhymanyEUMemberStateshaveadoptedthem.Manycountriesaroundtheworldhavetakenthisdecision–severalofthemaspartofthePoweringPastCoalAlliance–underpressurefromcivilsocietythatdoesnotwanttowaittoseecross-sectoralpolicies,suchasCO2emissioncaps,totacklecoal-firedpowergenerationeffectively.Phasingoutcoalgenerationhasthebenefitofalsoeffectivelyaddressingotherexternalitiesandchallengesrelatedtocoal-firedcombustionandcoalmining,suchaspollutionandrelatedhealtheffects,andlanddegradation.Thecontinuouscostreductionofrenewablesinthelasttwodecadesisonefactorthathasconvincednationalpoliticaldecision-makersandotherstakeholdersthatcoalphase-outswouldbeachievableinmanyEUMemberStates.40DetailsontheGermanfederalcoalexitlaw(s)availableat:https://www.bmwi.de/Redaktion/DE/Artikel/Service/kohleausstiegsgesetz.html(inGerman).41Directive2001/80/EConthelimitationofemissionsofcertainpollutantsintotheairfromlargecombustionplants(theLCPDirective),replacingDirective88/609/EEConlargecombustionplantsasamendedbyDirective94/66/EC.42Directive2010/75/EUoftheEuropeanParliamentandoftheCouncilof24November2010onindustrialemissions(integratedpollutionpreventionandcontrol).Availableat:https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:32010L0075.43Seehttps://eeb.org/four-years-of-unnecessary-pollution-eu-governments-fail-to-curb-emissions-from-most-toxic-plants/.44COM(2020)663finalonanEUstrategytoreducemethaneemissions.DecarbonisationofEnergy37PE695.469Thecurrentstatusofnationalcoalphase-outdecisionsvariesacrossEUMemberStates(Figure3-9).Insomecases,coalplayedlittleroleintheenergyandelectricitymixforvariousreasons,e.g.,becauseoflocalnon-availability(e.g.,intheBalticsandontheMediterraneanislands).Insomecases,oldcoalpowerplantswerequiteeasilyreplacedwithdomesticallyavailableenergysources(e.g.,Austria,Belgium).Thesituationisverydynamicandtherehavebeensomerecentadditionalcommitmentsto–relatively–earlycoalphase-outsintheprocessofdecidingonNationalResilienceandRecoveryPlans(NRRP)asaresponsetotheCOVID-19crisis,andwhereadditionalEUfundscanhelpsupporttheenergytransition(e.g.,Romania).Figure3-9:Coalphase-outstatusinEUMemberStatesasofSeptember2021Source:Authors’owndepiction.BlankmapfromBing(Microsoft).Numbersindicatetheinstalledcapacitiesofhardcoalandlignitepowerplantsin2020.PowerplantcapacitiesfromENTSO-ETransparencyPlatform(InstalledGenerationCapacityAggregated[14.1.A]),Availableat:https://transparency.entsoe.eu/generation/r2/installedGenerationCapacityAggregation/show.InPoland,discussionsonadvancingthecoalphase-outcommitment–ofwhichthecurrentdeadlineis2049–areongoing,andmoreandmoreindicatorspointtowardsaphase-outearlierthan2040.Mostimportantly,inJune2021,theoperatorPGEdecidedtoclosethelargestcoal-firedpowerplantBełchatówin2036,whichhastriggeredearlierphase-outplansfortheconnectedlignitemines45.ItisreportedthatthedecisionwasinfluencedbythewillingnesstoapplyforfundingfromtheEUJustTransitionFund46.However,economicfactors(veryhighextractioncosts,combinedwithlow–regulated–coalandelectricityprices)certainlyalsoplayanimportantrole.ThePolishgovernmenthasshownsignstobewillingtobailoutunprofitablecoalpowerplants,whichwouldnotbecompatiblewiththestate-aidrulesforenergyandenvironmentalprotection.45SeeinformationcollectedbytheGlobalEnergyMonitorandmade,availableathttps://www.gem.wiki/Belchatow_power_complex(lastvisitedonAugust1,2021).46SeethecompanyPGE’spressreleaseavailableat:https://www.gkpge.pl/Press-Center/press-releases/corporate/pge-group-just-transition-for-belchatow-region-becoming-a-fact(lastvisitedonAugust1,2021).PGEisastockcompany;morethan50%ofitssharesareheldbythePolishState(informationavailableat:https://www.gkpge.pl/Investor-Relations/Shares/Shareholders).IPOLPolicyDepartmentforEconomic,ScientificandQualityofLifePoliciesPE695.46938IntheCzechRepublic,amulti-stakeholdernationalcoalcommissionthathasdeliberatedsince2019suggestedinMay2021tosetafinalphase-outdateof2038,asinGermany.Yet,partsofthegovernmentrejectedthisdateandaskedforanalternativesuggestionwithanearlierphase-outdate47.ThenextgovernmentaftertheOctober2021electionsissupposedtotakethefinaldecision.Inthemeantime,oneofthetwocoalcompanies,thestate-ownedutilityCEZ,announcedasubstantialreductionoftheshareofcoalinitsgenerationmix:from36%ofitscapacityin2020to25%by2025and12.5%by203048.Thiscontinuesanongoingtrendofmothballingcoal-firedpowerplantsinthecountry.InSlovenia,discussionsaboutadvancingthecoalphase-out(envisagedfor2050bytheNECP)arecurrentlyunderway.Severalproposalsareonthetable,withtheearliestsuggestedphase-outin2033.Sloveniahasoneligniteminingregionandanyprogressoncoalphase-outwilldependonthealternativeemploymentandincomechancesthataredevelopedinadraftterritorialplanintheframeworkoftheEC’sCoalRegionsinTransitionInitiative.InRomania,thesituationisverydynamic.Untilspring2021,therewasnocommitmenttoacoalphase-out.InJune2021,theRomaniangovernmentsubmittedaNationalResilienceandRecoveryPlan(NRRP)totheECthataimsatphasingoutcoalfromtheelectricitysectorby2032andclosureofdomesticcoalminesevenmuchearlier,in2022.ThesedecisionscameafterrisingCO2pricessubstantiallydeterioratedtheeconomicsofRomaniancoal.RomaniaishopingtoobtainsupportfromEUfunds,inparticulartosupportthetransitionintheminingregions.However,thedetailsofthephase-outareyetunclearandotherpoliciessuchasthealmostnon-existentexpansionofrenewablecapacitiesandthegovernment’srestructuringplanofthestate-ownedutilityComplexulEnergeticOlteniastillcontradictthephase-outannouncement49.Itisreportedthata‘coalcommission’similartothoseinGermanyandtheCzechRepublicwillworkoutthedetails50.ThesituationisverychallenginginBulgariawhichhaslargecoalminingactivitiesandemployment,inadditiontoahighshareofcoalintheelectricitymixwhiletherehasbeenhardlyanyexpansionofrenewablecapacitiesinthelastnineyears.Previousgovernmentshadoptedforawait-and-seestrategyanddidnottakeanycoal-phaseoutdecision.Now,theBulgariancoalsectorisundereconomicpressurefromincreasedCO2prices.Bulgariandecision-makersalsoseeachancetopossiblyobtainsupportfromEUfundsforthetransitionofminingregions.Yet,withoutastablegovernmentinplace51,thereisnocommitmenttoanexactphase-outdateorschedule.CroatiajoinedtheinternationalPoweringPastCoalAlliance(PPCA)inJune2021andnowworks,togetherwiththePPCA,onacoalphase-outpolicyanddate52.Sofar,Croatiahasnocoalphase-outdate.Itisreportedthatthecoalphase-outisenvisagedfortheearly2030s53.47Basedoninformationavailableat:https://www.nasdaq.com/articles/czech-government-to-look-at-speedier-coal-exit-than-2038-target-2021-05-24(lastvisitedAugust1,2021).48SeeCEZ’spressreleaseavailableat:https://www.cez.cz/en/media/press-releases/cez-presents-clean-energy-of-tomorrow-its-production-portfolio-is-to-be-rebuilt-to-low-emissions-by-2030-144329(lastaccessedAugust1,2021).49Seethenewsannouncementavailableat:https://beyond-coal.eu/2021/06/03/romania-confirms-it-is-ditching-coal/.50Seethenewsannouncementavailableat:https://www.euractiv.com/section/energy/news/romania-will-phase-out-coal-by-2032/.51ThenextparliamentarianelectionsinBulgariaarescheduledforNovember2021.Thiswillbethethirdnationalelectionsin2021.52SeetheannouncementbythePoweringPastCoalAllianceavailableat:https://www.poweringpastcoal.org/news/press-release/spain-heads-list-of-new-powering-past-coal-alliance-members.53SeethenewsreportontheEuractivwebsitefromJune28,2021availableat:https://www.euractiv.com/section/climate-environment/opinion/the-eu-must-tell-the-world-it-will-power-past-coal-by-2030/.DecarbonisationofEnergy39PE695.469Lastly,inGermany,duringthefederalelectioncampaigninsummer2021,politiciansfromvariousparties,includingtherulingconservativeparty,agreedthatthede-factocoalphase-outwillhavetobeearlierthan2038.Itremainstobeseenwhetherthiswillsimplybeeconomicrealityorarenewedpoliticaldecisionandlaw-makingwillbearranged.Someobserversarguethattheupdatedclimatelawfromsummer2021implicitlymeansanendtocoalby203054.Insum,theinsightsfromtheongoingdiscussionsintheMemberStatesshowthattheeconomicsofincreasingCO2pricesanddecreasingrenewablecostshaveputadditionalpressureontheircoalsectors,whichwerealreadyhighlydisputedbecauseoftheclimate-neutralitytarget.EUsupportforthetransitionofminingregionseffectivelyprovidesanadditionalincentive.3.4.Effectsofupcomingcoalphase-outsinEUMemberStates3.4.1.Effectsonthepowersectora.Statusquoofthecoal-firedpowerplantfleetPhasingoutcoalconstitutesafundamentalchangetotheelectricitysectorinthoseEUMemberStatesthatstillrelystronglyoncoal.Majorinfrastructureinvestmentswillhavetobetakentoreplacecoal-firedpowerplants.AshighlightedinSection3.1ofthischapter,manyEUMemberStatesusecoaltogenerateelectricity,thoughonlyafewcountriesstillhavelargeactivecoal-basedpowerplantsinfrastructure.LigniteandhardcoalcapacitiesarestillinstalledinvariousEUMemberStates,withverylargecapacitiesinGermany(over45GW)55andPoland(over30GW),Czechia(around10GW)andSpain(around10GW)(Figure3-9).EspeciallyforseveralCentralandEasternEuropeanMemberStates,replacingligniteandhardcoalischallengingbecausetheystillconstituteasubstantialshareininstalledtotalpowerplantcapacity:inPoland(71%),CzechRepublic(46%),Bulgaria(35%),Slovenia(25%)(figure3-10).54Itisyetunclearwhichsector(s)willcontributetotheadditionalemissionreductionrequiredbytheupdatedGermanClimateLaw.BecauseofthehighemissionsfromthecoalsectorandthecontinuousexpansionofrenewablesinGermany,manyobserversarguethatthebulkoftheadditionalemissionsreductionshouldcomefromthecoalsector.Onesuchanalysisisavailableat:https://www.euractiv.com/section/climate-environment/opinion/the-eu-must-tell-the-world-it-will-power-past-coal-by-2030/.However,theCoalExitLawhasnotbeenupdateduntiltheparliamentaryelectionsinSeptember2021.55Outofthese45GW,only33GWoperatecurrentlyattheelectricitymarket.Theremainingpowerplantsarereservecapacitiesthatcanbereactivatedbythetransmissiongridoperatorstomaintainsecurityofsupply.IPOLPolicyDepartmentforEconomic,ScientificandQualityofLifePoliciesPE695.46940Figure3-10:InstalledcapacityinMWofcoal-firedpowerplantsin2019Source:Authors’owncalculationondatabyENTSO-ETransparencyPlatform(InstalledGenerationCapacityAggregated[14.1.A]),availableat:https://transparency.entsoe.eu/generation/r2/installedGenerationCapacityAggregation/show.Lignitepowerplantshavetraditionallybeenoperatedasbaseloadplants.Hardcoalpowerplantshavealsobeenoperatedasflexiblesupplywithdailycycleswhenrenewableenergysourcesarenotavailable.Thus,thecrucialquestionarisesofhowcoal-basedelectricityproductionwillbereplacedinthecomingdecades.Obviously,thisquestionhingesonmanyfactors:politicalconsiderations,economicfeasibility(e.g.,priceofcarbon)andsecurity-of-supplyconsiderations.b.ImportdependencyWhendiscussingcoalphase-outsintheEU,questionsofimportdependencyareattheforefrontformanycountries.Here,itiscrucialtodifferentiatebetweenligniteandhardcoal.Ligniteitisoverwhelminglyusedtogenerateelectricityandheatandisusedneartheextractionsite(Figure3-11).Becauseofthelowenergycontent,long-distancetransportationofligniteiseconomicallynotviable.Figure3-11:UseofligniteandhardcoalintheEUin2019Source:Authors’calculationsbasedondatafromEurostat(nrg_cb_sff).Inthecaseofhardcoal,thepictureisfundamentallydifferent.TenEUMemberStatesuse1Mtofhardcoalperyearormorefortheproductionofelectricityandheat.0%10%20%30%40%50%60%70%80%90%100%01020304050GermanyPolandCzechiaSpainItalyNetherlandsBulgariaRomaniaFranceGreeceDenmarkFinlandPortugalHungarySloveniaIrelandAustriaSlovakiaCroatiaBelgiumCyprusEstoniaLithuaniaLuxembourgLatviaSwedenMaltashareGWLigniteHardcoalTotalcoalshare(rightaxis)DecarbonisationofEnergy41PE695.469Incontrasttolignite,hardcoalisonlyextractedinCzechiaandPoland,withPolandproducingtwentytimesasmuchasCzechia.Thus,almostallEUMemberStatesuseimportedhardcoaltoproduceelectricityandheat56.Coal-miningcountries(hardcoalandlignite)coulddecidetoreplacetheircoalpowerplantswithgas-firedpowerplants.However,thatwouldnotonlyleadtoagreaterimportdependencybecauseofthelackofdomesticnaturalgassources,butwouldalsogeneratetheriskofstrandednatural-gasassets.TheremainingcoalcountriesarelocatedinCentralandEasternEuropewhere,duetothegaspipelineinfrastructureinplace,naturalgasimportscomepredominantlyfromRussia,whichcanbeconsideredariskysupplier.Inthissituation,replacingcoalpowerplantsby–domestic–renewableenergysources(wind,solar,biomass)wouldnotonlyavoidtheriskofstrandedfossilassetsbutalsodiminishimportdependency.c.ThefutureEUpowerplantfleetEUMemberStatesthatstillrelyoncoalforelectricity(andheat)generationmustreplacetheircoalpowerplantsinthemid-andlong-termwithlow-carbongenerationcapacitiesforasuccessfulreductionofgreenhousegasemissions.Unlessmajorquantitiesofelectricityareimported(whichisnotevenpossibleforheat),wecanthinkofdifferentoptionsforreplacement:(1)replacingcoal-firedpowerplantswithgas-firedpowerplantsintheshort-andmid-termwhichinturnwillbelargelyreplacedbyrenewableenergysourcesinthelong-termandthusgeneratepossiblystrandedassets;(2)adirectreplacementofthecoal-firedpowerplantsbyrenewableenergysources;(3)areplacementwithnuclearpower.Althoughnuclearpowercouldbeconsideredastablesourceoflow-carbonelectricity,manyproblemsareassociatedwithitandseveralEUMemberStateshaveamoratoriumonitsuse.ExtremelylongconstructiontimesofnuclearpowerstationsinEurope,veryhighinvestmentscosts,unresolvedfinalstorageofnuclearwaste,theriskofcatastrophicaccidents,etc.makeitalessfavourablepowersourcethanrenewableenergysources.Hence,wedonotassumethenuclearoptiontogainimportanceinthenextyears.Weusethestylizedopen-sourcenumericalelectricitysectormodelDIETER57togaininsightsonthefutureelectricitysystemintheEUandinitsMemberStates.Asthecoalphase-outiscentraltotheclimateneutralityintheEU,theresultsapplytoallthreecornerscenarios.Themodelallowsustodeterminethefutureoptimalpowergenerationcapacityfleetundercertainassumptions58.Theresultsofmodelruns’(showninFigure3-12)show:•howacoal-freeelectricitysystemintheEUmightlook;•thatinvestmentneedstoreplacecoalvarybetweencountries;and•thatsizableadditionalrenewablepowerplantcapacitiesareneededtoreducethegreenhousegasemissionsfromtheEUelectricitysystem.56PolandandCzechiaexportverylittlehardcoal.InPoland,approximately60%oftheconsumedhardcoalisusedforelectricityandheatgeneration,whileCzechiaonlyuses30%forelectricityandheat.Inadditiontotheirdomesticextraction,bothcountriesalsoimportsizableamountsofhardcoal.57TomodeltheEuropeanelectricitysystem,weusethe“DispatchandInvestmentEvaluationToolwithEndogenousRenewables”(DIETER),acapacityexpansionanddispatchmodeloftheEuropeanelectricitysystem.Formoreinformation,seetheAppendixA1andZerrahnandSchill(2017).58Thethreetargetyearsaredifferingprimarilyintheassumedshareofrenewableelectricityproducedintotalelectricityconsumed.For2050,wehaveassumed“almost100%”renewableelectricity,theyears2030and2040assumesharesthatwouldbeonhypotheticalpathfromthecurrent,2020,sharesuntil2050.Forallassumptionanddatasources,werefertotheAppendixA1.IPOLPolicyDepartmentforEconomic,ScientificandQualityofLifePoliciesPE695.46942Figure3-12:OptimalpowerplantfleetsindifferentyearsSource:Authors’calculations.Notes:Theverticalaxesaredifferentforeachcountry.Thefiguredepictsthecost-minimalpowerplant(andstorage)fleetforcountriescurrentlystillhavingtodaysignificantcoalpowerplantcapacities.Ourmodellingincludesalargersetofcountries37,butweonlyshowafewcountries.Forthreedifferenttargetyears(2030,2040,2050),themodelgeneratesoptimalpowerfleets.Thebar“now”depictsthecurrentexistingfleet.By2030,mostcoalpowerplantscouldhavedisappearedfromthesystem.However,thephase-outofcoalandthecontinueddecarbonisationofthepowersystem(asassumedinourscenarioruns)requiremajorexpansionofpowergenerationcapacitiesinallcountries.Yet,investmentrequirementsvaryintheshort-run:countrieswithalreadysizablephotovoltaicandwindpowerplants(suchasGermany),hydropowerplants(suchasRomania),orwithnuclearorgaspowerplantscanrelativelyeasilysubstitutecoalpowerplantswithmodestadditionalinvestment.Itdependsonthecountrywhetheritisoptimaltoinvestmentinadditionalgas-firedpowerplantsortofocusallinvestmentsontheexpansionofrenewableenergysources.Incountrieswherecoaliscentraltotheelectricitysystem,primarilyPoland,significantinvestmentsintheshortrunwillbeneededtoreplacecoal.Ourmodellingresultsareinlinewiththefindingsofotherstudies.CzyżakandWrona(2021)concludedthatPolandcanreduceitsshareofcoalinelectricitygenerationto13%by2030andphaseoutcoalentirelyby2035.Theyarguedthoughthatnewinvestmentsingas-firedpowerplantsarenotprofitableastheywillbedisplacedeconomicallybyrenewableenergysourcesinthe2030s.Similarly,Koenigetal(2020)concludedthat2032isarealisticdatetophaseoutligniteasasourceofelectricityinGermany,Poland,andCzechia.d.DeploymentofrenewableenergiesMajorinvestmentinrenewableenergypowerplants(photovoltaicsolarpowerandwindpower)iscrucialtophaseoutcoal,butalsotodecarbonisetheEuropeanelectricitysectorasawhole–thisisespeciallytrueforcountriesstillrelyingoncoal.Allthreescenarioswepresentedinchapter2relyonlargeamountsofrenewableelectricity.AsshowninFigure3-12,theoverallsizeofcountries’powerplantfleetshastoincreasesubstantially.Asphotovoltaicandwindpowerplantshavefewerfull-loadhoursperyearcomparedtocoalandgaspowerplants,thepowerfleetmustbeextendedbymorethanthephased-outfossilcapacities.DecarbonisationofEnergy43PE695.469TheresultsinFigure3-12areillustrativeandnotprecisepredictions:whileforsomecountries,photovoltaicpowerseemstobeabetteroptionthanwindwhenlookingonlyaatspecificinvestmentcosts,countriesmightdecidetofavourothertechnologies.EuropeancountrieshavestarttoimmediatelytodeploymeaningfulamountsofrenewableenergiesifthedecarbonisationsgoalsoftheEUaretobemet:investmentratesinrenewableenergypowerplantsareneededhavetogobeyondtheexpansionratesinrecentyears.Victoriaetal.(2020)59arguethatEuropean-wideinstallationratesforsolarphotovoltaic,onshore,andoffshorewindneedtoincreaseabovehistoricmaximumlevels.Figure3-13depictsthatgraphically:historicinstallationratesofrenewableenergypowerplantsarebelowwhatisneededinthefuture.However,someMemberStateshaveachievedsubstantialinstallationratesinthepast:Italyaddedalmost10GWofsolarPVcapacityinasingleyear(2010),andGermanyhadveryhighsolarPVinstallationrates(>7GWyearly)intheyears2010,2011,and2012.Figure3-13:RenewableinstallationratesintheEUneededtoachievedecarbonisationofenergySource:Authors’visualizationbasedonVictoriaetal(2020).3.4.2.Othereconomiceffectsandtransitionincoal-miningregionsInseveralMemberStateswithdomesticcoalmining,thecoalphaseoutisnotexclusivelyachallengefortheelectricitysectorbutalsohasimplicationsforregionaltransitionsandemployment.TheEUhasstartedtoprovidesupporttotheseregionsthroughtheJustTransitionMechanism.CoalminingstilltakesplaceinthefollowingEUMemberStates:Bulgaria,Czechia,Germany,Greece,Hungary,Poland,Romania,SloveniaandSlovakia.Despiteitsregionalimportance,theoverallshareofcoalminingintheEU’seconomyandemploymentissmall.AccordingtoAlvesDiasetal(2018),around237,000peopleintheEUarecurrentlyemployedinthecoalsector,mainlyincoalmining(185,000).Thisisabout0.1%oftotalEUemployment.Another215,000peopleworkinjobsindirectlyrelatedtothecoalsector:another0.1%oftotalEUemployment.59WhiletheanalysisbyVictoriaetal.(2020)isbasedondifferentassumption,data,andmodelsthanourmodelling,themessagethatambitiousinvestmentsinrenewableenergypowerplantsareneeded,remainsunaltered.02040608010012014020002002200420062008201020122014201620182020202220242026202820302032203420362038204020422044204620482050historicneededinthefutureGWperyearSolarOnshoreWindOffshoreWindIPOLPolicyDepartmentforEconomic,ScientificandQualityofLifePoliciesPE695.46944Inotherwords,thereareconsiderablyfewerjobsatriskintheongoingcoalphaseoutsthanwereinpreviouseconomictransitionswhenmillionsofjobswerelost.Incoalmining,thebulkofcoaljobsintheEUhavealreadybeenlost.Itwillbechallengingtofindalternativeemploymentforcoalminersintheshortrun.Transitionmeasuresmustincludethesupportofbusinesscreationinsectorsthatvaluetheskillsfromthecoalminingsectorjustasmuchasre-trainingmeasuresandeducationinefforttoovercomeregionalresourcecurse.However,positiveeffectsusuallycanonlybeexpectedafteranumberofyears.Likewise,Kapetakietal(2020)estimatedthataboutthesamenumberofjobscouldbecreatedbydeployingrenewable-energypowerplantsby2030asthenumberofjobscurrentlyatriskfromphasingoutcoal.Upto2050,thenumberofnewlycreatedjobscouldevendouble.TheyalsofoundthattheEuropeanregionsaffectedbyacoalphaseouthavehightechnicalpotentialforrenewableenergy,andcouldcontributemorethanhalfoftheadditionalinstallationsneededEU-wideforcarbonneutralityupto2050,ifthispotentialisfullytapped.Figure3-14showstechnicalpotentialsforground-mountedsolarPVinEuropeancoalregions.Figure3-14:Cumulativetechnicalpotential(GW)forground-mountedsolarPVincoalregionsSource:Kapetakietal(2020).DecarbonisationofEnergy45PE695.469Inadditiontothislong-runtransitionperspective,theEUsupportsregionsintransitiontodaywithfundingandknowledgetransfer.TheknowledgetransferandlocalcapacitybuildingisorganisedbytheECviatheInitiativeforCoalRegionsinTransition60.Intermsofmonetarysupport,severalfunds,someofthemspecificallydedicatedforcoalregions,canbetappedinthenewfundingperiod2021-2027:•WithintheJustTransitionMechanism(JTM)61:a.TheJustTransitionFund(JTF)withabudgetof€17.5billion;b.AdedicatedInvestEUschemetofosterprivateinvestment;andc.ThePublicSectorLoanFacilityleveragedbytheEuropeanInvestmentBank(EIB)combining€1.5billioningrantswith€10billioninloanstargetingonlypublicentities;•“Traditional”regionalfunds;and•FundingintheframeworkoftheEUrecoveryplanforEurope(NextGenerationEU).TheallocationoffundsfromtheJTFismainlybasedonthegreenhouse-gasintensityoftheeconomy,employmentinhighlycarbon-intensivesectorsandincoalmining.Thisismeanttoensurethatthesupportedregionsarethosemostaffectedbythetransition.Distributingfundsconditionaloncoalphase-outplansandenddatesincentivisescountriestooptforaneffectivephase-outofcoal.ApartfromthetargetedsupportschemeswithintheJTM,transitionincoalregionscanalsobesupportedbytheeconomy-widestimuluspackageNextGenerationEU.Indeed,37%oftheloansandgrantsprovidedbytheRecoveryandResilienceFacilitymustbededicatedtoinvestmentstacklingclimatechange.Thisinstrumentcouldbeleveragedtosupportthetransition,butalsoincentivisecountriestophaseoutcoalfasterthancurrentlyplanned.Therecentcoalphase-outdiscussionsinsomeMemberStatesshowthattransitionsupportcanpotentiallybeatippingpointthatenablesthecountriestotakedecisionson(early)coalphaseoutsinthecurrenteconomicenvironmentthatisunfavourableforcoal.Therefore,thissupportmustbecontinuedinthenextyearsandtherequirementforclear-cutphase-outdecisionsmustbemaintained.3.5.Conclusions:coalphaseoutunderwaybutneedssomeadditionalsupportWefindthatthecoalphase-outiswellunderwayacrossEuropebutneedsmoresupporttocometofruitioninallMemberStates.SomeMemberStates,particularlyBulgariaandPoland,arelaterthanothers,eitherwiththeirdecisiononacoalphase-outscheduleortheirfinalphase-outdate.However,inadditiontothepressurefromclimatecommitmentsintheParisAgreement,theGlasgowclimateconferenceCOP26(November2021),andtheEUclimate-neutralitytarget,theeconomicsinplacewillpusheventhesecountriestofurtheradvancetheircoalphase-outs.MostnotablythecomparablyhighCO2price,whichcanbeexpectedtoremainhighiftheEUETSreformsaremaintained,andthecontinuouslyfallingrenewablecostsprovideeconomicincentivestoexitcoal.However,itisimportantthattheupcomingrevisionoftheEUETSalignstothegoaloftheEU‘Fitfor55’packageandtightensthecapaccordingly.AsufficientlytightEUETScapcouldleadtoaphaseoutofcoalby2030becauseitmakescoalpowerplantsunprofitable.Moreover,thoseMemberStatesthat60FurtherinformationontheInitiativeforcoalregionsintransition(availableathttps://ec.europa.eu/energy/topics/oil-gas-and-coal/EU-coal-regions/initiative-for-coal-regions-in-transition_en)andontheSecretariatTechnicalAssistancetoRegionsinTransition(availableat:https://ec.europa.eu/energy/topics/oil-gas-and-coal/eu-coal-regions/secretariat-technical-assistance-regions-transition-start_en).61FurtherinformationontheJustTransitionMechanism:https://ec.europa.eu/info/strategy/priorities-2019-2024/european-green-deal/finance-and-green-deal/just-transition-mechanism/just-transition-funding-sources_en.IPOLPolicyDepartmentforEconomic,ScientificandQualityofLifePoliciesPE695.46946stillrelyoncoalmustbepreventedfromartificiallykeepingunprofitablecoalbusinessesopenbyprovidingsubsidiesandotherstateaid.Inaddition,supportforminingregionsviatheEUJustTransitionMechanismprovidesanincentivetophaseoutdomesticcoalmining.Closingtheloopholeandincludingmethane(CH4)fromthecoalsectorintheEUETSoranalternativepollutioncontrolschemecouldprovidefurtherincentivestophaseoutcoalmorequickly.Inaddition,theIndustrialEmissionsDirectivewillfurtherpusholdpollutingplantsoutofthesystemwithinthenextfewyears.Usinganopen-sourcenumericalmodelling,weshowhowacoalphase-outacrossEuropecouldbeachieved,leadingtoadrasticchangeinMemberStates’powerfleets.Importantly,substantialrenewablecapacitiesandelectricitystoragewillneedtobeinstalledtoreplacephasedoutcoalpowerplants.RenewableexpansionhasbeenstallinginsomecoalcountriessuchasinBulgariaandRomania,butalsoinGermanyinthelastyearsandthereforemustquicklyincreaseinspeed.Giventhelowercapacityfactorsofrenewablegeneration,amorethanproportionalcapacityexpansionhastotakeplace.Replacingcoal-firedelectricitycapacitieswithnaturalgas-firedpowerplantswouldbeonlyashort-termoptionthatwouldnotbecompatiblewiththeEU’s2050climate-neutralitytarget.Likewiseintheheatsector,replacingcoalwithnaturalgasisonlyashort-termoptionthatrisksleadingtofossilpathdependenciesandstrandedassetstowards2050andshould,therefore,betterbeavoided.Continuedandacceleratedexpansionofrenewableelectricitycapacitiesisoftheutmostimportance.TheincreaseinrenewableenergyinstalmentratesiscentraltoachievingtheEU’sclimate-neutralitytarget.Therefore,furthersupportmustbeprovidedtoensuretherequiredexpansionofrenewablecapacities:•nationalrenewabletargetswillprovideclearerincentives;•capitalandloancostsforrenewableprojectsincoal-dependentcountriesmustbereduced,inparticularinCentralandEasternEuropeanMemberStates;and•theinternalenergymarketmustbestrengthenedwithimprovementofmarketaccessconditionsfornewentrants,includingrenewableplayers.Onechallengewecannotaddressinthisstudyisthephaseoutofcoalinindustry,inparticularinsteelproduction.Onealternativetocurrentcoal-intensivesteelproductionisacombinationofelectricity(asenergyinput),hydrogen,andscrap-steelrecycling,whichiscurrentlyunderdevelopmentacrossEurope(alsoseechapter5).Wewilldiscussinthenextchapterwhyfossilnaturalgasisnotalong-termoptionfortheelectricityandheatsectorsintheEU.Hence,currentcoalcapacitiesshouldnotbereplacedbynaturalgascapacities.Generationcapacitiesoftenrunlongerthan30years,i.e.,longerthantheEU’stargetyearforreachingclimateneutrality.Hence,tobecompatiblewiththeEU’slong-termtargets,coal-firedelectricityandheatgenerationmustbereplacedbyrenewablegeneration.DecarbonisationofEnergy47PE695.4694.DECARBONISATIONOFMETHANEUSEINEUROPEIncontrasttothecoalsector,wherecoalphase-outtargetsarisefromnationalpolicies,EUpoliciesarelikelytotaketheleadinsettingtheframeworkfordecarbonisingthegassector.InadditiontotherevisionoftheGasDirectiveandtheGasRegulation62,thegassectorwillbesubjecttoanumberofclimate-relatedpolicymeasures,includinggreenhousegasemissiontargetsandtheEUETSrevision,butalsothependingmethaneregulationofnaturalgasimports.Moreover,theinteractionwithanddelineationfromhydrogen–anothergaseousfuel–willneedtobecomeclearerinthenextyears.Thesepolicyprocesseswillbecriticalindeterminingthepathwayofgasinthenextdecadesandwetakethemintoaccountinouranalysis.However,effortsareunderwaytoaddresstheroleofdecreasefossilnaturalgasdirectly,similarlytocoal.Mostnotably,theBeyondOilandGasAlliance(BOGA)thatwasannouncedinSeptember202163andwillbelaunchedatCOP26inNovember2021byitsfoundingmembersDenmarkandCostaRica,maybemodelledafterthePoweringPastCoalAlliance(PPCA)64.ThePPCAhassucceededinraisinganumberofconstituenciescommittedtoafirmcoalphaseout.BOGAwillequallyreachouttoconsumersandproducersofnaturalgas.62GasDirective2009/73/ECandtheRegulation(EC)No715/2009.63AnnouncementoftheBOGAattheEnergyActionDayon16September2021,availableat:https://www.irena.org/events/2021/Sep/Energy-Action-Day-2021).64MoreinformationonthePPCAavailableathttps://www.poweringpastcoal.org/.KEYFINDINGSInorderfortheEUtoreachclimateneutralityby2050,theuseofnaturalgasintheEuropeanenergysystemwillhavetocease.Severaloptionsfordecarbonisingtheuseofnaturalgasexist.Wearguethattheuseofnaturalgasincombinationwithcarboncaptureandstorage(CCS)isunlikelybecauseofthevirtuallynon-existentprogressinR&DontheCCSvaluechain.Naturalgasconsistsofalmostpuremethane(CH4).Other–non-fossil–fuelscanpotentiallyreplaceitbecausetheyalsohaveahighCH4content.Biogas/methanearealreadyusedtoday,buthavealimitedpotential.Syntheticmethane(syngas)obtainedfromthemethanationprocessofhydrogencanalsopotentiallyreplacenaturalgas,butissubjecttohighcostsandlowtransformationefficiencies.Rather,greenhydrogen–adifferentgas,butwithsomesimilarpropertiesandlowercosts–islikelytoreplacenaturalgasinseveralenduses.Inaddition,anumberofendusesthatcurrentlyrelyonnaturalgasarelikelytobeelectrifiedinaclimate-neutralfuture.Inthemediumterm,thefootprintemissionsfromnaturalgasshouldbetakenintoaccountinordertoaddresscomprehensivelytheclimateeffectofextracting,transportingandusingnaturalgas.InadditiontotheCO2emissionsfromcombustion,fugitivemethaneemissionsalongthevaluechainareharmfulgreenhousegases.MethaneisconsiderablymoreharmfulthanCO2,butcurrentlynotincludedintheEUETSoranyotherpollutioncontrolscheme.FugitivemethaneemissionsfromimportednaturalgasmostlyariseoutsidetheEuropeanUnion.Comprehensivemethaneemissionmonitoring,andreportingrequirementsfornaturalgasimports,asplannedintheEuropeanCommission’sMethaneStrategyareanimportantfirststep.Pricingthelife-cyclemethaneemissionsofnaturalgasisrequiredasanextsteptoprovideanincentivetoreducetheharmfulclimateeffect.IPOLPolicyDepartmentforEconomic,ScientificandQualityofLifePoliciesPE695.46948Fossilnaturalgasisalmost100%methane(CH4).Inthischapter,wefocusonthefutureofmethanefromvarioussources,whetherfossil(naturalgas),biogenic(biomethane)65ormethanisedhydrogen(alsocalledsyntheticgas,e-gas,orpowerfuel).Wecallbiomethaneandsyntheticgas‘greengases’.Hydrogen(H2),whichisoftenincludedinthediscussionsofgreengases,isadifferentfuelwhichrequiressomewhatdifferentinfrastructuretoCH4.We,therefore,dealwithhydrogeninchapter5.GiventheEU’sgreenhouse-gasneutralitytarget,thecurrentwidespreaduseofnaturalgaswillhavetobereducedinthenextdecades.Justaswithcoal,thequestionofsubstitutioninthedifferentdemandsectorsiscrucial–andpotentiallyevenmorechallengingbecauseofthelargevarietyofusesofnaturalgas:•inindustryasbothfeedstockandfuel(e.g.,forprocessheatgeneration);•inthepowersectorforbothbaseloadgenerationandflexibilityasback-upforintermittentrenewables;•inspaceheating;and•toasmallextent,intransportation.Naturalgascanpotentiallybereplacedbymethanefrom“green”sources(biomethaneorsyntheticgasobtainedwithrenewableelectricity)and,insomedemandfields,alsobyhydrogen.Moreover,processesthatarefuelledbynaturalgastodaycouldbereplacedbyelectricity-basedprocesses,forexampleinspaceheatingandindustrialheat.Thesealternativescomeatdifferentcosts,bothoperationalcostsandinvestmentcosts,andwithspecificadvantagesanddisadvantages.Weinvestigatethefutureofnaturalgas,greengases(CH4)andgasinfrastructurethroughthescenariolensintroducedinchapter2.Foreachofourthreescenarios,weassessthesubstitutioneffects.Moreprecisely,weassesstheimpactonnatural-gasdemand,importsandinfrastructure,andonthesupplyofanddemandforgreengases.MostnaturalgasconsumedintheEUtodayisimported.Hence,areductioninconsumptioninthelongrunwillstronglyaffectimports,relationshipswithimporters,andimportinfrastructureutilisation.Wefindthatsomeofthecurrentnaturalgasimportswillinfuturebereplacedbyimportsofgreengases(hydrogen,syngas).Thenaturalgassectorreliesonasset-specificinfrastructure(pipelines,undergroundstorage,LNGterminals)thatiscurrentlyregulatedintheEUbytheGasDirective(2009/73/EC)and“GasRegulation”(715/2009/EC).Theuseoftheseinfrastructureassetswillbesubstantiallyalteredinvaryingways,dependingonthescenario.Therevisionofthecurrentrulesinabroad“HydrogenandGasMarketsDecarbonisationPackage”shouldhelpensureanorderlytransitionfromthecurrentsituationtoanyfuture2050state;weexplorethemainpointsinourstudy.4.1.Naturalgasuse,supplyandinfrastructuretodayThenatural-gassectorhasacomplexvaluechain(Figure4-1).Transportationinfrastructureplaysanimportantroleintheformofpipelinesand(import)terminalsofliquefiednaturalgas(LNG).RemainingnaturalgasreservesintheEUareverysmallandmostnaturalgasconsumedintheEUisimportedviapipelineorLNGterminals(seebelow).Naturalgastransportationinfrastructureishighlyspecific,i.e.,pipelinesandLNGterminalscanonlybeusedforthetransportofgasesandnotforotherenergycarriers.65Biomethanehasahighmethanecontentandcanbeusedinterchangeablywithnaturalgas(CH4).Biogas,incontrast,hasalowerCH4contentandisusedlocally,attheproductionsite,withouttransportationviatransmissionanddistributionpipelines.DecarbonisationofEnergy49PE695.469Thecommercialproduct“naturalgas”hasamethanecontentofabout95%(87%-99%)66.Naturalgasdepositsmayhavealowermethanecontentandcontainimpurities,butitiscleanedandbroughttostandardenergycontentbyprocessing.ProductionandprocessingofmostofthenaturalgasconsumedinEuropetodaytakeplaceoutsidetheEU.Overlongdistances,naturalgascaneitherbetransportedinhighpressurepipelines(transmissionpipelines)orbyseaasLNG(cooleddowntolessthan-162°C).NaturalgasisliquefiedtoLNGintheexportmarketandregasifiedintheimportmarket.TherearenoliquefactionterminalsintheEU(thereisoneinNorway)andthereare27regasificationterminals(GIIGNL,2021).Figure4-1:NaturalgasvaluechainSource:Authors’ownelaboration.Inthefinalvaluechainstage,naturalgasisconsumed–whichoftenmeanscombusted(i.e.,usedforitsenergycontent)–inoneofthreesectors:electricityandheatgeneration,industry,orbysmallerconsumerswhoreceivethenaturalgasviadistributionpipelines.Naturalgastrade–betweenexportersandimportersaswellasbetweennaturalgastradersandlargeconsumers–iscarriedouteitherintheframeworkoflong-termcontractsorviathecommoditymarketsthathavesuccessfullydevelopedinthelastdecadeintheEUinternalenergymarket(SternandRogers,2017;Heather,2019).NaturalgasaccountsforapproximatelyonefifthofthetotalenergysupplyintheEU.Thissharehasrisenbyfivepercentagepointssince1990buthasremainedrelativelyconstantinthelast20years.Inabsolutetermstheinputofnaturalgasintotheenergysystemincreasedbyalmost50%between1990and2019(from3200TWhto4800TWh).66Anexceptiontothestandardmethanecontentofca.95%–andtherelatedcalorificvalueofca.11.1kWh/m³–isso-calledL-gas(low-calorificgas),whichisstillproducedandconsumedintheNetherlandsandwesternGermany,butwillbephasedoutby2030.L-gashasamethanecontentbelow87%(80-87%),and,hence,acalorificvalueofmax.8.9kWh/m³.IPOLPolicyDepartmentforEconomic,ScientificandQualityofLifePoliciesPE695.46950Figure4-3:NaturalgasinenergysupplyovertimeSource:Authors’calculationsbasedonEurostat,databasengr_bal_c..Note:Basisforthesharecalculationisimports+production4.1.1.Supplyofnaturalgasandbiogas/biomethaneintheEUtodayTheEUisamajornetimporterofnaturalgas.Domesticproductionstillexistsinsomecountries,buthasdecreasedsignificantlyinrecentyearsbecauseofgeologicalproblems(Netherlands)andlocalmoratoriaonfrackingtechnology(Germany),aswellasoveralldecliningreserves67.Hence,morethan80%oftheEU’stotalnaturalgassupplyisimported(88%in2019).Russiaisthemainsource,followedbyNorwayandAlgeria(Figure4-4),allofwhichhavelargepipelinecapacitiestodelivertotheEU.67ThereissignificantdomesticfossilnaturalgasextractionperyearintheEUinthefollowingEUMemberStates(rankedbydecreasingproductionlevel2018,accordingtoIEA2019b,productionlevelslargerthan9TWh/year):Netherlands,Romania,Germany,Poland,Italy,Denmark,Ireland,HungaryandAustria.01.0002.0003.0004.0005.0006.0000%5%10%15%20%25%19901997200420112018ShareofnaturalgasinenergysupplyTotalinputofnaturalgasinTWhFigure4-2:Shareofnaturalgasinenergysupplyin20190%1%5%5%7%9%10%10%12%14%15%15%15%16%17%17%19%20%21%21%23%24%26%28%28%28%33%42%0%10%20%30%40%50%CyprusSwedenFinlandEstoniaSloveniaMaltaGreeceBulgariaDenmarkLithuaniaPolandLuxembourgLatviaCzechiaFrancePortugalBelgiumSpainEU27CroatiaGermanySlovakiaRomaniaAustriaIrelandNetherlandsItalyHungaryDecarbonisationofEnergy51PE695.469Figure4-4ExportersoffossilnaturalgastotheEUin2019Source:Authors’calculationsbasedonEurostat,databasengr_ti_gas.Dependingonglobalmarketconditions–i.e.,the(relative)priceinthecompetingdemandregionAsia,andglobalsupplyavailabilitiesorbottlenecks–LNGimportsplayasmallerorlargerroleintheEU.In2019and2020,LNGimportswereconsiderablyaboveaveragebecauseofariseinglobalLNGexportcapacities(intheUSA,Russia,Australia)andlowpricesinAsiaduetomild(winter)weather(ca.1000TWh,aboutaquarteroftotalnaturalgassuppliesintheEU).ThereareimportcapacitiesforapproximatelytwotimesgreaterLNGimportsinplace.Figure4-5:BiogasproductionintheEU27(1990-2019)Source:Authors’owncalculationsbasedonEurostat,databasengr_bal_c.020406080100120140160180199019911992199319941995199619971998199920002001200220032004200520062007200820092010201120122013201420152016201720182019BiogasproductioninTWhGermanyItalyFranceEU27IPOLPolicyDepartmentforEconomic,ScientificandQualityofLifePoliciesPE695.46952TheproductionofbiogaswithintheEUhassurgedinrecentyears.In2019around160TWhwereproducedwhichismorethan10timesthelevelin2000.However,thisisonlyameagre3%ofthegassupplyintheEU.Nevertheless,Europeisthelargestbiogasproducingregionintheworld(IEA,2020a).ThemainsupplierisGermany,whichproducesmorethanhalfofthebiogasintheEUandalsoisthelargestsingleproducingcountryworldwide.InItaly,biogasproductionhasalsogrownrapidlyinthelast10years.Biogasisproducedfromalargevarietyofsources,technologiesandprocesses.ThemainsourcesinEuropetodayarecrops(energycrops,cropresiduesandsequentialcrops,almosthalfoftotalproduction),animalmanure(onethird),municipalsolidwaste(ca.10%),andmunicipalwastewater(ca.5%).Moreprecisely,wedistinguishbetweenbiomethaneandbiogas68.Biomethanehasthesame–veryhigh–methanecontentasnaturalgas(>90%)andcanbefedintothenaturalgaspipelinesystem.Biogas,incontrast,isamixtureofmethane,CO2andsmallquantitiesofothercombustiblegases.Onlyaverysmallfractionofbiogasisupgradedtobiomethanetoday(ca.10%),withconsiderablyhighersharesinDenmarkandSweden.Low-methanebiogasisusedlocallyneartheproductionsite,i.e.,withoutbeingtransportedviaapipelinenetwork.Infact,mostofthebiogas/biomethane(almost80%)isusedforelectricityandheatgeneration.4.1.2.InfrastructurevaluechainAsshowninFigure4-1,thenaturalgassectorreliesonasset-specificinfrastructure(pipelines,undergroundstorage,LNGterminals)thatisregulated(access,tariffs,unbundling).“Assetspecificity”describesthatanassetcannotorhardlybeusedforalternativeusesorbyalternativefuels.Assetspecificitycanbefoundinthevaluechainsofallenergysectors.Theconversionofnatural-gasassetstoothergaseswillincurgreaterorlessercostifthesegasesarenotpredominantlymethane(e.g.,conversiontohydrogen).Moreover,notallassettypescanbeconvertedtobeusedbynon-methanegases.Thisisparticularlythecaseforundergroundgasstorage.TheEuropeanpipelinesystemtodayhassubstantialovercapacityinmanyplaces,butbottlenecksinothers.Between2008and2020,theaverageutilisationrateofEuropeancross-borderpointswasonly30%69.Infact,transparencydatarevealsthat–despitethepushforefficientcapacityexpansionandallocationfromthevariousEUenergypackages–over-dimensioningofcapacityhasoftenbeenusedtoensuresecurityofsupply,butalsotoimprovemarketaccessforthedominantsupplier,Russia.Bi-directional(reverseflow)capacitieshaveonlyrelativelyrecently–sincetheCrimeacrisisin2014–beenusedasadditionalsupplysecuritymeasure,thoughnotuniformlyacrossEurope.Reverseflowcapacitiesareconcentratedonthecapacitiesto/fromUkraine,andaroundGermany.Reverseflowcapacitiesarenotlimitedoncostgroundsbecauseitisrelativelycheaptoaddcompressorcapacityintheoppositedirectiononexistingpipelines.Rather,thereasonsforlimitedreverseflowcapacitiesaretheexertionofmarketpowerandlimitingbyincumbentsofmarketentry,(geo-)politicaltensionsandsimilardisagreementsbetweennationalregulators.Thereisalotofpotentialforimprovedefficiencyingastrade–andinfactrelativelylow-costexpansionpotentialofgastradecapacities–ifEUMemberStatessucceedinestablishingreverseflowsasforeseenbytheInternalEnergyMarket.68Eurostatdatadoesnotmakethedistinctionbetweenbiogasandbiomethanebutaggregatesthem.69Seehttps://www.iea.org/reports/gas-trade-flowswherepipelineflowdataoncross-borderpointsinEuropeisprovided.DecarbonisationofEnergy53PE695.4694.1.3.UtilisationofmethanegastodayAround60%ofnaturalgasisuseddirectlyinfinalenergyconsumptionwithoutpriortransformation.Figure4-6showsthesectorsthatconsumenaturalgas,includingbothfinalconsumptionandtransformationsectorssuchaselectricityandheatgeneration.Theindustrialsectorusesaround22%ofthetotalnatural-gassupply.Whilethemajorityofindustrialconsumption(96%)isusedforenergypurposes,4%flowsintonon-energyuses.Privatehouseholdsconsumearoundonefifthofnaturalgassupply,andonequarterservesasaninputforthegenerationofelectricityandheat.Combinedheatandelectricitygenerationuses15%,electricity-onlyplants13%,andheat-onlyplants2%.Figure4-6:UtilizationofnaturalgasintheEuropeanUnion(EU27)in2019Source:Authors’owncalculationsbasedonEurostat,databasengr_bal_c.Industrialuseoffossilgascanbedifferentiatedintoenergy(96%intheEU)andnon-energyapplications(Figure4-7).Thelatterconsistsalmostentirelyoffeedstocksinthechemicalandpetrochemicalindustry70.However,fossilgasservespredominatelyasaninputforenergypurposes,e.g.,forthegenerationofprocessheat.There,too,thechemicalandpetrochemicalindustryabsorbsthemajorityofthefossilgas,butothersectorsincludingcementandironandsteelarealsolarge-scalenatural-gasconsumers.70TheshareoffeedstockuseofnaturalgasisconsiderablyhigherintheUSAwherenaturalgasreplacescrudeoilasfeedstocktomorepetro-chemical(intermediate)products(e.g.,naphtha).Electricityandheat(utilities)24%Electricityandheat(industry)6%Energysector4%Other6%Industryenergy22%Industrynon-energy4%Households22%Services10%Other2%IPOLPolicyDepartmentforEconomic,ScientificandQualityofLifePoliciesPE695.46954Figure4-7IndustrialusageoffossilnaturalgasSource:Authors’owncalculationsbasedonEurostat,databasengr_bal_c.4.1.4.Greenhousegasemissionsfromthenatural-gasvaluechainNaturalgasistypicallyconsumedthroughcombustion,whichgeneratesCO2emissions.Moreover,naturalgasconsistsprimarilyofmethane(~95%)whichitselfisapotentgreenhousegaswithconsiderablyhigherwarmingpotentialthanCO2andwhichmayleakfromtheproductionandtransportofnaturalgas(‘fugitivemethaneemissions’).a.CO2emissionsCO2emissionsfromnatural-gasconsumptionhaveincreasedby34%since1990(Figure4-8),reflectingtheincreasinguseofnaturalgasinthe1990sand2000s.In2019,776MtofCO2wasreleasedfromnatural-gascombustion,whichismorethantheCO2emissionsfromcoal(739Mt).Figure4-8:CO2emissionsfromnaturalgasovertimeSource:Authors’owncalculationsbasedonhttps://ourworldindata.org/emissions-by-fuelandhttps://www.eea.europa.eu/data-and-maps/data/data-viewers/greenhouse-gases-viewer.2426406670871471483851.05702004006008001.000ConstructionTransportequipmentNon-ferrousmetalsMachineryPaperandpulpIron&steelFood,beveragesandtobaccoNon-metallicmineralsChemicalandpetrochemicalAllsectorsTWh01002003004005006007008009000%5%10%15%20%25%199019911992199319941995199619971998199920002001200220032004200520062007200820092010201120122013201420152016201720182019ShareofCO2emissionsfromnaturalgasintotalGHGemissionsCO2emissionsfromnaturalgasinmtDecarbonisationofEnergy55PE695.469Figure4-9:CO2emissionsfromcombustingnaturalgasinMtbycountryin2019Source:Authors’owncalculationsbasedonhttps://ourworldindata.org/emissions-by-fuelandhttps://www.eea.europa.eu/data-and-maps/data/data-viewers/greenhouse-gases-viewer.b.MethaneemissionsMethaneleakingfromnatural-gasinfrastructurebecauseoflow-qualitytechnology,insufficientmaintenanceorothercauses,isadangerousgreenhousegas.Becauseoftheirinvoluntarynature,leakageemissionsareusuallyclassifiedas‘fugitiveemissions’.UNFCCCsignatoriesmustreportfugitiveCH4emissionsaspartoftheirgreenhouse-gasinventoryreports.However,thereportingisusuallynotbasedonmeasurementsandCH4emissionsaretypicallynotverified.Reportingoffugitiveemissionsfromtheenergysectormakesadistinctionbetweenthesolid-fuelsector(i.e.,coal,seeChapter3)andtheoilandgassector.EachofthesesectorsisresponsibleforCH4emissionsequivalenttoabout1%oftheEU’sCO2emissions,ifthewarmingpotentialafter100yearsisconsidered(over20years,theproportionisapproximately2%,alsoseeAppendixA1).In2019,around0.85MtoffugitivemethaneemissionsfromoilandgaswerereportedfromwithintheEU.Altogether,theoilandgassectorisresponsibleforathirdoftheenergy’ssectorCH4emissionsandabout6%oftheEU’stotalmethaneemissions,asreportedtotheUNFCCC.Otherlargemethane-emittingsectorsareagricultureandwaste.Mostmethaneleakageinthenatural-gassectordoesnotoccurwithintheboundariesoftheEUbutintheexportandtransitcountriesfromwheretheEUimportsnaturalgas.Hence,giventhelargeroleofimportstotheEU,theCH4footprintalongtheentirevaluechainshouldbetakenintoaccountforproperaccountingoftheGHGthattheEUnatural-gasusecauses.TheEC’sMethaneStrategypromiseslegislativeproposalstoaddressthemethaneleakagefromnaturalgasimports,inthefirstplaceby01122234455610101112171820213537717487146173020406080100120140160180CyprusMaltaEstoniaLuxembourgSloveniaSwedenLatviaLithuaniaFinlandCroatiaBulgariaDenmarkSlovakiaGreeceIrelandPortugalCzechiaAustriaHungaryRomaniaPolandBelgiumSpainNetherlandsFranceItalyGermanyIPOLPolicyDepartmentforEconomic,ScientificandQualityofLifePoliciesPE695.46956requiringcertifiedreportingofthemethaneemissionsassociatedwithnaturalgasimportsand,ingeneral,byimprovingMRVofmethaneemissions71.Currently,thereisgloballyverylittleknowledgeandmeasurementofmethaneemissions.Methanemeasurementinfrastructureviasatelliteiscurrentlybeingdevelopedbyanumberofpartiesandisexpectedtobeoperationalby2023.Inthemeantime,thereishardlymoreinformationavailablethansomehard-to-verifyestimatescollectedbytheInternationalEnergyAgencyinitsMethaneTracker,whichwasestablishedin202072.Accordingtosomeestimates,abating(reducing)CH4leakageinthenaturalgassectorbyupto~75%wouldbepossibleatrelativelylowcosts73.Morefar-reachingpolicyinstrumentsthanreporting,suchaspricing(taxing)themethanecontentofnaturalgasimports,shouldbeconsidered.Suchamethaneborderpriceshouldbeproportionaltothemethanecontentofthenaturalgasimportsinquestioninordertoprovideanincentivetoreducetheleakage.GreifandEcke(2021)estimatedtheeffectsofdifferentmethaneborderpricelevels.Basedonthe–flawedandunverified–availableCH4leakagedatefromtheIEAMethaneTracker,RussiaandtheUSAwouldbeaffectedmostbyanEUCH4bordertax.Norway–theonlycountrywithaCH4monitoringandtaxsysteminplace–wouldhardlybeaffectedandcouldevenexportmoretotheEUifitsproductionandexportcapacitieswerelarger.ExportersfromtheMiddleEast(e.g.,Qatar)areestimatedtohavelowfugitivemethaneemissionsandcouldthereforebenefitandexportmorenaturalgas(LNG)totheEU(GreifandEcke,2021).However,aCH4taxwouldhavetobesubstantialtoachieveaneffectivereductionoftheCH4contentoftheEU’snatural-gasimports:basedonthe20-yearGWP(i.e.,CH4GWP81timeshigherthanCO2GWP),abordertaxof€25/tCO2eq.wouldleadtoan18%smallerCH4footprintfromtheEU’snaturalgasconsumption.Abordertaxof€100/tCO2eq.wouldleadtoa48%smallerCH4footprintoftheEUnaturalgasconsumption.Thiswouldbetheresultofreplacinghigh-leakageimportsfromRussiaandtheUSAwithlow-leakageimportsfromtheMiddleEast,andasmallconsumptionreductionoflessthan5%withthe€25/tCO2eq.scenario(8%inthe€100/tCO2eq.).4.2.DecarbonisationpotentialofnaturalgasInthissection,wereviewbrieflythedifferentoptionsforreplacingcurrentnatural-gasutilisationwithlow-carbon/no-carbonalternatives.Theyrangefromthecontinueduseofnaturalgas,withalargeshareoftheassociatedemissionsabated(captured)inacarboncaptureandstorage(CCS)process(Section4.2.1),tocontinueduseofmethaneorgases,butfromrenewablesources,i.e.,biomethane,syntheticmethaneorhydrogen(Section1.2.2),toreplacementofmethanebyanalternativeenergyvector,namelyrenewableelectricity(Section1.2.3).Foreachofthesereplacementoptions,wereviewbrieflythereplacementpotentials,thecostsandlimitationsforthevariousdemandsectorsfornaturalgas:spaceheating,industry,powergenerationandtransportation.4.2.1.NaturalgasandcarboncaptureandstorageIncountriesthatproduceandexportnaturalgas(includingNorway,Australia,theUS,UKandRussia),CCSisseenasatechnologythatcanhelpmaintainthestatusquoofnaturalgasutilisation.71CommunicationfromtheCommissiontotheEuropeanParliament,theCouncil,theEuropeanEconomicandSocialCommitteeandtheCommitteeoftheRegionsonanEUstrategytoreducemethaneemissions.COM(2020)663final.Brussels,14.10.2020.Availableat:https://ec.europa.eu/energy/sites/ener/files/eu_methane_strategy.pdf.72IEAMethaneTracker(online).Availableat:https://www.iea.org/reports/methane-tracker-2021.73Seethesection‘AbatementandRegulation’intheIEAMethaneTracker.Availableat:https://www.iea.org/reports/methane-tracker-2021/methane-abatement-and-regulation.DecarbonisationofEnergy57PE695.469However,thisperceptionignoresseveralproblemswiththistechnology,whichleadustoconcludethatCCSisnotarealisticoptionformostsectorsintheEU.Amongtheproblemsare:•Carboncaptureisnotaworkingtechnologythatisoperationalatcommercialscaleanywhereintheworldorinanysector(Holzetal.,2018a)74.Inotherwords,thereisobviouslystillsignificantneedforresearch,developmentanddeployment(i.e.,demonstrationandpilotprojects)beforewidespreaduseofthetechnologyatreasonablecostcanbeassumed(Kelsall,2020).Furtherhurdlesmayappearindevelopmentofthetechnology;•AnyknowncapturetechnologytodayhasCO2capturerateswellbelow100%75.Inotherwords,residualGHGemissionswouldremain–contradictingthetargetoffulldecarbonisation.•Commercial-scalecarbonstorageundergroundhassofaronlybeendoneinoperatingoilorgasfields(enhancedoil/gasrecovery)andnotinothergeologicalformations.Researchanddevelopmentinrelationtogeologicalsafetyisstillrequired(alsoseeCaoetal,2020);•ThereisstrongoppositiontoundergroundCO2storageinlargepartsoftheEU.Accordingly,theEuropeanlegalframework,theCCSDirective76leavesthelegislationtoEUMemberStates.InmostEUMemberStates,powersareconferredonregionalauthorities,whichareundercivilsocietyandvoterpressuretonotallowCO2undergroundstorage77;•Cross-borderCO2tradeandoffshoretransportationofCO2arecurrentlynotallowed(Heffronetal,2018;Banksetal,2017);and•Foracost-effectiveCCSvaluechain,largepointsourcesandlargestoragesinksneedtobeconnectedviaCO2pipelines(Holzetal,2018b).Therearecurrentlynosuchpipelinesinplace.Moreover,pipelinesystemslacktheflexibilitytoadjusteasilywhenstorageisfull.Forthesereasons,CCSdeploymentinthepowersectorhasbecomeunlikelybecauseotherno-carbonalternativeshavebecomecost-competitive,inparticularrenewableelectricityandrelatedgridintegrationmeasures.Moreover,thecostdecreaseseemstobemoredynamicinthegreenhydrogensector.Therefore,wefocusinthefollowingpassagesontheoptionsofreplacingnaturalgasbyrenewablesgasesorelectricity.Consequently,inourextremescenarios(chapter6andsection1.3),weassumethatthereisnoneedforCCSbecauseothermore-viablealternativesareavailable.However,in“middle-of-the-road”scenarios(notdiscussedinthisreport),theremaywellbeaplaceforCCS,inparticularinhard-to-decarbonizeindustrialactivities.Indeed,itisnowwidelyacknowledgedthat,iftherewereeffectiveCCSdevelopmentanddeployment,itwouldfocusonhardtodecarbonisesectorssuchasinindustry(e.g.,cement).Fromamarketorganisationperspective,thedevelopmentof74ForEurope,theassociationOil&GasEuropeprovidedalistprojectsinJuly2021,availableat:https://www.oilandgaseurope.org/wp-content/uploads/2020/06/Map-of-EU-CCS-Projects.pdfOnlythreeprojectsinthelistareoperationalandallofthemareassociatedwithoiland/ornaturalgasrecovery(andnotwiththeuse/combustionoffossilfuels).Thelistsofplannedprojectswerealsolonginthe2000s,whensubstantialsupportfundingwasavailablenationallyandatEUlevel.Yet,notasingleprojectwasrealized.Globally,theIEAprovidesamapofCCSprojectsinpowergenerationavailableat:https://www.iea.org/reports/ccus-in-powerThisindicatestwoprojectsinoperation,oneoftheminCanada(BoundaryDam,onesmallgenerationunitjustabovethethresholdtobeconsidered“commercialscale”)andtheotheroneintheUS(PetraNova,closedafteraboutthreeyearsofoperations,in2020).Twoprojectsaretoofewtorealizesufficientlearning.75Captureratesareassumedtobeintherangeof90%,i.e.,about10%ofCO2emissionsarenotcaptured.See,forexample,Lockwood(2017)ortheMITClimatePortalavailableonline:https://climate.mit.edu/ask-mit/how-efficient-carbon-capture-and-storage.76Directive2009/31/ECoftheEuropeanParliamentandoftheCouncilof23April2009onthegeologicalstorageofcarbondioxide.Availableat:https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A32009L0031.77Vögeleetal.(2017)discussthepublicacceptanceproblemofCCSintheGermancase.IPOLPolicyDepartmentforEconomic,ScientificandQualityofLifePoliciesPE695.46958small-scaleintegratedindustrialCCSprojectsasdiscussedinJagu&Massol(2020)ismorelikelythanthelarge-scaleroll-outofapan-EuropeanCO2pipelineandstorageinfrastructure.Also,utilisationofthecapturedCO2–i.e.,implementationofaCCU(carboncaptureandutilisation)valuechain–wouldreducesomeofthechallengesassociatedwithCCS,inparticularonthestorageside.AuserpayingforthecapturedCO2couldpotentiallyevenreducethecostsofCCS(Holzetal,2021).However,sofar,therehasonlybeenCCUwithEnhancedOil(orGas)Recovery,i.e.,theimprovementofrecoveryratesinoiland/ornaturalgasfields.OtherusesforcapturedCO2areenvisageable,forexampleinthefoodindustrywhereCO2isusedasinput(e.g.,carbonationofdrinks),buthavenotbeenputintopracticeyet.4.2.2.Substitutionofnaturalgasbyothergases(hydrogen,syngas,biomethane)Fossilnaturalgascanbereplacedwithoutproblemsbymethanefromothersourcessuchassyntheticmethane(“syngas”)orbiomethane.Moreover,hydrogencanpotentiallyreplacemethaneinanumberofapplicationsbecauseofitssamegaseousstateandothersimilarities.HydrogenisdiscussedindetailinChapter6.Beforewepresentthevarioussubstitutionpossibilitiesforothergasesinthemaingasdemandsectors,wereviewtheproductionmethodstoobtainalternativegases.Syntheticmethaneproducedviaso-calledelectrochemicalpathwaysisobtainedfromthemethanationofhydrogen.Inthisprocess,hydrogenandCO2areusedasinputs(Götzetal,2016).IftheinputsareGHG-freeovertheirlifetime–e.g.,obtainedfromelectrolysiswithrenewableelectricity–thefinalproductisalsoGHG-free.Giventhespecialrolefor(renewable)electricityinthehydrogenproductionprocess,thissyngasproductionroutecanbecalled‘power-to-gas’or“power-to-methane”.TheCO2feedstockmayoriginatefromtheatmosphere(directaircapture,DAC),frombiomass(e.g.,biomassgasificationorbiogasupgradingplants)orfromcarboncapturetechnologies(e.g.,appliedtofossilfuelcombustion).TheadditionalmethanationprocessmakessyntheticgasobtainedfromhydrogenandCO2moreexpensivethanhydrogen.AccordingtoSchiebahnetal(2016),costsforacompletepower-to-methanesystemincludingelectrolysis,methanation,compressionandmoreareestimatedtobeintherangeof€2000/kWel.However,suchaprocessisnotinplaceatcommercialscaleatthemomentandthereisstilllargecostuncertaintyforeachofthecomponentsofthesystem.Evangelopoulouetal(2019)estimatedthat,overall,thetechnologiesinvolvedintheprocesshaveamediumtechnologyreadinesslevel.Incombinationwithpooroverallenergyefficiency,highinvestmentcostsandveryhighelectricityrequirements,‘powermethane’islikelytoplayonlyaminorrole.Theotheralternativegreengasorrenewablegasisbiogas/biomethane.IEA(2020a)projectedarapidandstronggrowthofbiomethaneproductionandconsumptioninEuropeandglobally.Biomethanehasaveryhighmethanecontent(>90%)andisequivalenttomethanefromfossilsourcesormethanation.Smallvolumesalreadyfeedintogaspipelinestoday.Insomecountries,itisconsideredaninstrumenttodecarbonisegastransportandtherearegovernmentpoliciesinplacethatsupportbiomethaneinjectionintonaturalgasgrids(e.g.,inGermany,Italy,theNetherlands).Biomethaneisobtainedeitherby‘upgrading’biogas(i.e.,removingtheCO2andothergases,therebyincreasingthemethaneconcentration)orthroughthegasificationofsolidbiomass.IEAestimatedthatthefuturebiomethanepotentialintheEUanditsneighbouringregionsismanytimesabovecurrentproductionvolumes.Ifbiomethaneisproducedbyupgradingbiogas,CO2inarelativelyconcentratedformisobtainedasaby-product.DecarbonisationofEnergy59PE695.469Incombinationwithhydrogen,thisCO2couldbeusedtoproduceanadditionalstreamofmethane(IEA,2020a).AnotheroptionwouldbetostoretheCO2undergroundsothatthebiomethaneisaCO2-negativesourceofenergy(BECCS).However,biomethaneproductioniscostly.Dependingonthesourceandtechnology,biomethanecostsexceedcurrentnaturalgasprices.Theaveragecostforbiomethaneproducedtodayisaround€55/MWh(IEA,2020a),withonlybiomethanefromlandfill(solidwaste)below€45/MWhandsomeevenbelow€30/MWh.TheIEAexpectsthecoststodecreasesubstantiallyatglobalscale,withalargeshareoffutureproductionataround€30/MWh.Inparticular,theprocessofthermalgasificationofsolidbiomass–asyetimmature–haslargepotentialforfuturecostreductions(IEA,2020a).However,forthetechnologiesrelevantinEurope,theIEAexpectslessofacostdecreaseandcostsmaywellstayabove€45/MWh(IEA,2020a).Therewillbeaneedforashiftinproductionsources,sothatsustainablesourcesplayagreaterrole.Inadditiontothesourcescurrentlyused,suchasmunicipalwastewater,municipalsolidwasteandanimalmanure,othersourcesincludingwoodybiomassandcropresidueswillplayalargerrole.Atthesametime,sustainablebiogas/biomethaneproductionrequiresareducedrolefordirectcropuse,becauseofthecompetitionwithfood.Inadditiontobiomethane,biogasproductioncanbeexpectedtocontinuetoexpandinthenextfewdecades,thoughmoreslowlythanbiomethaneproduction.Biogasisthelow-methanegasobtainedfromthebiochemicalpathway.Biogaswillcontinuetoservelocaldemandforheatandpower,inparticularinareaswhererenewableelectricitycannotguaranteetoprovide100%oftheenergysupply.Despitetheirgrowingpotentialandfurthercostreductions,biogasandbiomethanearelikelytocontinuetoplayarathersmallroleinreplacingnaturalgas.Inparticular,costsarelikelytoremainaboveotherrenewablealternativessuchaselectricityandhydrogen.However,supportpolicies,whichcancompensateforpartsofthecosts,couldliftbiogas/biomethaneoutoftheirniche.Fendtetal(2016)comparedthecostsandefficienciesofthetwotypesofrenewablemethane.Forbiomethaneobtainedfromthetraditionalbiochemicalpathway(i.e.,theupgradingofbiogas),theyestimatedefficienciesintherangeof55%–57%,withapotentialtoimproveabove80%.Forbiomethanefromgasification,theyexpectedsomewhathigherefficienciesofupto70%todayand75%inthefuture.Power-to-methane(i.e.,methanationofhydrogen)isexpectedtoachieveefficienciesbetween54%and60%,withfutureimprovementtoupto78%.Ofcourse,inadditiontotechnologicalimprovementfromlearning,scaleeffectsprevailinrenewablemethaneproduction,sothatproductionandinvestmentcostswilldeclinewithincreasingplantsizes.Productioncostsvarybetween5.9and13.7€ct/kWh(biochemicalbiomethaneproduction),5.6and37€ct/kWh(thermochemicalbiomethaneproduction),and8.2and93€ct/kWh(power-to-methane)(Fendtetal,2016).Thus,noneoftherenewableproductionroutescancompetewithtoday'snaturalgasprices,butalloptionsareabletoprovidecarbon-freemethane.Usingmethanefromtheserenewablesourceswillallowthecontinueduseoftheexistinginfrastructure,fortransportationandlong-term(inter-seasonal)storage,andinfinal-userappliances.Theriskofassetstrandingonlyarisesiftheuseofrenewablemethaneisconsiderablylower–orlimitedtospecificregions–comparedtotoday’sdemandlevels.a.Demandside1.IndustrySyntheticmethanecanserveasasubstituteforfossilnaturalgasintheindustrialsector,potentiallyreducingtheemissionfactorsubstantially(Fleiteretal,2019).IPOLPolicyDepartmentforEconomic,ScientificandQualityofLifePoliciesPE695.46960Themainadvantagecomparedtopurehydrogenisthatsyntheticmethanecanbesuppliedthroughtheexistingnaturalgasgridandcanuseexistingundergroundstoragefacilitiesforlong-term(inter-seasonal)storage.Thisleadstolowerinvestmentcostsforthetransportinfrastructure.Furthermore,replacingfossilnaturalgasbysyntheticmethanerequiresfewerchangestoindustrialproductionprocessescomparedtootherdecarbonisationoptionsfortheindustrialsector,suchasdirectelectrification.Hence,theinvestmentcostsareaccruedonthesupplysidewhileindustrialuserscanmainlymaintaintheirappliances.However,giventhesubstantialelectricityrequirementsandthecostsforthemethanationprocess,syntheticmethaneisunlikelytobeeconomicallyviableasareplacementforallindustrialnatural-gasusage(Batailleetal,2018).Instead,syntheticmethaneisausefulalternativeforspecificindustrialprocessesandsubsectorsforwhichdirectelectrificationistechnicallyinfeasibleornoteconomicallydesirable.Mostfossilnaturalgasintheindustrialsectorisusedforthegenerationofheatandsteam(Mantzosetal,2018).Whilelow-temperatureheatrequirementscanbemetthroughelectrificationwithexistingandestablishedtechnologies,hydrogenandsyntheticmethaneareusefultosupplyheatabove1000°C(Maddeduetal,2019).High-temperaturedemandstemsmainlyfromclinkerburninginthecementindustry,productionofprimarysteelwithblastfurnacesandaluminiumsmelting(Honoré,2019).Toproduceclinker,otherfuelssuchasbiomassorwastearelessexpensivethansyntheticmethane(HübnerandvonRoon,2021).Syntheticmethanecanbeusedasareducingagentinconventionalblastfurnacesintheproductionofprimarysteel.However,thepotentialtodecreaseGHGemissionsislimited.Othertechnologiesarerequiredtofullydecarbonisesteelproduction,suchasthedirectreductionofironoreincombustion-freereactorsfuelledbyhydrogen(Baileraetal,2021).Anotheroptionistoreplaceprimarysteelbysecondarysteelwhichisproducedbyre-meltingscrapsteelinelectricarcfurnaces,andwhichis100%electrifiable(Maddeduetal,2019).Thechemicalsectorreliestoagreatextentonfossilnaturalgas,whichismostlyusedforenergy-relatedprocessesbutalsoasafeedstock(seeFigure4-6).Althoughthechemicalindustryproducesmanydiverseproductsusingdifferentprocesses,mostofthesector´semissionsarisefromtheproductionofammonia,methanol,propylene,ethyleneandbenzene/toluene/xylene(BTX)(SchifferandManthiram,2017).Ammoniaisproducedfromhydrogenandnitrogenfromtheair.Currentlyhydrogenismainlyprovidedbysteammethanereforming(SMR)fromfossilnaturalgas(seechapter5onhydrogen).Therefore,decarbonisingthesupplyofammoniarequiressubstitutinghydrogenfromSMRbyproductionfromelectrolysiswithrenewableenergy.Methanolisproducedfromtheassociationofhydrogenwithcarbonmonoxideorcarbondioxide(Parigietal,2019).Similarlytotheproductionofammonia,ashifttowardshydrogenbasedonrenewableenergywouldbecrucial.Furthermore,thisprocessallowsforuseofCO2,whichcaneitherbesourcedfromcapturedemissionsfromotherproductionprocessesorviadirectaircapture.ThesyntheticmethanolcanserveasafeedstockfortheproductionofpropyleneandethyleneandBTX,whichiscurrentlymainlyproducedbysteamcrackingofnaphtha(Chanetal,2019).Themethanol-to-olefins(MTO)productionprocessisalreadycommerciallyestablishedandcouldleadtoanalmosthalvingofGHGemissions.IftheCO2formethanolproductioniscapturedfromtheair,emissionscouldevenbenegative(Dechema,2017).Thecostsforthisproductionpathwayareabove€1000pertonofethyleneandbetween€1300and€2800forBTX,andarethusnotyetcompetitivewithproductionusingfeedstocksbasedonfossilfuels(Dechema,2017).2.PowerandheatdemandUsinggreengases(syntheticmethaneorhydrogen)inpowergenerationhasthebigadvantageofprovidingadispatchable,storedfuelavailableinperiodsthatrequireflexibility,suchaswhenthereislowrenewablesupply(forexample,theso-called“Dunkelflaute”momentswithnosunandnowind).DecarbonisationofEnergy61PE695.469Forthispurpose,greengasescanbeusedinthesamewayasfossilnaturalgasinthetransitionperiod.Greengasescompetewithotherflexibilitytoolsinthisrole,includingelectricstorage(pumphydro,batteries)anddemand-sidemanagement.Greengases,inthiscontext,areoftenreferredtoas“power-to-gas”(orpower-to-X).Clearly,usingsyntheticmethaneasinputfuelinpowergenerationisveryinefficient,giventhatmultipleconversionefficiencylossesaddup:conversionofrenewableelectricitytohydrogenandconversionofhydrogentosyntheticmethaneandthencombustioninpowerplantstoelectricityagain.Currently,electrolyserconversionefficiencyislessthan65%.Gorreetal(2019)predicteditincreasingto75%in2030and78%in2050.Electricitylossesfortheinitialgenerationofhydrogenandsubsequentsyntheticmethaneproductionareabove20%-30%.Thereconversionofsyntheticmethaneinelectricitycantakeplaceincombinedcyclegasturbines(CCGTs)oropencyclegasturbines(OCGTs).WhileCCGTsconversationefficiencyisabove60%,theefficiencyevenofmodernOCGTisonlyinarangebetween35%and40%.Insum,theaggregatedefficiencyoftheseconversationstepsisslightlyabove30%,meaningthatalmost60%oftheinitiallygeneratedelectricityislost.Clearly,thesameholdsforthegenerationofhydrogenfromrenewableelectricityandthesubsequentcombustionofthishydrogen.Here,fuelcellscould–potentially–replaceOCGTs.However,theirefficiencyisonlyslightlyabove60%,soinsumanefficiencyof~45%-50%.Inaddition,becausehydrogendiffusesinair,therearemorelossesinthisvaluechain.So,usingsyntheticgasesasstoragemediumforlong-term(inter-seasonal)storageisexpensive.Inaddition,syntheticmethaneisproducedathighcosts,considerablyhigherthannaturalgaspricestoday.Similarly,electricitygenerationfrombiogas/biomethaneisassociatedwithhighcostsbecauseoftherelativelyhighcostsofproductionofthebiogenicfuel.Dependingonthespecificbiogas/biomethaneproductionplantandfeedstock,thelevelisedcostsofelectricitygenerationareestimatedtobebetween€43/MWhand€160/MWh(IEA,2020a).Asubstantialpartofthisrangeliesabovethecostofgenerationfromwindandutility-scalesolarPV,whichhavecomedownsharplyinrecentyears78.However,unlikewindandsolarPV,biogas-firedpowerplantscanoperateinaflexiblemannerand,hence,providebalancingandotherancillaryservicestotheelectricitynetwork(IEA,2020a).Similarlyforheating,wherelocalheatdemandispresent,acombinedheatandpowerplantfiredwithbiogascanbeoperatedeconomicallyandmoreefficientlythananelectricity-onlyplant.Thisisbecauseacombinedheatandpowerplantcanprovidealevelofenergyefficiencyofaround35%inelectricitygenerationandanadditional40%-50%whenthewasteheatisputtoproductiveuse.Theeconomicsofpower/combinedheatandpowerplantsfiredwithhydrogenarebetterthanthosefiredwithsyntheticmethane,becauseonefewerconversionstepisrequiredinthevaluechain.The‘saved’conversionlossesmorethancompensateforthelowerenergydensityofhydrogen.Ofcourse,bothsyntheticmethaneandhydrogenwillneedtobestoredforaperiodoftimebetweentheirproductionanduseingasturbines.Forsyntheticmethane,theentirecapacityofundergroundgasstorageinEuropecanbeused.In2017,theEUhadmorethan977TWhworkinggascapacityinundergroundgasstorage(IEA,2019b).ThevastmajorityofgasstoragecapacityintheEUisindepletedoilandgasfields(68%),whilesaltcavernsareonlyasmallshareof17%,slightlymorethanaquifers(15%).Incontrast,onlysaltcavernsaresuitableforthestorageofhydrogen(e.g.,Caglayanetal,2020),i.e.,about166TWhworkingcapacity,mostlylocatedinGermany(83%ofthe166TWh).78In2020,thelevelizedcostsofelectricitygenerationofutility-scalesolarPVwere48€/MWh,foronshore-wind33€/MWhandforoffshore-wind71€/MWh(IRENA,2020).ConversionofDollarstoEuroswithanexchangerateof0.85€/$.IPOLPolicyDepartmentforEconomic,ScientificandQualityofLifePoliciesPE695.469623.TransportsectorNaturalgasislittleusedinthetransportationsector(i.e.,roadtransport,railways,ships,aviation).However,thereiscurrentlyagrowingmarket–albeitatverylowlevels–forLNG-fuelledshipsandtrucks.LNG(liquefiednaturalgas,cooleddowntolessthan-161°C)isalower-emissionalternativetoheavyfueloilthatcanhelpincomplyingwithemissionstandardsincoastalemissioncontrolareas.Likewise,distributiontruckswithLNGfuelarereportedtocauselesslocalpollutionthandieseltrucks,whichisparticularlyattractiveinurbanareas.Yet,evenparticipantsfromtheshippingindustry,suchastheMaerskCEO,havecalledforfossil-freeshippingfuels79.ThiswouldexcludeLNG,too.Syntheticmethanecouldtechnicallyreplacefossilnaturalgasinthesamedemandusesinthetransportationsector.Moreover,syntheticmethanecanreplaceoilproducts.Syntheticmethanewouldbeusedwiththesametypeofinternalcombustionengineastoday,therebyreducingtheneedtofurtherpushtechnologydevelopmentinpursuitofalternativedrivepropulsionsystems.However,thecumulativecostsofsyntheticmethaneproductionandcoolingtoLNG-temperaturesarelikelynotdecreasingtoalevelatwhichsyntheticLNGcouldcompetewithothernon-methanealternativessuchashydrogen,ammoniaorelectrification.Inadditiontothedirectcosts,themultipletransformationprocessesinthesynthetic-LNGproductionchainwouldcumulatehighlosses(fromelectrolysis,thenmethanation,thencooling).b.TransportationinfrastructureSyntheticmethane–bothfromthemethanationofhydrogenandfrombiogenicsources–canusecurrent(fossil)naturalgasinfrastructurebecausetheyareallalmost-puremethane.Indeed,biomethaneisalreadyfedintotheEuropeannaturalgasgridinsmallvolumes.Inotherwords,thetransport–andalsostorage–ofsyntheticmethaneincurrentnaturalgasinfrastructurewouldnotcauseanyconversioncosts.Researchonpotentialchallengesinconvertingnaturalgaspipelinestotheuseforthetransportofhydrogenisongoing(alsoseeChapter5).Forlong-distance,high-pressuretransmissionpipelines,Cerniauskasetal(2020)concludedfromanin-depthanalysisofthematerialsusedintheGermannaturalgaspipelinesystem,thatmostpipelinescanbereassignedtohydrogentransportdespitethedifferentpropertiesofhydrogen(andinparticularhydrogen’stendencytodissolveinmanymetalsandtoleakout,leadingtoso-calledhydrogenembrittlementofmaterials).However,conversionofthemethaneinfrastructureforhydrogenwouldincursomecostsbecausecertainelementsofthegridinfrastructurewouldneedtobereplaced(e.g.,valves).Forthedistributiongrid,earlyresearchresultsfromongoingprojectsalsoindicatethatatleastrecentlybuiltnatural-gasdistributionpipelines(withplasticmaterial)andequipmentcanbeconvertedtouseforhydrogen80.There,too,theconversionpotentialseemstodependonthepipelinematerial.79SeeforexampletheinterviewtranscriptwiththeCEOofMaerskhere:https://newsrnd.com/business/2021-09-08-maersk-boss-skou--%22we-have-to-ban-new-ships-with-fossil-fuels%22.SkT8j-Uzt.html(lastaccessedonSeptember13,2021).80SeetheHYPOSprojectinGermany:https://www.hypos-eastgermany.de/en.DecarbonisationofEnergy63PE695.4694.2.3.Substitutionofnaturalgasbyelectricitya.IndustryTherapidreductionofthecostofelectricitygenerationfromrenewableenergyleadstotheelectrificationofindustrialprocessesasakeypathwaytoachievezeroGHGemissionsinthissector.Onecandistinguishbetweendirectelectrification,i.e.,thesubstitutionoffossilfuel-basedproductionprocesseswithtechnologiesusingelectricity,andindirectelectrificationsuchastheproductionofsyntheticfuelsandhydrogenfromelectricity.Whilethelatterarecoveredinchapter1.2.2,thispartconsidersonlydirectelectrification.Directelectrificationislikelytobemoreefficientandcost-effectiveformostindustrialproductionprocessesthanrelyingonindirectelectrificationmethods,becauseoftheirlowconversionefficiency.Asmentionedearlier,themainuseofnaturalgasisinthegenerationofheat.Especially,lowtemperatureheatrequirements(below400°C)areelectrifiablewithexistingtechnologiessuchaselectricboilersorheatpumps.Thiscoversmostofthenatural-gasusageinthefood,wood,textilesandpulpandpaperindustries.Moreover,electrifiedfurnacessuchasresistance,inductionandarcfurnacescanprovideheatabove400°Cneededtofireceramicsandmeltmetals.Withthesetechnologies,about78%ofindustrialenergydemand,excludingfeedstocks,canbeelectrified(Madedduetal,2020).Forhigh-temperatureheatrequirements,theelectrificationpotentialdependsonthespecificsector.Intheironandsteelindustry,secondarysteelmakingfromscrapsteeliscompletelyelectrifiableandalreadycompetitive(Weietal,2019).Directelectrificationofprimarysteelproductionthroughelectrolyticreductionofironhasbeentestedinpilotprojects,whileproductionusinghydrogentoreduceironoreoffersagreatertechnologicalreadiness(Philibert,2019).Forthecementindustry,itispossibletogeneratethehigh-temperatureheatforclinkerproduction,butthesetechnologiesarestillattheresearchphase(Madedduetal,2020).Therefore,biomassorproductionofdifferenttypesofcementthatdonotrelyonclinkerburningoffermoreviablealternatives(Chanetal,2019).Withavailableandmaturetechnologies,alargeshareofnaturalgasusagecouldbereplacedbydirectelectrification.Majorobstaclesarethehighelectricitypricecomparedtofossilnaturalgasandhighinvestmentcosts.b.PowerdemandSupplyingelectricitywith100%renewableenergyisfeasible(Zappaetal,2019).Akeychallengewillbeincreasedpeakelectricitydemandarisingfromtheelectrificationofthetransport,residentialandindustrialsectors(Madedduetal,2020).Becauseoftheintermittentsupplyofelectricityfromrenewablesources,storagefacilitiesorplantsthatprovideelectricityflexiblyarenecessary.Natural-gasplantsprovidesuchadispatchablesourcesincetheycanberampedupwithinafewminutesandhavecomparativelylowoperationalcosts.However,othertechnologiesareavailablewhichdonotemitgreenhousegases.Oneoptioniselectricalenergystoragewhichtransformselectricityinastorableformandprovideselectricityatalaterpointintime(Luoetal,2015).Thiscoversawiderangeoftechnologieswithdifferentconversionefficiencies.Whilemostelectricalstorage,suchaspumpedhydroorbatteries,cannotbescaleduptostoreenoughenergytoreplaceashortfallofrenewablesformorethanacoupleofhours,hydrogen-basedfacilitiesmightprovidestorageforuptoseveralweeks(Schill,2020).Storagefacilitiesbecomeespeciallyimportantforhighsharesofrenewableenergyintheelectricitysupply(above80%).Forlowershares,otherflexibilityoptionssuchasthedeploymentoftransmissionlinesordemand-sidemanagementprovidemoreefficientalternatives(SchillandZerrahn,2018).Tobalancedifferencesinelectricitysupplyanddemandacrosslongdistancesandtimeperiods,theIPOLPolicyDepartmentforEconomic,ScientificandQualityofLifePoliciesPE695.46964conversionofelectricitytosyntheticmethaneorhydrogen(“Power-to-gas”–PtG)isaplausiblesolution(alsoseeChapter5).Thesetechnologiesarestillexpensivebutcouldbecomecost-efficientcomparedtofossilnaturalgasplantsby2050(MaederandBoulouchos,2021).c.HeatingdemandToday,fossilnaturalgasisusedwidelyforthegenerationofheat,bothinlarge-scaleheat(orcombinedpowerandheat)plantsfordistrictheatingsystems,andinindividualhomeboilers.Thereisastrongconsensusthat,inthelongrun,individualhomescanefficientlyobtainheatingfromelectricallypoweredheatpumps.Alsoforlarge-scaledistrictheatingsystems,sourcingfromrenewable(electricity)sourcesisenvisaged,suchaslarge-scaleelectricallypoweredheatpumpswithvariousheatsources(air,ground,seawater,sewagewater,groundsourcewater).Thismaybecoupledwithcoolingsupply.Therewillneedtobefurtherinnovationandcostreductions,forexampleinheatstoragetechnologies,toachievea100%renewableheatingsupply.However,thetransitiontorenewablesourcesinheatingwillrequiretheproperincentives.Inthecurrentsystem,therearestrongpathdependenciesandmanycountriesprovidesupporttoconvertcoal-fired(powerand)heatplantstonaturalgasfiredplantsintheongoingcoalphase-outwave.Giventhelonglifetimeofheatplantsandcombinedheatandpowerplants(usuallyabove30years),convertingtonaturalgasfiredplantsnowcreatesalock-inoffossilfuels.d.TransportsectorThereisnowageneralconsensusthatthedecarbonisationofthetransportsectorwillinlargepartsbeachievedbyelectrification(AgoraVerkehrswende,2020).Thereiscontinuedimprovementofbatterytechnologies,andthedeploymentofcharginginfrastructureatincreasingspeedhascreatedlock-insintothetechnology.Theongoingelectrificationeffortsarebestknowninindividualtransport(cars).However,naturalgas–intheformofLNG–isusedinheavy-dutyfreighttransport,e.g.,urbantrucktransport(heavy-dutydistribution).However,batterydevelopmentisalsoprogressingforheavy-dutytrucksthatrequirehighenergyprovision(becauseoftheheavyweight)butnotlongdistance(becausetheyonlyservelocalcustomers),withthefirstdemonstrationfleetsinplace.Similarly,R&Dandpilotprojectsareinplaceforcoastalshiptransport,inparticularferries.Byandlarge,theongoingimprovementofbatterytechnologiesindicatesthatnaturalgascanbereplacedbyelectricityinthemediumandlongrunto2050.4.3.DevelopmentofmethanesupplyanddemandinthreeextremescenariosInthefollowing,welookatthepotentialdevelopmentupto2050ofmethanegassupply.Wefocusinsections1.3.1-1.3.3onthefutureroleofsyntheticmethanegas.Thethreecornerscenariosareverydifferentintheirgeneralcharacteristics,forexamplewithrespecttotheroleofelectrificationandhydrogen.Chapter2providesanintroductiontothescenariosandChapter6anoverviewacrosssectors,showsthemainresultsrelevantforthegassector.Figure4-10showsthemainresultsrelevantforthegassector.However,therearesometrendsinthedevelopmentoffossilnaturalgasandofsyntheticmethanecommontoallscenarios.Inotherwords,thesearedevelopmentsthatweexpecttotakeplaceinallcircumstances,becauseoftheEU’sclimateneutralitytarget,thetechnicalpotentialofbiogas/syntheticgasproductionintheEUanditsneighbourhood,infrastructureeconomics,thedevelopmentofCCStechnology,andtherelativecostsofsyntheticgasandhydrogen.DecarbonisationofEnergy65PE695.469Thesecommontrendsare:•Fossilnaturalgasusewillbecompletelyphasedoutby2050toachieveclimateneutralityintheEU;•TheEUwillneedasubstantialexpansionofrenewableelectricitygenerationthatwillbeeitherconsumedorusedtoproduceH2orsyntheticmethane(alsoseechapter6);•Fossilnaturalgaswillnolongerbeusedforpowergenerationby2050intheEU.In2030,naturalgaspowerplantswillstillcontributetoprovideflexibilityinelectricitysystemswithincreasingsharesofrenewables,aswellasto(combined)heat(andpower)indistrictheatingsystemsacrossEurope.Methane-firedpowergenerationwillceasecompletelyby2050,i.e.,syntheticgaswillnotreplacefossilnaturalgasinpowergeneration;Rather,hydrogenwillplayaroleasaflexibilityproviderintheelectricitysector,inadditiontootherflexibilityoptions,includingelectricitygridexpansion,demandsidemanagement,pumpandbatterystorage,etc;•Fossilnaturalgaswillceasetobeusedasenergyinputinindustry(i.e.,forcombustion).Itwillbereplacedbyalternativeprocessesbasedonelectricity,hydrogenorsyntheticgas,withvaryingsharesofthesedependingonthescenario;•Syntheticgaswilltoagreatextentreplacefossilnaturalgasasafeedstockinindustrialprocesses,althoughnotnecessarilyentirelyandwithvaryingextentsinthescenarios;•Fossilnaturalgaswillnotbeusedfortheproductionof(greyorblue)hydrogeninsteammethanereforming(SMR)orpyrolysisprocessesintheEUby2050.Hydrogenwillexclusivelybegeneratedfromelectrolysisofrenewableelectricityby2050(seechapter5).Thisisrequiredtoachievetheclimateneutralitytarget;•Giventheextensiveexistingnaturalgaspipelinesystems(bothhigh-pressuretransmissionandlow-pressuredistribution),aswellasthegenerousLNGimportcapacitiesintheEU,nofurtherinvestmentsinmethanetransportationinfrastructureareneededbeyondwhatiscurrentlyinplaceandunderconstructionintheEU;and•Fossilnaturalgasishardlyusedinthetransportsectortoday.Thisusewillbecompletelyphasedoutby2050.Itwillbereplacedbyelectricity,hydrogenandsyngas,withvaryingsharesdependingonthescenario.IPOLPolicyDepartmentforEconomic,ScientificandQualityofLifePoliciesPE695.46966Figure4-10:OverviewofscenariotrajectoriesandmethanesectoroutcomesSource:Authors’ownelaboration.4.3.1.Allelectric-worldIntheall-electricworldscenario,allusesofnaturalgasthatcanpossiblybeservedbyelectricitywillbeelectrifiedby2050.Whereelectrificationisnotpossibleandgaseousinputfuelsarerequiredin2050,greenhydrogenisthefuelofchoicebecauseofitslowercostsofproductionthansyntheticmethane.Thismeansthat,in2050,thereisnouseofnaturalgasasanenergyinputinanall-electrifiedEU.Somesmallquantitiesofnaturalgasarestillusedasfeedstockinindustry.Naturalgashassomecostadvantageoversyntheticmethane.However,somesyntheticmethanethatcanbeproducedatthelowerendofthecostrange(e.g.,biomethane)willalsobeusedasafeedstockwhereavailable.Insum,aboutonethirdofthemethanefeedstockwillcomefromfossilnaturalgasandtwothirdsfromsyntheticmethane.Moreover,someverysmallvolumesofsyntheticmethanewillbeusedasenergyinputinindustry.Someofthesyntheticmethane,aroundaquarter,willcomeasimportsfromneighbouringregions.However,totalmethanedemandvolumeswillbeverysmall(lessthanatenthoftoday’snaturalgasdemand),sothevastmajorityofnaturalgasinfrastructureforsupplytoandwithintheEUwillbecomestranded.Hydrogen,whichalsoplaysonlyasmallroleintheall-electricworld,willnotpreventthestrandingofmostnaturalgastransportandstorageassets.Inthetransitiontotheall-electricworld,naturalgaswillcontinuetobeusedthroughthenextdecade,thoughwithsomewhatsmallervolumesalreadyby2030aselectrificationprogressesquickly.WhiletheEUpowersystemincreasesitsshareofrenewables,naturalgascanprovideflexibility.4.3.2.HydrogenimportstofueltheEUInthisscenario,hydrogenreplacesnaturalgasatlargescaleinusesacrosstheeconomy.Consequently,naturalgasandsyntheticmethanearehardlyusedby2050.Asintheall-electricscenario,onlysomesmallvolumesofindustrialdemandforenergyuse(syntheticmethane)andforfeedstock(bothDecarbonisationofEnergy67PE695.469syntheticmethaneandfossilnaturalgas)remain.Intotal,inahydrogenworldin2050,syntheticmethaneandnaturalgascombinedprovideonlyaboutonetenththesupplylevelsoftoday.Inthehydrogenimportsscenario,abouthalfofthesyntheticmethaneisassumedtobeimported,inadditiontohydrogenimports.Giventherelativelysmallvolumesofsyntheticmethaneconsumptioninthisscenario,justasintheall-electricworldscenario,mostofthenaturalgasinfrastructurewillbecomeidle.However,inhydrogenimportssomeofthenaturalgasinfrastructurecanbere-purposedforthetransportandstorageofhydrogen.Theexactamountthatcanbeconvertedisstillatopicofresearch,butitseemsthatalargershareofpipelinescanbeconverted(e.g.,Cerniauskasetal,2019),inparticularindistributionnetworkswheremodernpipelinesareplastic-made(notmetal).Theconversionpossibilityissmallerinstoragebecauseonlyabout17%oftheundergroundgasstoragecapacityinplacecanbeusedbyhydrogen,namelysaltcaverns.4.3.3.GreengasesinoldpipelinesTheGreengasesscenarioinvolveslargeandwidespreaduseofsyntheticmethaneacrossallsectorsoftheeconomy.Totalsyntheticmethanedemandin2050,therefore,istentimesgreaterthanintheothertwoscenariosandaboutthesamelevel,ifnotslightlyhigher,thantoday’snaturalgasdemand.Incontrasttotoday’snaturalgasworld,theimportshareofsyntheticmethaneiscomparablylowataround50%.Inotherwords,thedependencyonimportedmethanewillsignificantlydecrease.Inbuildings,in2050,electricitywillbethemainenergycarrieralsointhegreengasesscenario,becauseofhigherefficienciesandlowerfuelcosts.Buttherewillcontinuetobesomeuseof(synthetic)methaneinbuildings,relyingondistributionnetworksinselectedregions.Moreover,thegreengasesscenarioistheonlyoftheextremescenariosinwhichsyntheticmethaneisusedinpowergenerationin2050,thoughatmoderatevolumes,indicatingtheimportanceofsyntheticmethaneasaflexibilityfuelthatcanbedispatchedinperiodsoflowrenewablesupplybecauseitisreadilyavailablefromstorage.Inadditiontotoday’slargedemandsectorsformethane,buildingsandindustry,alargeshareofthesyntheticmethanewillalsogototransportdemand.Forthetransportsector,weassumeinthegreengasesscenariothattherewillbeafocusonthecontinueduseofinternalcombustionenginevehicles.Thistraditionaltechnologyhasamuchlowertank-to-wheelefficiencythanelectricvehicles(~90%)orfuelcells(~60%)ofonlyabout30%,therebyrequiringmassivefuelinputintheformofsyntheticgas.4.4.Conclusions:nextstepsinEUgaspolicyInthischapter,wediscussedindetailthattheuseofnaturalgaswillhavetoceaseby2050andthatnaturalgascanbereplacedbyavarietyofalternatives:•Bysyntheticmethanefromvarious,costlysources(biogenic,ormethanisedhydrogen)easily;butprobablylimitedinquantity;•Byhydrogenrelativelyeasily,butwithsomechallengesbecauseofhydrogen’sdifferentcharacteristics,whichwouldrequireconversionofnaturalgasinfrastructureassets(inparticularpipelinesandrelatedequipment),andatmoderatecostsofproductiononcelarge-scalerenewableelectricitygenerationandelectrolysisareinplace(alsoseechapter5);and•Byelectricityinanumberofend-uses,e.g.,inheatingsupply,inseveralindustrialprocesses,etc.,atmodestsupplycost,butwith–moreorlesscostly–conversionofend-usesrequired.Mostlikely,theoutcomeby2050willbeamixofoptions.Hence,policytodaymustensurethatalloptionscanbeimplemented.IPOLPolicyDepartmentforEconomic,ScientificandQualityofLifePoliciesPE695.46968Thenatural-gassectorreliesonasset-specificinfrastructure(pipelines,undergroundstorage,LNGterminals)thatiscurrentlyregulatedbytheGasDirective(2009/73/EC)andthe“GasRegulation”(715/2009/EC).Theuseoftheseinfrastructureassetswillbesubstantiallyalteredinvaryingways,dependingonthescenario.Forexample,intheHydrogenimportsscenario,re-purposingofnaturalgaspipelineswillbeanoption,whilegreenfielddevelopmentofahydrogenpipelinegridwillbeanotheroption.Inthegreengasesinoldpipelinesscenario,incontrast,thecurrentpipelinesystemcancontinuetobeoperated.However,itmustbequestionedwhethertheproductionpotentialforgreengas(es)islargeenoughtojustifyeconomicallythecontinuedoperationoftheverylongandverydenseEuropeangaspipelinesystem.Wedonotfind,eveninourmostgas-intensivescenario,thesamelargevolumesofmethanegasesasareusedtoday.Similarly,thepipelineneedforhydrogentransportisnotaslargeasthefossilnaturalgasvolumestransportedtoday.Ourquantitativefindingsaresomewhatincontrastwiththeassumptionsoftheongoingrevisionofthegasmarketrulesintheframeworkofthe“hydrogenanddecarbonisedgasmarketpackage”wherealargeroleforgaseousfuelsby2050istakenasstartingpoint.WeagreethatanewregulatoryframeworkGasDirectivetoahydrogenanddecarbonisedgasmarketpackageshouldhelpensureanorderlytransitionfromtoday’snaturalgasworldtoanyfuture2050state.Whiletheinternalmarketrulesarenotbequestioned,therewillbeneedforadditionalprovisions.Importantly,thereneedstobeaframeworktoaddressstrandedfossilgasassets(i.e.,unusedinfrastructureassetsthatcannotbere-purposedtoaccommodatehydrogenorothernon-methanegasesorliquids).Inthis,questionssuchasfinancialcompensationforprematurelystrandedassets,theobligationtodemolishorre-purposemustbeaddressed.Asusual,the“devilwillbeinthedetails”.Forexample,itwillneedtobedefinedwhenanassetis“prematurely”unusedwhichischallenginginasectorwheremostdataandinformationisprivateandconfidential.Giventheuncertaintyonthefuturedevelopmentsthatishighlightedbyourscenarios,werecommendtheregularrevision(i.e.,evaluationandadaptation)ofthelegislativeframeworkformethaneandhydrogengasesinthenextyears.Ofcourse,inviewoftheneedtostopconsumingfossilnaturalgaswithinthenexttwodecades,anyconstructionandnewbuiltoffossilnaturalgasmustbestopped,becausetheymightbecomestrandedwithinashortperiodoftime.TherevisedTEN-Eregulationandtheprojectsofcommoninterest(PCI)criteria,therefore,donotincludenaturalgasassetsanymore.TheEUmightconsidersupportingaverylimitedsetofinfrastructurefacilitiesthathelpimprovingtheInternalEnergyMarket,e.g.,reverseflowcapacities,newentrypipelinesincurrentmonopolisticmarketsandsimilar,butthisshouldbedoneunderadifferentlabelandwithverylimited,carefullydesignedrestrictions.Also,convertibilitytohydrogen(‘H2readiness’)couldbeanadditionalcriterionforsupportinthiscase.Inadditiontotransportationinfrastructure,consumptionassets(appliances)usedbythefinalconsumersofnaturalgaswillbeaffectedifthefuelischangedfrommethane(CH4)tohydrogen(H2)orelectricity.Here,too,thereisaregulatorychallengeofhowtoincentiviseorrequireconsumers(inhouseholds,industry,commercial)toparticipateinapotentialfuel–andappliance–switch.Theorganisationofthetransition(i.e.,oftheswitching)isusuallydonebytheutilities,underthesupervisionofnationalregulators.However,thereisclearlyacaseofforregional(multi-country)orevenEU-widecoordinationofthenationalandsub-nationalactivitiesandthenationalregulators.Despitetheirincreasingpotentialandfurthercostreductions,biogasandbiomethanearelikelytocontinuetoplayarathersmallroleinreplacingnaturalgas.Thisisinparticularduetothefactthatcostsarelikelytoremainaboveotherrenewablealternativessuchaselectricityandhydrogen.However,supportpoliciesthathelpoffsetpartsofthecostscouldliftbiogas/biomethaneoutoftheirniche.DecarbonisationofEnergy69PE695.469Intheshortrun,itisunlikelywewillseearaftofnationalfossil-gasphaseoutssimilarlytocoalphaseouts,despitesomeactivismandearlystepsinthisdirection(e.g.,BOGA,BeyondOilandGasAlliance,tobelaunchedatCOP26inNovember2021).Rather,wearguethatweneedbetter–comprehensive–pricingoftheexternalitiescausedbytheuseofnaturalgastoprovideeconomicincentivestoreduceitsconsumption.Notably,thisincludespricingofupstreamfugitiveCH4emissionsofthenaturalgasconsumedinEurope,includingimportswhichdominatetheEU’sconsumptionwithashareabove80%.Thisrequirespropermonitoring,reportingandverificationofthemethanefootprintofnaturalgasimportsfirst,andpricingsecond.IPOLPolicyDepartmentforEconomic,ScientificandQualityofLifePoliciesPE695.469705.THEROLEOFHYDROGENINDECARBONISATION5.1.SituationtodayIn2018,demandforhydrogenintheEUwas330TWh(HydrogenEurope,2021),withapproximately100MtrelatedCO2emissions81.Demandisdrivenbytheneedforhydrogenintheproductionofammoniaandintherefiningofcrudeoil.Toalesserextent,demandexistsforhydrogenfeedstockinmethanolandotherchemicals.Demandforuseintransport,industrialheatgeneration,andresidentialheatingdoesnotexist.Hydrogenisproducedbyaprocessknownassteammethanereforming(SMR).Methane(naturalgas)isheatedwithsteam,underthepresenceofacatalyst,toproducestreamsofhydrogenandCO2.Foreverytonneofhydrogenproduced,ninetonnesofCO2areemitted(IEA,2020b).Hydrogenproducedinthiswayiscommonlyknownasgreyhydrogen.Today,only15%ofhydrogenisproducedbymerchantplants(wherehydrogenistraded);theremainderisproducedon-site,orasaby-productofchemicalproductionprocesses(HydrogenEurope,2021).Hydrogenisnotconsideredanenergycarriertodayandassuchnoregulationorinfrastructureexiststosupportlargescaletradingofhydrogen.WithinEurope,thereare1,800kmofhydrogenpipelinesinoperation,usuallyinchemicalindustryareas,withthelargesta950kmpipelinebetweentheNetherlandsandBelgium(FCHJU,2020).Thefutureroleforhydrogencouldbevastlydifferenttotoday.Alongsidechemicaluses,hydrogencanalsobecombustedinaturbinetogenerateheat,orpassedthroughafuelcelltoproduceelectricity,withzerocarbonemissionsfromtheproductionprocess.Justlikefossilfuelgasesitisalsowellsuitedforstoringenergyoverlongperiodsoftimeortransportingenergylongdistance.Inthefollowingsection,weexplorekeysectorswhichwilldeterminefutureEuropeanhydrogendemand.81EstimatebasedonthebenchmarkforhydrogenproductionundertheETScarbonleakagelistof8.85tCO2/tH2.KEYFINDINGSToday,hydrogenconsumptionwithinEuropeisprimarilyasachemicalfeedstock,anditsproductionishighlycarbonintensive.Hydrogencouldplayaverydifferentrolewithinenergysystems.Alongsideitschemicaluses,hydrogencanalsobecombustedinaturbinetogenerateheat,orpassedthroughafuelcelltoproduceelectricity.Thiscouldallowhydrogentoreplacefossilfuelconsumptioninsectorssuchassteelproduction,largeroadvehicles,oraviationandmaritime.Justlikefossilfuelgasesitisalsowellsuitedforstoringenergyforlongperiodsoftimeortransportingenergyoverlongdistances.Importantly,therearealsocleanerproductionmethods,includingthosewithzerooperationalcarbonemissions.Thedrivingcostcomponentofproductionisthefuelinputrequiredfortransformation.Inthecaseofwaterelectrolysis,thismeanstheaveragecostofelectricityusedisthekeydeterminantoffinalhydrogenprice.Toarriveatsomeversionofthisfuture,arangeofpoliciesareunderconsideration.ThesehavebeendrivenbythepublicationofaEuropeanhydrogenstrategyaswellasanumberofcountrylevelstrategies.DecarbonisationofEnergy71PE695.469ThesamesectionexploreswaysofdecarbonisinghydrogenproductionandtransportingitefficientlyintoandacrossEurope.Inthefinalsection,weproposeaframeworkforhydrogenandconcretepolicydecisions.5.2.Futuresforhydrogen5.2.1.DemandPotentialdemandforhydrogeninour2050scenariosisdividedintoaprobableandaspeculativedemand.Theprobabledemandcomprisessectorswhicheitheralreadyconsumehydrogen,orforwhichindustrialandpolicydevelopmentsalreadystronglyindicateemergingdemand.Thespeculativedemandisforsectorsinwhichhydrogencantechnicallyplayasubstantialrolebutforwhichtheeconomicsarestillveryuncertain.Thiscanbeduetoastrongcompetingfuelortheexistenceofsignificantuncertaintyaroundhydrogen’scommercialviabilityinthesector.Here,publicpolicy,technologicaldevelopment,andconsumerpreferenceswilldetermineendsolutions.Forindustrialfeedstockhydrogendemand,thereisnodirectlycompetinginputandhydrogenconsumptionwillultimatelybedeterminedbyfinalproductdemand.Whenusedasastoreofusefulenergy,hydrogenwillcompetewithalternativefuels(orenergyvectors)andtherelativemeritswillbedeterminedonacase-by-casebasis.Inmanycases,thecompetingenergyvectorwillbeelectricity.Asecondarykeydriverwillbetheavailabilityofbiofuels,anddevelopmentofsecond-generationbiofuels,wheretherearestilllargeuncertainties.Somehydrogendemandforenergymaynotbemetdirectlybyhydrogen,butbyhydrogencontainingfuels.Forexample,hydrogencanbecombinedwithCO2toproducesynthetichydrocarbonssuchaskerosene.Thisisusefulforcaseswherepropertiesofcertainhydrocarbonsarebeneficial:forkerosene,therelativelyhigherenergydensityismoreattractiveforlong-distanceaviation.Table5-1presentsthekeysectorswherehydrogendemandmayemerge,splittingthembyprobableandspeculativedemand.Withineach,sectorsareorderedbydecreasinglikelihoodofhydrogentoplayasizeableroleinfinaldemand.Thebracketspresenttherangeoffinalenergyconsumption(FEC)foreachsectormetbyhydrogenfortheEU27inanet-zero2050scenario.Thisnumbersaretheresultofabottom-upanalysiscarriedoutforthisstudy82.82Theanalysisislargelybaseduponscenarioanalysisthelong-termclimatestrategyoftheEuropeanCommission(2018)anddataprovidedbyJRCundertheIDEESproject,availablehere:https://data.jrc.ec.europa.eu/dataset/jrc-10110-10001.Whereappropriateadditionalliteratureisusedtostrengthenassumptionsonasector-by-sectorbasis.IPOLPolicyDepartmentforEconomic,ScientificandQualityofLifePoliciesPE695.46972Table5-1:Bottom-upestimationsforpotentialhydrogendemand2050(TWh)ProbableDemandSpeculativeDemandAmmoniaProduction(100-250)Shipping(0-320)MethanolProduction(20-30)Aviation(10-170)Steelmaking(70-260)Heavy-dutytrucks(10-220)(Rural)Rail(1-5)Industrialheat(0-70)SeasonalElectricityStorageBuildings(50-430)OilRefining(50-110)LightCommercialVehicles(0-60)PassengerVehicles(10-140)Source:Authors’ownelaboration.a.DemandwithinindustryAmmoniaisanessentialchemicalfortheproductionoffertilisers.Europecurrentlyproducesaround17milliontonnesofammoniaannually.Asglobalpopulation,andbyextensionfoodandlanddemand,increasesfoodproductionmustbecomemoreefficient.Ammoniacanplayakeyrole.However,effortsareongoingwithintheEUtoshiftawayfromchemicalfertilisersandtowardorganicmaterialoralternativeagriculturaltechniques.ThesetwoconflatingfactorswilldrivetheevolutionofEUammoniademandto2050.Whilefuturedemandforammoniaisuncertain,theneedforcleanhydrogentoproduceitisnot.Today,hydrogenisextractedfromnaturalgasbeforebeingcombinedwithnitrogenfromtheairtoproduceammonia.Theuseofzero-carbonhydrogenwouldeliminateemissionsassociatedwithammoniaproduction.Manyoftheinvestmentsintozero-carbonhydrogenproductiontodayareincombinationwithanammoniaplant83.EUmethanolproductioniscurrently1.5milliontonnesannuallyandisusedasafeedstockforavarietyoffurtherusefulchemicals.Likeammonia,therequiredhydrogenismetusingSMR,andsoreplacingitwithzero-carbonhydrogenisimperativeforreducingassociatedemissions.Finaldemandvariesdependingonmethanoldemand.Hydrogenisimportantinthecrudeoilrefiningprocess,transformingcrudeoilintoarangeofcommerciallyattractiveproducts.Twokeyprocessesare:hydrotreating,removingsulphurimpuritiesandhydrocracking,transformingheavierresidualoilsintolighterfuels.Futuredemandforhydrogendependsontheevolutionofdemandforcrudeoilproducts.Thiscanbeexpectedtosignificantlydecreasefromtoday’slevels.However,evenindeepdecarbonisationscenarios,somerefiningislikelytobenecessary,e.g.,fortheproductionofintermediaryinputsintheproductionofplastics.TheEUproduces177milliontonnesofsteelannually84,accountingfor4%oftotalEUGHGemissions;60%ofthissteelisproducedinblastoxygenfurnaces(BOF;EC,2018),whichrelyoncoalandarenotcompatiblewithdecarbonisedscenarios.Theremaining40%ofsteelisproducedusingelectricarcfurnaces(EAF)withelectricityastheprimaryenergyinput.83Forexample,https://www.chemengonline.com/major-green-ammonia-and-hydrogen-project-announced-in-morocco/?printmode=1inMorocco,orhttps://www.offshorewind.biz/2020/10/05/orsted-and-yara-form-green-ammonia-pact/intheNetherlands.84https://ec.europa.eu/growth/sectors/raw-materials/industries/metals/steel_en.DecarbonisationofEnergy73PE695.469TwodifferentphysicalfeedstockscanbeusedintheEAF:scrapsteelanddirectreducediron(DRI).IncreasingtheshareofscrapsteelintheEAFispreferableasitfacilitatessteelrecycling,buttherewillalwaysbeanupperlimitgiventheavailabilityofhigh-qualityscrapsteel.Toproducenewprimarysteelwithoutcarbonemissions,ironorecanbereducedtoDRIusinghydrogenandthenpurifiedtosteelinanEAF.CurrentlythisrouteisalreadyoperationalintheMiddleEastusingamixofhydrogenandcarbonmonoxide(IEA,2019c).AllmajorEuropeansteelmakersarecurrentlybuildingortestinghydrogen-basedreductionforuseinEAFs.Theirtargetistousepurerstreamsofhydrogentoperformthechemicalreductionprocessandthusavoidemissions.TheuseofbothscrapsteelandDRIproducedusinghydrogenintheEAFisconsideredthemostviabledecarbonisationoptionforthesectorwithintheEU(Hoffmannetal,2020).Competingoptionsincludetheuseofbiofuelsandelectrowinning(electricity).Withinindustry,thereisaneedtodecarbonisehightemperatureheat.Whilelowertemperatureheat,andotherstandardprocessescanrelativelyeasilybeswitchedtoelectricity,therearetechnicalchallengesassociatedwithhightemperatureheatprovisionbyelectricity.Hydrogencouldreplacesomenaturalgasintheprovisionofheat.Biofuels,fossilfuelswithCCSandpotentiallyelectricitywillbethealternativeoptions.However,Madedduetal.(2020)findthat78%ofexistingindustryenergydemandiselectrifiablewithexistingtechnologies,while99%ofthedemandiselectrifiablewiththeadditionoftechnologiescurrentlyunderdevelopment.b.DemandwithintransportForrailtransport,thestrongestdecarbonisationoptioniselectrification.77%ofEU27railvehiclekilometresarealreadyelectric-powered(Mantzosetal,2018).Electrificationinvolvessignificantupfrontfixedcostsinoverheadraillines,whichneedtobejustifiedbysignificantreturnsoninvestment.Therefore,forraillineswithheavyusage,electrificationisasimplechoice.However,forruralandless-frequentedroutes,thereturnoninvestmentoftencannotjustifylargeupfrontinvestments.Onmoreruralrailroutes,trainsstillconsumediesel.Shiftingawayfromdieselconsumptionispossibleusinghydrogenpoweredfuelcells.Butwhilehydrogencanbeusefulhere,aggregatedemandwillberelativelysmall.Whilethefutureofdecarbonisedpassengervehiclesappearsincreasinglybatteryelectric,thereisonekeydifficultywiththeuseofbatteriesforelectricityprovision:manufacturingbatterieswhichcontainsufficientenergybutarenottooheavy.Hydrogenisabletostoremoreenergyinasmallerspaceandweightinglessthanabattery.Whilethisisincreasinglyirrelevantforsmallpassengervehicles,itremainsessentialforheavy-dutytruckswherehydrogenfuelcellsareanattractivealternative.Thepaceofinnovationinlithium-ionandothertypesofbatterieshasbeenrapidsothatitispossiblethatdeploymentatscalewilldrivedownbatterycostsfasterthanthatofothertechnologies.Theuseofbiofuels,aswellasmoreradicalsolutionssuchasoverheadelectriccatenarylines,arealsooptions.Theshippingfuelmixisdominatedbyheavyfueloil.FuelconsumptioninthesectorisalreadybeingsqueezedbysulphurrestrictionsandwithimminentinclusionintotheEUETS,decarbonisedfuelsareessential.Forshortdistanceshipping,wherepowerrequirementsarenottoolarge,hydrogenfuelcellsareanoption.Keycompetitionwillcomefrombatteryelectricships.Forlongerdistanceshipping,liquefiedhydrogen,ammoniaandsyntheticfuelsderivedfromhydrogenhavegreaterpotential(Middelhurst,2020).Ammoniaandsyntheticfuelconsumptionwouldresultinindirecthydrogendemand.Inourscenarios,weassumeammoniatobethekeyfuelfordecarbonisingIPOLPolicyDepartmentforEconomic,ScientificandQualityofLifePoliciesPE695.46974long-distanceshipping.However,whicheverrouteistaken,hydrogenwilllikelyberequiredasanintermediaryinput.Forexample,therecentMaerskorderformethanolcompatibleshipswouldrequirezero-carbonhydrogen85.Aviationisconsideredahard-to-decarbonisesector.Littlepressurefrompublicpolicy,aswellasdifficultengineeringissuesmeanthatsolutionsfortheaviationsectorarenotclear.Evidencesuggeststhathydrogenmayhaveakeyroletoplay.WithintheEU27,intra-EUflightscontribute54%ofaviationenergydemand,andextra-EUflights46%(Mantzosetal,2018).Forshort-distance(intra-EU)flights,hybridoptionscontainingbothelectricityandhydrogencombustionareanoption.Airbushavereleasedthreeconceptdesignsforplaneswhichwouldcombusthydrogenandproduceelectricitythroughafuelcell,whichtheysaycouldenterserviceby2035(Airbus,2020).Forlongerdistance(extra-EU)flights,hydrogenandelectricityarenotlikelytobesufficientbecausefuelswithhigherenergydensitiesarerequired.Advancedbiofuelsandsyntheticfuels(e-kerosene)derivedfromhydrogenarethemostpromisingdecarbonisationoptions.Biofuelswouldrequirenewaviationdesign,whilesynthetickerosenecouldlargelybeadrop-inreplacementfortoday’sfossilkerosene.Lightcommercialvehiclessitbetweenpassengervehiclesandheavy-dutytruckswithregardstopowerdensityrequirements.Itappearsincreasinglylikelythatbatterypoweredvehicleswillsuffice.However,anadvantageofhydrogenisquickerrefuellingtimes,whichmightbeadecidedlypositiveattributefordeliveryandothervehicleswithhighutilisationrates.Thisiswhyhydrogenisalsoconsideredanattractiveoptionforcertainnichessuchasbuses,taxis,andalreadytodayforforklifttrucks.Forpassengervehicles,hydrogenfuelcellsarenotlikelytobecompetitivewithbatteryelectricvehicles(BEVs).ThemarketforBEVsisrapidlyexpanding,andimportantlysotooareinvestmentsinbatteryrechargingfacilities.Thefirst-moveradvantageofBEVsisbynowclear.However,thetotalenergydemandforpassengervehiclesisverylarge.Iffuelcellsemergetoplayevenasmallroleforanytechnicalorconsumerpreferencereason,demandwouldbesubstantial.c.ResidentialdemandTheprimaryroutefordecarbonisingbuildingsiselectrification,electricallypoweredheatpumpsareaparticularlyattractiveoption.Theyhaveanefficiencyrateof300%,meaningtheyareabletodrawthreetimesmoreheatenergyfromoutsideairorgroundthantheyconsumeintermsofelectricenergy86.Bycontrast,theroutefromelectricitythroughhydrogentoheatwouldhaveanefficiencyaround50%.Today,theshareofelectricityinfinalresidentialheatingdemandisapproximately5%butECscenariosforecastagrowthinthissharetobetween22%and44%by2050(EC,2018).Theuseofhydrogentodecarbonisebuildingenergydemandwouldinvolveretrofittingnaturalgasdistributiongridstocarryhydrogen.Thisrequiressignificantinvestments,andwillthereforebemoreattractiveforcountriesorcitieswithdenseexistingnaturalgasnetworksthatcanbeconvertedtohydrogentransport.Acomplementaryoptionisforhydrogentoreplacethecombustionoffossilfuelsinheatplantsfordistrictheatingsystems.Again,thiswillbemoreattractiveforareaswithalreadyestablisheddistrictheatingnetworks.85Seehere:https://www.ft.com/content/800faea2-1024-4ea6-ade6-1680820e925b.86Groundsourceheatpumpsmayhaveevenmoreefficient.DecarbonisationofEnergy75PE695.469Whentakinganoverallenergysystemperspective,buildingsarecurrentlyamongtheweakercontendersforconsuminglimitedsuppliesofcleanhydrogen.Thenext10-20yearsofbuildingdecarbonisationislikelytobedrivenbyelectrification,barapotentialsmallroleforhydrogen(oralternatives)indistrictheating87.Theroleforhydrogenwillbedeterminedbytheremainingrequirementsfordecarbonisationaround2040whenhydrogenmaybemorewidelyavailable,andanylimitationsontheuseofelectricitywillhavebecomeclearer.d.SeasonalpowerStorageEuropeanelectricitygridsaresettobecomeoverwhelminglydependentonproductionfromrenewablesourcesofelectricity,namelywindandsolarpower.Warmer,sunniermonthswillseeincreasedrenewableproductionalongsidedecreaseddemandowingtofluctuationsindemandbyheatingrequirements(seeFigure5-1).Achallengeforthegridwillbeshiftingsupplyfromperiodsofoversupplytoperiodsofexcessdemand:long-termelectricitystorage.Figure5-1:BulgariaaveragedailyelectricitydemandvsdailytemperatureSource:Bruegelelectricitytracker,availablehere:https://www.bruegel.org/publications/datasets/bruegel-electricity-tracker-of-covid-19-lockdown-effects/.Nowadaysthisfunctionisoftenprovidedbyflexiblegaspowerplantsorhydropower,whichhasalimitedgeographicalpotentialandlittlescopeforexpansioninEurope.By2050,assumingelectrificationoffurtherendusecases(heating),winterdemandpeakswillbemuchmorepronounced,andintheabsenceofapolitical/technologicalbreakthroughonCCS,gasplantswillnotbeabletoplaysuchasignificantrole.Thetransformationofelectricityintohydrogen,long-termstorage,andsubsequentuseinelectricitygenerationisaplausibleoptionforseasonaldemandflexibility.Storageisnottooexpensive88andifa87Wefocusonfuelswitchingoptions.Energyefficiencyretrofitsarethefirstessentialstepforreducingfinalenergydemandinbuildingsandfacilitatingdecarbonisation.88IEA(2019c)estimateshydrogenstorageinasaltcaverncosts€15/MWhH2.IPOLPolicyDepartmentforEconomic,ScientificandQualityofLifePoliciesPE695.46976hydrogentransmissiongridexists,thenfluctuationsofvolumewithinthegrid(linepack)canalsobeusedtomeetextrademand.Thedownsideisthattheprocessofconvertingelectricityintohydrogenandbackagainisveryinefficientfromanenergystandpointasonlyaround30%energycontentoftheinitialelectricitywouldberetained.5.3.Supply5.3.1.DomesticproductionIntheEU,hydrogeniscurrentlypredominantlyprovidedbySMR.HydrogenproductionfallsundertheEUETSbutitisoneoftheindustriesthatreceivesasubstantialshareoftheiremissionsallowancesforfree.Thisfacilitatescontinuedhighemissions.Figure5-2showsthethreecommonlydiscussedroutesfordecarbonisinghydrogenproduction.Figure5-2:LowcarbonproductionroutesforhydrogenSource:Authors’ownillustration.•SMRwithCarbonCaptureandStorageorUtilisation,commonlyknownasbluehydrogen.Astreamofmethaneisdecomposedintocarbongasesandhydrogen.Inthiscase,thecarbongasesarecapturedandstored(CCS)orutilised(CCU);•Electrolytichydrogenproduction,commonlyknownasgreenhydrogenwhentheinputtedelectricityisprovidedbyarenewablesource.Anelectricalcurrentispassedthroughwaterwhichdecomposesintohydrogenandoxygen;and•Pyrolysishydrogen,commonlyknownasturquoisehydrogen.Underspecialconditions,thedecompositionofmethaneproduceshydrogenandsolidcarbon(ratherthangaseouscarbonemissions).Solidcarbonisacommerciallyattractiveproduct.DecarbonisationofEnergy77PE695.469TheIEAranksenergytechnologiesbasedontheirtechnologicalreadinesslevel(TRL)rangingfrom1(initialidea)to11(predictablemarketgrowthreached)89.SMRwithCCSisrankedasan8or9.WhileSMRisverymaturetechnology,theapplicationofCCSrequiresdevelopmentstoachievecommercialcompetitiveness.Dependingonthetype,theTRLofelectrolysersrangesfrom8to9.Finally,pyrolysishasaTRLof6,afullprototypehasbeendemonstratedatscalebutthereisstilltheneedforcommercialmaturitytobeproven.Figure5-3:HydrogenProductionCostDecomposition(EUR/kg)Source:Authors’ownillustration.Figure5-3usesIEAassumptions90tocomparethecostevolutionofthesethreecompetingpathways,alongsidelegacySMRcostsincludingacarbonprice.Therearethreeimportantfactorstonote:•Capitalexpenditure(CAPEX)forelectrolysisisexpectedtodecreaserapidlyoverthecomingyears,supportedbydeployment(IEA,2019c;BNEF,2020);•Electricityornaturalgascostsaretheprimarydrivingfactorforhydrogenproductioncosts.Cheapelectricity,availableinlargequantities,istheessentialingredientforcompetitiveelectrolytichydrogen.Figure5-3showscostdifferenceforelectricityat€50and€20/MWh,withelectrolytichydrogencompetitiveonlyforthelatterprice.Utilisingcheaper(orevenfree)electricityforafewhoursayearsavesonfuelcostsbutincreasesCAPEXasashareofproductioncost;and89TheIEArankingsareavailablehere:https://www.iea.org/articles/etp-clean-energy-technology-guide.90IEAAssumptions(listedfor2019/2030/2050).Electrolysis:CAPEX–900/700/450USD/kW;OPEX:1.5%CAPEX;Efficiency:64%/69%/74%.SMR:CAPEX–910USD/kW;OPEX:4.7%ofCAPEX;Efficiency:76%.SMRwithCCS:CAPEX–1680/1360/1280USD/kW;OPEX–3%ofCAPEX;Efficiency:69%.Weassumea60%loadforelectrolysers,agaspriceof€20/MWh,andacarbonpriceof50/100/200EUR/tCO2for2019/2030/2050.TheIEAdoesnotprovideassumptionsformethanepyrolysisandwetakethisfromBrändleetal(2020),CAPEX:457USD/kW,OPEX:5%ofCAPEX;Efficiency:52%,LoadFactor:95%.00,511,522,533,52020203020502020203020502020203020502020203020502050Electrolysis(50EUR/MWh)Electrolysis(20EUR/MWh)SMRSMRwithCCSPyrolysisCAPEXOPEXElectricityGasCarbonEmissionsIPOLPolicyDepartmentforEconomic,ScientificandQualityofLifePoliciesPE695.46978•Carbonpricesplayakeyrole.Withthelimitedcarbonpricesfacedbyindustryuntilrecently,SMRisthemostcompetitivetechnologyforproducinghydrogen.IncreasingtheCO2priceincidencefacedbyproducersiskeyforsupportinglowercarbonproductionroutes.However,thequestionofwhichhydrogenproductionprocesswhichwilldominateby2050isasmuchpoliticalasitiseconomic.DifferentEuropeancountriesforeseeverydifferentfutures,withGermanyfocussedonelectrichydrogen,whiletheNetherlandsismoreopentoafuturefornaturalgas-basedhydrogen91.ThepositionoftheEC’shydrogenstrategypaperwasthatwhilethefutureisinelectrolytichydrogen,naturalgas-basedhydrogenproductionwillberequiredforatransitionperiod.Indeed,theCommission’sstrategyiscentredaroundsupportforthescaleupofrenewablehydrogenproduction92,targetedtoreach10millionMtby2030.Thisalonewouldrequire475TWhannualrenewableelectricity.Forcontext,theEUaddedonaverage38TWhwindandsolarannuallyintheperiod2010-203093.In2020,theEU27generated540TWhfromwindandsolar.Achievingsuchambitioustargetswillrequiresignificantpolicysupport,particularlywithregardstoaccesstolargequantitiesoflow-costrenewableelectricity.Meanwhile,thefutureofnaturalgas-basedhydrogenwithintheEUisuncertain.Whileitwillnotqualifyforsupportasa‘renewable’fuel,theapplicationofCCSmightstillbecomeanattractiveoptionforhydrogenproducersastheEUETSpriceincreasesoverthecomingyears.TherearesignificantchallengesassociatedwiththedevelopmentofcommercialscaleCCSwhicharediscussedinchapter4.Methanepyrolysisappearsattractivegivenzerocarbonemissionsbutisstillincommercialinfancy.5.3.2.Foreignproduction(imports)UnderscenariosofoptimisticEUhydrogendemand,itisquitelikelythatsomevolumeofimportswillbecompetitive.Importswillbecompetitiveincaseswhererenewableelectricitycanbeaccessedatsignificantlylowercostsabroad.Inmanypartsoftheworldthisispossibleduetoadvantageousrenewableresources(i.e.,highwindsorsolarirradiation).Lowfinancingratesforprojectsareequallyimportant.ManyareasoftheworldwithattractiverenewableresourcesstillhavepoorfinancingconditionsandhencethelevelisedcostofrenewableelectricitywouldstillbetooexpensiveforcompetitiveexporttotheEU.Forshortdistanceimports(<2000km)hydrogencanbetransportedcost-effectivelyviapipeline.Fordistancesofupto2,000km,gaseouspipelinetransportwilladdaround€0.1-0.5/kgH2(BNEF,2020;Jensetal,2021).Forexample,oneestimationisforaprice€0.2/kgtotransporthydrogenfromEgypttoGreeceorItaly(vanWijketal,2019),whileotherstandardassumptionsare€0.5/kgfor1,500kmtransmission(Brändleetal,2020).Thismeansthatwithsmallproductionadvantages,gaseouspipelinetransportofhydrogencanbecost-effective.Forthisreason,Brändleetal(2020)foundthatwearelikelytoseeregionalisationinhydrogentrade,andHamppetal(2021)foundthatthecheapesthydrogenimportoptionsforGermanyarebypipeline.Forlongerdistances,pipelinetransportofhydrogenismoredifficult,asshippingbecomesnecessary.Inaship,lowenergydensitiesprohibitthetransportofhydrogeningaseousform.Likethetradeofnaturalgas,oneoptionistoliquefythehydrogen.Thisinvolvessignificantenergyrequirementsandhencecosts.Otheroptionsinvolvetransforminghydrogenintoachemicalmoresuitablefortransport,91SeeDutchhydrogenstrategyhere,(https://www.government.nl/documents/publications/2020/04/06/government-strategy-on-hydrogen),whichisdiscussedinmoredetailinsection3.92“Renewable”meansthatthemaininputmustberenewable.Inpracticeuntil2030thiswillincludeonlyelectricitybutotherproductionmethodsforexampleusingbiogaswouldbepermittedifrenewablenaturecanbeproven.93https://ember-climate.org/project/eu-power-sector-2020/.DecarbonisationofEnergy79PE695.469suchasammoniawhichcanbemoreeasilystoredinliquidform,priortoshipping.Onceatdestination,hydrogenisthenremovedfromits“carriercompound”.However,thisconversionfromandsubsequentreconversionintohydrogenareexpensiveprocesses.InFigure5-4,weshowthatthecostsonlyofliquefyingandconversion/reconversionintoammoniaarealreadydoublethecostsoftransportinghydrogen1,500kmbyanewpipeline.Thatisbeforethecostsofshippingandimportterminalsaretakenintoaccount.Atminimumcostreductionsof€1/kgwouldbepossibleforshippinghydrogentobecompetitivewithdomesticallyproducedhydrogen.Figure5-4:Additionaltransportcosts(€/kg)Source:IEA(2019c)andBrändleetal(2020).Longerdistancetradeappearstobeamoreattractiveprospectforthefinalcommoditiesthemselves.Forexample,globaltradeofammoniaalreadyexistsandislikelytoretainsensibleeconomicsinaworldofgreenammonia.Demandforfinalproductmethanolcanbemetbyimports,andaviationdemandfore-kerosenecouldcompetitivelybemetbyimports.End-usecaseswhichrequireliquefiedhydrogen(withnocostsofre-gasification)mightalsoimport.Thus,evidencetodaypointstothefollowinglikelymarketstructure.Europeproducessignificantquantitiesofdomestichydrogenfromrenewableelectricity.Productionderivedfrommethanewillremainaquestionofpoliticalpreference,aswellasaddressingtechnologicalconstraintsoncarboncapture.IncasesofhighhydrogendemandwithinEurope,importsfromneighbouringregionsbypipelinearelikelytobecompetitive.Similarly,derivatehydrogenproductsarelikelytobecompetitiveviashipping.Itisverypossiblethataglobalmarketwillemergeforthesecommodities,inwhichtheEUislikelytobethefirstlargedemandsource.5.3.3.TransmissionanddistributionTransmissionanddistributionofhydrogenarepossiblebypipeline.Localdistributionofhydrogentodayisprovidedbytrucking,butifsignificantcommercialdemandevolvesthenapipeline00,10,20,30,40,50,60,70,80,91pipeline(1500km)liqueficationammoniaIPOLPolicyDepartmentforEconomic,ScientificandQualityofLifePoliciesPE695.46980infrastructurewouldbemoreefficient(Shiebahnetal,2015).Pipelinescanbenew-build,butindustryisalsoconfidentthatretrofittingexistingnaturalgaspipelinesisalow-costoption(Jensetal,2021;alsoseechapter4).TheEChydrogenstrategy94setsoutthreedistinctphasesanddiscussesthecommensuraterequiredinfrastructure.Inthefirstphasefrom2020-2024,thechallengeistodecarboniseexistingconsumption.Here,littletransmissioninfrastructurewillberequired.Exploratoryanalysiswillstillbeuseful.Thefirstopportunitiesfordoingsomaybefoundinareaswhereparallelgastransmissionpipelinesexistandonecanbeconvertedtohydrogen.Inthesecondphasefrom2025to2030,itisexpectedthatindustrialclustersofhydrogendemandwillemerge.Thisislikelytoincludeexistingindustrialdemandssuchaschemicals,aswellassomenewdemandpotentiallyinsteel.Therequirementsfortransmissioncapacitywilldependontheextenttowhichelectrolysersaredeployedclosetoattractiverenewablesourcesorclosetodemand.Intheformercase,agrowingtransmissiongridwillalreadyberequiredtoconnectdemandspotswithcheaperproductionsources.From2030to2050,thecostsoflow-carbonhydrogenshouldhavesignificantlyreducedtothepointofcompetitivenessinkeyindustries.Alongsideagrowingproduction,therewillbetheneedforsomevolumeoftransmissionpipelines.Duringthisperioditwillbecomeincreasinglyclearwhatrolehydrogencanplay.Forexample,inroadtransporttheperiodfrom2020to2030willbedominatedbyelectrification.By2030,clearersignalswillbeapparentastothepotentialdepthofelectrification,andtheroll-outofhydrogeninfrastructurewillcreatestrongercompetition.Theneedfordistributionpipelinesisunknownandwilldependontheextenttowhichdecentraliseddemand(roadtransport,buildings)emerges.Itispossiblethatonlylargepointsourceindustrialdemandwillexistinwhichcaseatransmissioninfrastructurewouldsuffice.CountriessuchastheNetherlandswiththeparalleltrackedgasinfrastructurewillbeimportanttest-casesforretrofittingsegmentsofthenaturalgasnetwork(PWC,2021).5.3.4.StorageForprovidingseasonalflexibilitybenefitstothepowergrid,acost-efficientmethodforstoringhydrogenisessential.Hydrogencanbestoredinpressurizedtanksabovegroundwhenquantitiesaresmall.However,forlargevolumesandlongtimeperiodssuchasinter-seasonalstorageundergroundhydrogenstoragewouldbeeconomicallysounder(e.g.,Schiebahnetal,2015;Reussetal,2017).Undergroundgasstorageusuallyhasthreemainadvantages:largevolume,lowcosts,andoperationalsafety.However,ashighlightedbyTarkowski(2019),thereislittleexperiencewithundergroundstorageofhydrogenuptonow.Saltcavernsappearlikelytobesuitableforhydrogenstorage(Caglayanetal.,2020),bothfortechnicalandeconomicreasons.However,onlyasmallshareofnaturalgasundergroundstoragecapacityinplacetodayisinsaltcaverns.In2017,morethan600undergroundstoragefacilitieswereoperatedworldwideandhadaworkinggascapacityof2700TWh,ofwhichslightlymorethan977TWhwerelocatedintheEU(IEA,2019b).ThevastmajorityofgasstoragecapacityintheEUisindepletedoilandgasfields(68%),whilesaltcavernsareonlyasmallshareof17%,slightlymorethanaquifers(15%).83%ofthesaltcaverncapacityoftheEU27islocatedinGermany(140TWh).OnlyFrance(8.1TWh),theNetherlands(7.9TWh),andPoland(5.9TWh)alsohavesizeablesaltcavernstoragecapacityinplace.94Availableherehttps://ec.europa.eu/energy/sites/ener/files/hydrogen_strategy.pdf.DecarbonisationofEnergy81PE695.469Germanyhasthelargestsaltcaverngasstoragecapacityworldwide,evenlargerthanthatintheUSA(137TWh).OtherEuropeancountrieshavelittlepotentialtobuilduporexpandstoragecapacityinsaltcavernsduetoalackoftherequiredgeologicalformations(Caglayanetal.,2020).5.4.HydrogeninthethreeextremescenariosInthispaper,weinvestigatehydrogendemandsandcostsinthreedifferent2050scenarios.Finalenergyconsumptionmetbyhydrogenrangesfrom100TWhinall-electricworldandgreengasesscenarioto1,400TWhinhydrogenimports.Aviationandmaritimesectorsseeatotaldemandforhydrogen(indirectanddirect)of100TWhinthefirsttwo,and300TWhinthehydrogenimportsscenario.Inallscenarios,thereisanadditional300TWhnon-energydemandforhydrogen(e.g.,ammoniaproduction).Thereisalso300-400TWhhydrogendemandforprovidingflexiblestoragetothepowergrid.Acrossthescenarios,differencesinfinalenergyconsumptionaredrivenbychangesinindustry,building,andtransportdemand.Thesefiguresareinlinewithothermodellingstudies,withthecaveatthatdifferentunderlyingassumptionsmakeanexplicitcross-comparisondifficult.TheEC(2018)hydrogenscenariosees1,500TWhhydrogendemandinEUby2050.Blancoetal(2018)report700to4,000TWhdemand.HydrogenEuropeenvisaged2,250TWhdemandinEuropeintheiroptimisticscenariofor2050(FCHJU,2019).Finally,Aueretal(2020)providedarangeof1,400to2,000TWh.5.5.Frameworkforhydrogen5.5.1.HydrogenstrategiesAlongsidetheroadmapdiscussedabove,theEC’shydrogenstrategysetssomeconcretetargets.Thereisatargetfor6GWof(renewable)electrolysisdeploymentby2024.By2030,thistargetisfor40GWwithafurther40GWdeployedoutsidetheEU.ThetargetforrenewablehydrogenproductioninEuropeissetat10milliontonnes(333TWh).To2030,investmentsinelectrolyserscouldrangebetween€24and€42billion,aswellas€220–€340billionfordeployingandadditional80-120GWrenewableelectricitycapacity.BeyondtheEC’shydrogenstrategy,anumberofMemberStateshavepublishednationalplans95.Theyoutlinefundsforhydrogen,aswellastargetsforelectrolysercapacityandsharesofhydrogenconsumptioninkeysectors.FranceandGermanysetaside€7and€9billionrespectivelyinpublicfundingforhydrogen.Francesetsatargetof6.5GWelectrolysercapacityby2030,aswellasatargetfor20-40%ofhydrogenconsumedinindustrytobedecarbonisedby2028.Meanwhile,Germanyhasatargetof5GWelectrolysercapacityby2030.Germanyisalsonoteworthyforsettingaside€2billionofthetotal€9billionfundingtoworkoninternationalpartnerships.Indeed,theGermanstrategyisclearinitsmessagethatimportsofhydrogenarelikelyby2050.AkeyroleforGermanyliesindevelopingandexportingtheelectrolysertechnologies.95TheFrenchhydrogenstrategyisavailablehere(https://www.ecologie.gouv.fr/sites/default/files/Plan_deploiement_hydrogene.pdf);theGermanhydrogenstrategy(https://www.bmwi.de/Redaktion/EN/Publikationen/Energie/the-national-hydrogen-strategy.html);theDutchhydrogenstrategy(https://www.government.nl/documents/publications/2020/04/06/government-strategy-on-hydrogen);thePortugesehydrogenstrategy(https://www.portugal.gov.pt/pt/gc22/comunicacao/documento?i=plano-nacional-do-hidrogenio)andtheSpanishhydrogenstrategy(https://energia.gob.es/layouts/15/HttpHandlerParticipacionPublicaAnexos.ashx?k=16826).HydrogenEuropealsoprovideanoverviewontheEuropeanlevelstrategies,availablehere:https://www.hydrogeneurope.eu/wp-content/uploads/2021/04/Clean-Hydrogen-Monitor-2020.pdf.IPOLPolicyDepartmentforEconomic,ScientificandQualityofLifePoliciesPE695.46982TheDutchgovernmentplansforthedevelopmentof3-4GWelectrolysercapacityby2030.TheDutchstrategyisnovelinitsfocusontheinclusionofsustainableaviationfuelquotas–theseshouldbe14%by2030and100%by2050.Subsequenttothepublicationofthisstrategy,theECexpressedintentionintheFitfor55packagetoapplysuchquotasacrosstheEU.AclearmessagefromthestrategyisalsotheimportanceofdevelopingRotterdamtobeafuturehubthroughwhichEuropereceivesimportsofhydrogenorhydrogen-derivedfuels.Finally,theDutchstrategyisalsooptimisticontheroleforblendinghydrogenintonaturalgasgrids.PortugalandSpainlooktomobilise€7-9and€9billionrespectivelyforhydrogen.Notethereferenceto‘mobilise’,whichimpliessignificantprivatecontributions,notonlypublicfunding.ThePortuguesestrategysetstargetsfor2to2.5GWelectrolysercapacityin2030,amountingto5%ofthecountry’sfinalenergyconsumption,and5%ofenergyconsumptionintheindustrialsector.Thereisalsoatargetfora10-15%blendofhydrogeninthenaturalgasnetwork.TheSpanishtargetisfor4GWofelectrolysercapacityby2030,aswellasfor25%ofrenewablehydrogenintheindustrialhydrogenmix.Interestingly,nationalplansarealsokeentopushsomevolumeofhydrogenwithinthetransportsector.Francesees20,000to50,000passengercarorlightcommercialvehiclestobehydrogen-poweredby2028.ThesamenumberfortheNetherlandsis300,000.Portugalaimsfor5%hydrogenshareinroadtransportfuelconsumption.5.5.2.AframeworkforthinkingabouthydrogenBoththedemandandsupplysidesofhydrogenwillundergoradicaltransformationsoverthenext30years–buttheendingpointforthistransitionisunknowabletoday.Thisuncertaintymakesitchallengingtoformulatesimplepolicyanswers.Givenexistingdirtyproductionmethodsforhydrogen,itisparticularlydifficulttoconsidersensiblepoliciesforpushingdemand-sidecaseswhichtodayappeartoincreasecarbonemissions,butmaytomorrowsignificantlyreducethem.WeproposeaframeworktofacilitatebetterunderstandinganddebateonthefuturerolehydrogenwillplayinEuropeanenergysystems(Figure5-5).Theframeworkrestsontheideathattheroleofhydrogenwillliesomewherebetweenanicheindustrialfeedstock(situationtoday)andawidelytradedenergycommodity.Onecanconsideracontinuumbetweenthesetwoscenarios.Alongthiscontinuumsitallthepotentialdemandcasesforhydrogen,aswellastherationaleforwidelyopposingviewsoncorrectpublicpolicy.Exogenousfactorsaswellasdevelopmentswithinhydrogenwilldeterminehydrogen’sposition.Figure5-5:HydrogenmarketframeworkSource:Authors’ownillustration.DecarbonisationofEnergy83PE695.469Policyshouldnotbebuiltwiththeaimofachievingaparticularpositiononthiscontinuum.Rather,thegoalisdecarbonisationandhydrogenshouldbepushedbymarketstogrowintoitsmostefficientrole.Asmarketsdevelop,regulationshouldadaptdynamically96.Nicheindustrialfeedstockisthescenarioforhydrogentoday(Table5-2).Itisconsumedbyafewconcentratedandlargeindustrialplayers,oftenbeingproducedon-sitewithconsumption.Hydrogenisnotwidelytradedandthemarketisfragmented.Regulationissensibleandpermitsprivateinvestmentandownershipoftransportinfrastructure.Littlephysicalinfrastructureforthetransportofhydrogenexists.Ifhydrogendemandremainscontainedwithinthisniche,thenthereisnosignificantneedforextensivepolicyinterventionbeyondasensiblecarbonprice.Withinthisscenario,theshifttozero-carbonhydrogenisstillinevitable.Therearedifferentpossibilities.Ifrenewable(green)hydrogendominates:(a)largeindustrialdemandmayrelocatetosourcesofabundant(renewable)supply,(b)largeindustrialdemandmayco-locateandsharetheimportcostsforhydrogen.Alternatively,thisscenariomaylenditselfmorenaturallytomethane-producedhydrogen.Itwouldbeattractiveforindustrialclusterstoimportnaturalgasusingexistinginfrastructurebeforetransformingitintohydrogen.Thiswouldallowindustrytomaintaincurrentgeographicalpositionswithlittleneedforadditionalhydrogentransportinfrastructure.Movingbeyondthis,centraliseddemandmayemergeforhydrogeninareasbeyondindustrialfeedstock.Insteel,hydrogencanplayaroleasfeedstockandenergy.Foraviation,hydrogenwouldneedtopassthroughlargeindustrialfacilities(akintooilrefineries)forFischer-Tropschprocessingintoe-kerosene.Itwouldthencontinueitsjourneyasliquidkerosene.Forshipping,liquidhydrogendemandwouldbecontainedtolargerefuellingbunkersatports.Theseevolutionscreateanenergydemandforhydrogen–shiftingoneaspectawayfromtheindustrialfeedstockworld,requiringregulationtobebasedonenergy,buttheystillretainquitesimilargeographicandmarketstructurestohydrogentoday.Theuseofhydrogenforseasonalpowerstorageislikelytoprovidesomepushtowardthetradedenergyvectorscenario.First,itwillinvolvesignificantelectrolyserdeploymentreducingCAPEX.Secondly,ifitemergesasaneffectivesolution,itwillfacilitateincreaseddeploymentofrenewablepowerintheEU,anecessaryconditionforhighlevelsofhydrogenproduction.Finally,thestorageofhydrogenwillleadtomarketdevelopments.Storagemaybeinisolatedfacilities(e.g.,saltcaverns)inwhichcasetransmissioninfrastructurewillbenecessaryfromrenewabledeployment.Alternatively,somestoragemaybeconsideredwithinthehydrogentransmissiongriditself(linepack).Attheotherendofthespectrumisaworldofdeephydrogenmarketsandwideconsumptionasatradedenergyvector(table5-2).Thisisthescenarioweexplorein‘hydrogenimportstofuelEU’.Here,therearemanydecentralisedconsumers,deeptransportinfrastructure,anddeepmarkets.Extensiveregulationwouldberequired,vastlydifferentfromtoday.96TheCouncilofEuropeanEnergyRegulators(2020)highlightstheneedfordynamicregulation.IPOLPolicyDepartmentforEconomic,ScientificandQualityofLifePoliciesPE695.46984Table5-2:KeymarketfeaturesfordifferenthydrogenscenariosNicheIndustrialFeedstockTradedEnergyCommodityFragmentedmarketbasedonprivateindustrialcontractsDeepmarket,marketdrivensupply-demandpricesetting(akintonaturalgas).Few,large&centralisedconsumers.Strongmarketpower/concentration.Many,smalldecentralisedconsumers.Weakpower/concentration.Noneedfordeepregulation.Industrialplayerscanbelefttotheirprivate(usuallybilateral)supplycontracts.Regulationofaninfrastructure-basedenergysector(withnaturalmonopolyinfrastructureinthevaluechain)neededtoa)protectconsumers,b)promotecompetitionofsupply=regulatedinfrastructure(unbundling,third-partyaccess,regulatedaccesstariffs).Industrylikelytoco-locateandbuildimportcapabilitiesorrelocatetosourceofcheapsupply.EUmightimporthydrogen-derivedproducts:ammonia/methanol/e-kerosene.EUmightimporthydrogen.Aswellasammonia/methanol/e-kerosene.Littletransmissioninfrastructure.Nodistributioninfrastructure.Deeptransmissioninfrastructure.Somedistributioninfrastructure.Bluehydrogenmorelikely.Source:Authors’ownelaboration.5.5.3.MarketdriversSource:Authors’ownillustration.Arangeoffactorswilldeterminehydrogen’spositionincludingtheproductioncostitself.Ceterisparibus,adecreaseinthecostofhydrogenproductionwillleadtoarightwardshiftastheeconomicsofinfrastructureanddemandcasesbecomemoreattractive.Thecaseofproductioncostsforcompetingfuelsismorecomplicated.Thisisbecausefuelswhichcompeteonthedemand-side(biofuels,naturalgas,electricity)arealsodirectinputsfortheproductionofhydrogen.AsFigure5-3showed,theirpriceisakeydeterminantinfinalhydrogenprice.Thefinaleffectisthereforethesumoftwooppositeforces.Fornaturalgas,competitionwithhydrogenin2050willbelimitedtodemandsectorswhereCCScanbeapplied.Therefore,thepassthroughofreducedcoststohydrogenwillleadtogreatercompetitivenessformanyofthedecentralisedsectors.ThepoliticalacceptanceandtechnologicalmaturityofCCSareessentialforthistobethecase.IfCCSiswidelyacceptableandavailable,thenwhilenaturalgasmaytakealargerroleinindustrialsectors,theabilitytoproducelow-costmethanehydrogenwillprovideapushfordemandintherightwardsectors.DecarbonisationofEnergy85PE695.469Asimilaranalysiscanbeconsideredforbiofuels.AcaveatisthatbiofuelcombustionwithoutCCSmaybepermissible,extendingcompetitiontodecentralisedsector,inthecaseoflifecyclecarbonaccounting.Forelectricity,areductioninaveragelevelisedcostwillleadtobothcheaperhydrogenandelectricity.TheimportantdynamicwillbetheabilityforflexibilitysolutionstokeepupwithCAPEXreductions.Inthecasethatflexiblesolutionsonthesupplyanddemandsidedevelop,electricitywillbecomeincreasinglycompetitiveleavinglittlespaceforhydrogeninmanyofthespeculativesectors.Thisdevelopmentwouldreducelevelisedcostofelectricity,andalsoimplythatmanydemandsectorsareabletoshiftconsumptiontotimesofcheapelectricity.Ontheotherhand,ifotherpowerflexibilitysolutionslagCAPEXreductions,thenecessityofhydrogenwillbestrengthened.Hydrogenmayplayalargeroleinalleviatingpressuresonthepowergrid,andasaresultfacilitateincreasedfuelswitchingtowardhydrogenindecentraliseddemandsectors.Perhapsthemostrelevantcompetingtechnologyonthedemand-sideisthelithium-ionbattery.Reductionsincost,butmoreimportantlyimprovementstoenergydensitywouldcontinuetoeroderemainingspeculativeusecasesforhydrogen.5.5.4.PolicyissuesThecoreprinciplesofpublicpolicyaddressedtohydrogenshouldbeleast-costpublicsupport(i.e.,achievingprivatesectorbuy-in)andtechnologyneutrality.However,publicpolicycanneverbecompletelytechnologyneutralandsomepublicspendingwillbecost-effective.Moreprecisely,anumberofspecificpolicyquestionswillneedpoliticaldecisions:1.ProductionsubsidiesTheissue:Subsidiespurelyfortheproductionoflow-carbonhydrogen,whichmaybefixedcostsubsidies.Comment:ForthcomingrevisionstotheEUETSwillallowelectrolytichydrogenproductiontoclaimfreeallowances.Similarly,lowcarbonnaturalgas-basedproductionwillbeeligibleforfreeallowances.Theeffectoftheseallowanceswillbeanimplicitsubsidy.ThischangeisessentialtoallowfaircompetitionwithexistingSMRhydrogenproduction.Furtherproductionsubsidiesareslightlycontroversial,becausecleanhydrogenisnottheendgoalwhichisthefinalusefulproducts.Thereisnoguaranteethatsupportingcleanerhydrogenproductionwillbethemostsensibleuseoffunds,giventhatbetteralternativetechnologiesmayemerge.Animportantdistinctionmustbedrawnbetweenhydrogenproductionandtheroundofsubsidieswhichsupportedrenewableelectricitydeploymentinthe2000s.Forrenewableelectricity,aguaranteedofftakemarketexisted.Thatis,allrenewabledeploymentwouldbeabsorbedimmediatelybyexistingpowergridsleadingtocertaindecarbonisationbenefits.Forhydrogenthisisnotthecase.Largervolumesofhydrogendemandarebasedonassumptionsaboutthefuture,andeventheexistingdemandwouldneedtobeincentivisedtoswitchfromcurrentlydirtyhydrogenconsumptiontoconsumingwhatevercleanhydrogenissubsidised.Thecaseforwide-reachinghydrogendemandnecessitatingsubsidiesforcheapproductionisnotyetclear.Inanycase,publicpolicycouldeffectivelysubsidiseproductionbysubsidisinganammoniaplantorrefinerywithproductiononsite.IPOLPolicyDepartmentforEconomic,ScientificandQualityofLifePoliciesPE695.469862.DemandsubsidiesTheissue:Subsidisedemandsectorstoshiftfromprocesseswithhighcarbonemissionstolowercarbonemissions.Comment:Subsidiesforsectorswhichmayconsumehydrogenappearmoreattractive.Suchsubsidiesneednotspecifytheconsumptionofhydrogen,butcanretaintechnologicalneutrality.Optionssuchasauctioningandcarboncontractsfordifferenceallowthistobeachieved(McWilliams&Zachmann,2021).Atalaterstage,quotascanalsobeausefultoolforshiftingtheburdenofsubsidiesawayfrompublicandtowardprivatebalancesheets.TheEChasalreadyproposedquotasforsustainablefuelsinaviation,whichactasindirectquotesforhydrogenconsumption97.Incases,wherefuturecleanfueldemandisclear,quotascanbeaveryeffectivetool.AgoraEnergiewendeandGuidehouse(2021)proposethatbroadpublicsubsidiesbetween2020and2030shouldshiftintoquotaspost-2030,astherelativeusecasesforhydrogenbecomeclearer.Inthisway,theburdenofsubsidyisshiftedontotheprivatesector.3.TransmissionanddistributioninfrastructureTheissue:DevelopingregulationwhichpermitsbuildoutofaninfrastructuregridabletotransporthydrogenmoleculesacrossEuropewithoutjeopardizingtheInternalEnergyMarketprinciples.Comment:TheECproposesastep-wideapproachtohydrogeninfrastructurewhichissensible.Accordingtothisapproach,hydrogenwillevolvefromaseriesofvalleyswithlargedemandandsupplyconnections,toamoredistributedresource.Ateachstepofthisevolution,themeritsofinfrastructureandpublicsupportshouldbereconsidered.Regulatorybodiescallfordynamicregulationofinfrastructure(CEER,2020).Whilelessonscanbelearnedfromregulationofnaturalgas,immediatelyreplicatingthemarketregulationofnaturalgaswouldbetooconstrictive.Instead,asensibleapproachwouldallowhydrogenmarketstoevolveandmonitordevelopment.Forexamples,issuessuchasunbundlingandthird-partyaccessmightbepostponedfordiscussionatalaterdatetofirstallowbuildoutofthegrid.Whilefundingcanbeexpectedfromtheprivatesector,industrywillneedclearsignalsandtimecommitmentsfromregulatorybodiestoreduceriskoncapitalinvestments.4.BlendingTheissue:Industryproposesblendinghydrogenintoexistingnaturalgasgrids.Technically,thisappearstowork.Therationalefordoingsoistoprovideademandforhydrogenandreducecarbonemissionsassociatedwithfinalgascombustion.Comment:Blendinghydrogenintoexistingnaturalgasgridsisinalmostallcircumstancesnotasensibleidea.First,fromacarbonemissionsperspectivetheeffectsaremarginalatbest.Inhighestcases,ablendof20%hydrogenintogasgridsispossible.Hydrogencontainsone-thirdtheenergydensityofmethane.Therefore,youcanreplace7%methaneenergycontentwithhydrogenresultinginverylimitedcarbongains.Ontheotherhand,fromaregulatoryperspectiveblendingofhydrogenwouldcauseproblemsonthegrid.Theacceptableblendedsharevariesbyend-use(household,industrialappliances)andby97Theproposalisforatargetof63%sustainableaviationfuelsasapercentageoftotalaviationfuelmixby2050,availablehere:https://ec.europa.eu/commission/presscorner/detail/en/fs_21_3665.DecarbonisationofEnergy87PE695.469MemberStates.Fixedlevelswouldneedtobeagreedonbyallaffectedgridparticipants.Differencesinopinionruntheriskoffracturingtheinternalmarketforgas.Theclaimedadvantageisprovidingaguaranteedofftakeforsupply.Itisarguedthatthiswillbeessentialforallowinglow-carbonhydrogenproductionsupplychainstogrow.Whilethatiscertainlythecase,theredoesnotcurrentlyappearashortageofdemandforlow-carbonhydrogeninEurope.Policyshouldaimtoconnectotherdemandcases,wherehydrogencanhavealargerandlonger-termeffectoncarbonemissions,withgrowingsupply.Forexample,buildingthefirstpipelinestotakehydrogenfromareasofattractiveproductiontoclearindustrialareasofdemand.5.SustainabletaxonomyandguaranteesoforiginTheissue:TheECwillproposeathresholdforhydrogentobeeligibleunderthesustainableforthcomingtaxonomy.TheEuropeaninitiative,CertifHy98,isworkingtoestablishanEU-widecertificationschemethatprovidesGuaranteesofOriginforthecarbonemissionsassociatedwithhydrogenproduction.Figure5-6:ElectrolytichydrogenfromaveragegridintensitySource:DataontheemissionsintensityofindividualcountrygridsareprovidedbyEEA(https://www.eea.europa.eu/data-and-maps/indicators/overview-of-the-electricity-production-3/assessment).DataforCertifHyaretakenhere:https://www.certifhy.eu/images/media/files/CertifHy_Presentation_19_10_2016_final_Definition_of_Premium_Hydrogen.pdfandfortheEUtaxonomyvaluefromBakerMcKenzieanalysishere:https://www.bakermckenzie.com/en/insight/publications/2021/05/eu-taxonomy-hydrogen-industry.Comment:Ifthetaxonomyhelpsshiftinvestmenttowardsgreenerproductsthanthatisdesirable.However,thetightlevelsshouldnotbeinterpretedastheonlyinvestmentpointforgreenhydrogenproduction.98SeetheEuropeaninitiativewebsiteavailableat:https://www.certifhy.eu/.02004006008001000120014001600NorwaySwedenFranceLithuaniaLuxembourgAustriaFinlandCroatiaSlovakiaLatviaDenmarkBelgiumItalySloveniaUKHungarySpainEU27RomaniaPortugalIrelandMaltaGermanyBulgariaNetherlandsCzechiaGreeceCyprusPolandEstoniagCO2/KWhH2H2emissionsintensityEUTaxonomyCertifHyIPOLPolicyDepartmentforEconomic,ScientificandQualityofLifePoliciesPE695.46988AsFigure5-6shows,thetaxonomyexcludesgrid-connectedinvestmentfromallbutfourEUcountries.Whilewebasethisonaveragegridemissions,itshouldbenotedthatdeterminedcarbonemissionsbasedonelectricityinputforgrid-connectedelectrolysersaredifficulttodetermine,andinprinciplethecarboncontentismoreamatterofaccountingthananobjectivevalue99.Moreover,electricityfallsundertheEUETS,andhenceemissionsarepricedintoproduction.AnyhydrogenproducedfromthegridwillconsumeEUETSallowancesputtingpressureonthemarkettoreduceemissionselsewhere.Withmanageableannualvolumesofelectrolysercapacitydeployed,theEUETSandpowermarketsshouldbeabletoabsorbadditionaldemandeffectively.Forimports,thesituationisdifferent.Guaranteesoforigintocertifythecarbonemissionsofimportsarelikelytobenecessary.TheEUtodayimportsanegligibleamountofhydrogen,andtheabilityforindustrytoimporthydrogenshouldbelimitedtocasesonlywhereitsproductionmeetsthestringentcriteriaoutlinedundertheCertifHyproject.Forgaseouspipelineimportsitshouldberelativelystraightforwardtocalculateemissionsfromalargepointsource.Forliquidhydrogen-derivedimportsbyship,thistaskislikelytobemorecomplex.6.AdditionalityTheissue:Additionalityistheprinciplethatforhydrogentocounttowardrenewabletargets,theelectrolysermustnotonlyconsumerenewableelectricitybutmustalsodemonstratethatadditionalrenewablecapacitywasbroughtonlinetomatchitsconsumption.Electrolyserscancomplybybuildingnewisolatedrenewableplants,orthroughrenewablepowerpurchaseagreements(PPAs).ThetopichasbeendiscussedundertheproposedrevisiontotheRenewableEnergyDirective,andadelegatedactisexpectedbefore31December2021100.Comment:Undercurrentdesign,theprincipleofadditionalityappearsexcessivelyrestrictivetowardthedeploymentofelectrolytichydrogen.Therearearangeoftechnologicalandregulatorydifficultieswhichslowdeploymentofelectrolyserswhenadditionalityisrequired.Itisnotimmediatelyobviouswhysuchrequirementsarenecessaryforelectrolysersbutnotforelectricvehicles,heatpumps,andotherindustrialuses.Inanunfortunatescenario,theprincipleofadditionalitywilldrivedeploymentofisolatedelectrolyserssituatednexttorenewableplants.Thisdecreasesoverallsystemefficiencyaselectrolysersarenotabletoprovidevaluableflexibilityservicestothegrid.InthebettercasewhereelectrolysersareabletousePPAsandstayconnectedtothegrid,tootightcriteriastillunnecessarilyhinderdevelopmentofhydrogenacrossMemberStates.ClearadvantagesaccruetothoseMemberStateswiththecleanestelectricitymixestoday.Whenconsideringthattherewillbesomeessentialhydrogendemandin2050,itwouldbemoresensibletomaintainadynamicviewoffuturegridemissionsnotastaticoneroutedinemissionsintensitytoday.Theargumentinfavourofadditionalityisthatbyconsumingexistingrenewablegeneration,electrolysersforceothergridparticipantstoconsumeaverageemissionelectricity.Therefore,withoutadditionality,electrolysersshouldbeconsideredtoconsumeaveragegridemissions.Whileintheshorttermthismaybetrue,electrolysersarelikelytostimulateadditionaldemandforrenewabledeploymentwhentheyaresensiblyintegratedintogrids.99Threeverydifferentvaluescanbeusedforeachhourinwhichtheelectrolyserwasused:cleanestpowerplant;averagepowerplant;dirtiestpowerplantorlast(marginal)powerplantrequiredtomeetthedemand.Intheshort-term,thelastoptionseemsmostplausible,butinthelongerterm,additionaldemandfromelectrolysismightbemetbeincreasingsupply,potentiallyfromrenewablesources.100SeetheDirective(EU)2018/2001of11December2018onthepromotionoftheuseofenergyfromrenewablesources(recast),Art.27,page47,https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32018L2001&from=EN.DecarbonisationofEnergy89PE695.469Wearguethattheimplementationofadditionalitycriteriashouldbepausedforafewyears.Thedeploymentofelectrolysersisstillinitsinfancy,andwillnotsignificantlyaddtocarbonemissionsoverthenextcoupleofyearsevenifaveragegridintensityisused.Thepaceofelectricitydecarbonisationhasbeenrapidandshouldcontinue.TheCommissionshouldcontinuetomonitorthesituationandbereadytointerveneonthebasisofclearcriteriaincaseswhereelectrolyserdeploymentappearstobeslowinggriddecarbonisation.7.GeopoliticsTheissue:Thefutureofhydrogenwillbedeterminedasmuchbypoliticalaseconomicfactors.Particularlyforimports,politicaldecisionswillbekeyindrivingfuturetradingpatterns.Comment:Itislikelythatby2030,theEUwillimportthefirstgaseoushydrogenbypipeline.By2050,itisquiteplausiblethattheEUwillimportsignificantvolumesofhydrogen.Decisionstakenregardingthebuild-outofpipelinesarelikelytobeasmuchpoliticalastheyareeconomicinnature.Today,Germanyappearstohavethemostadvancedthinkingonthisfront101.TheEUshouldbecarefultomaintainaunifiedapproachtothisdecisionprocess,andnotonethatGermanyisabletocontrolalone.Independentadvice,outsideofpoliticalinfluence,willbeessentialfortheEUtoredesignitsmapofenergyimports.8.OverarchingclimatepolicyTheissue:Acomprehensiveclimatepolicywhichisconducivetothegrowthofhydrogen.Comment:Policyforhydrogenwillnotbemadeinavacuum.Overarchingclimatepolicywillultimatelybethelargestinfluence:•Deployinglargevolumesofrenewables,anddrivingtheircostsdownislikelytobethebestpublicpolicyforhydrogengrowth;and•Carbonpricingmustremainthecornerstone.Everythingelseshouldonlybebuiltaroundit.101TheGermanandUkraineenergypartnershipdiscusseshydrogen,see:(https://www.bmwi.de/Redaktion/EN/Pressemitteilungen/2020/20200826-germany-and-ukraine-to-agree-energy-partnership.html)andaMemorandumofUnderstandinghasbeensignedwithSaudiArabiaforcooperationonhydrogenprojects,availableat:(https://www.bmwi.de/Redaktion/EN/Pressemitteilungen/2021/03/20210311-altmaier-signs-memorandum-of-understanding-on-german-saudi-hydrogen-cooperation.html).IPOLPolicyDepartmentforEconomic,ScientificandQualityofLifePoliciesPE695.469906.ASSESSMENTOFDIFFERENTDEVELOPMENTPATHWAYS6.1.Methodology102Toillustrateandcomparedifferentdevelopmentpathwaysweconsiderastylisedenergysystem.WebaseouranalysisontheMIX55scenariodevelopedbytheJRC.Ourthreescenarioscorrespondwiththegeneraltrends(especiallyintermsofenergyserviceconsumption)assumedinthisscenario.Thatis,ourscenariosdifferintermsofthecontributionsofelectricity,hydrogenandgreengassestomeetthesameenergyservicedemand.Becauseofthelackofpublishedinformation,thisrequiressometriangulation.WefirstassessthedemandforusefulenergyimpliedbyJRC.Thisistheusefulenergyoutputofanenergyappliance,whilefinalenergyconsumption(FEC)istheinputofenergyintoanappliance(e.g.,methaneintoaboiler).Usefulandfinalenergyvarysubstantiallydependingonthetechnologyandsector.AsusefulenergydemandisnotdirectlyreportedbytheJRC,wededuceitfromthereportedFECandthesimplifiedsectoralconversionfactorsfromfinalenergy(e.g.,kWhofelectricitydeliveredtoahouse)tousefulenergy(e.g.,kWhofheatprovidedbytheheatinginthishouse).Basedonthesefigures,weimposefuelswitchespersectorandapplication,anddeterminethecorrespondingFECperfuelandapplication.Here,differencesinthethermalefficienciesoffuel-specifictechnologiesresultindifferentFECbyfuelandsector.Theapproachguaranteesthatthesectoralfinaldemandservices,providedbydifferentapplications(heating,mechanicalenergy,lightning,ICT),areidenticalbetweenscenarios.Ourscenariosreportfinalconsumptionfortheindustry,buildingsandtransportsectors.Aviationandmaritimebunkersarereportedseparately,asisdemandinnon-energysectorsandinputstotheenergysector.Theenergysectorcompriseselectricitygenerationaswellashydrogenandsynthetichydrocarbonsproduction.Hydrogenandsynthetichydrocarbondemandarethesumofsectoraldemandforthesefuelsplustransportandstoragelosses.Thelatteraresignificant,asweassumethathydrogencoverstheinter-seasonalelectricitystorageneedsin2050,andassumeleakagelossesof20%forhydrogenalongthewholevaluechain.Thereportednumbersintheenergysectoraretobeinterpretedasdemandforpowerstorageintheformofhydrogenorsynthetichydrocarbons.TherequiredproductionofhydrogenandsynthetichydrocarbonswithintheEUisdefinedasthedifferencebetweenfinaldemandandassumedimportsharesin2030and2050.Fromthis,therequiredelectricityforhydrogenandsynthetichydrocarbonsisdetermined.Totalelectricityproductionin2030and2050isthensettomeetsectoralelectricityconsumption,electricityconsumptionfromaviation/maritime,andthegenerationofhydrogenandsynthetichydrocarbons.Allthreescenariosdifferintheirrequiredelectricitygeneration.Toimprovecomparabilityacrossscenarios,weassumethatgenerationbyallsourcesbutrenewables(wind,solar,biofuelsandgeothermal)isequalforallscenarios.WebasethegenerationofthoseconstantsourcesonthefuelconsumptionfiguresprovidedbyJRCandconsidertypicaltransformationefficienciesfordeducingtheelectricityprovisionbyfuel.Investmentsinnewcapacitiesresultfromthedifferenceininstalledcapacitiesin2020and2030,and2050respectively.Weassumeadditionallythat20%ofexistingcapacitiesin2020havetobereplacedbynewunitsby2030andthat80%ofallcapacitiesinoperationin2030havetobereplacedbynewunitsbetween2030and2050.102MoredetailsonthemethodologyareprovidedinappendixA3.DecarbonisationofEnergy91PE695.4696.2.Hydrogen6.2.1.DownstreamAssumptionsonthedemandmetbyhydrogenvaryacrossscenarios.Onlyfornon-energydemand,andreplacingcoalasreducingagent,arehydrogenassumptionsfixed.Weassumethattheuseofhydrogeninthesteelsectorisidenticalinallscenarios.In2030around20%ofthe2050demandforhydrogeninthissectorisreached.a.VolumesandCapacitiesWeassumethathydrogenwillprovideasignificantshareofoverallfueldemandonlyinthehydrogenimportsscenarioafter2030.Whilethehydrogenshareoftotalsectoralfuelconsumptionisapproximately20%in2050inthisscenario,itsshareintheothertwoisbelow7%.In2030,significanthydrogendemandisonlypresentinthehydrogenimportsscenario.Ashydrogeninvolvesthebuild-outofnewsystems,itistobeexpectedthatsignificantdemandwilldeveloponlyinthelaterperiods.Table6-1:Hydrogenconsumption2030&2050byscenario(rounded,inTWh)Hydrogenconsumption(TWh)20302050ScenarioAll-electricworldHydrogenimportsGreengasesAll-electricworldHydrogenimportsGreengasesIndustry04030400Buildings905060060Transport10100103040030FEC10230101101,40090Non-energyuse607060300300300Aviation&maritime20080100300100Energysector04003000Syntheticmethanegeneration7003002001,900Total705008501,2002,5002,400Source:Authors’owncalculation.Infact,sectoraldemandsforhydrogenarearoundtentimesgreaterinthehydrogenimportsscenariothantheyareintheothertwoscenariosfor2031-2050.Thefactthatsyntheticgasesarederivedfromhydrogenexplainstheresultthathydrogendemandisalmostashighinthegreengasesscenarioasinthehydrogenimportsscenarioitself.Fortheproductionofsyntheticgases,1,900TWhofhydrogenisrequired.IPOLPolicyDepartmentforEconomic,ScientificandQualityofLifePoliciesPE695.46992Weassumethathydrogenisusedforinter-seasonalstorage,wherebythetotalstorageneedsdependontotalelectricityconsumption.Onlyinthegreengasesscenariodoweassumethatstoragetakesplacethrough(imported)synthetichydrocarbons,andseezerohydrogendemand.Hydrogendemandsfornon-energyareassumedconstant(at300TWh)acrossallthreescenarios,implyingthattherewillbeasignificantbaselinedemandforhydrogen.6.2.2.Mid&upstreama.VolumesandcapacitiesWeassumeanincreaseofhydrogenimports(inabsoluteandrelativeterms)from2030to2050.In2030,25%ofhydrogendemandintheEUisimportedwhileby2050,80%ofhydrogendemandismetbyimports.Inallscenarios,substantialinvestmentsinelectrolysercapacityarerequired,rangingfrom400to800GW.Intheall-electricworldscenario,thereisalargedemandforelectrolysersnotbecauseoffinalsectoralhydrogendemandbutbecauseoftheneedforelectrolyserstocomplementtheincreasedshareofrenewablesinpowergeneration,viapowerstorage.Inthehydrogenimportsscenario,electrolysercapacityisactuallylowerthanintheotherscenariosbecauseoftheheavyimportassumption.Table6-2:Hydrogenconsumption/generation2030&2050(rounded,inTWh/GW)Hydrogenconsumption&generation(TWh)20302050ScenarioAll-electricworldHydrogenimportsGreengasesAll-electricworldHydrogenimportsGreengasesTotaldemand705008501,2002,5002,400Totaldemandincl.losses905708601,4003,1002,500Importshare0%25%0%25%80%50%Domesticgeneration904308601,1006001,200Electrolyser(GW)60290580700400800Source:Authors’owncalculation.DecarbonisationofEnergy93PE695.469b.CAPEXandOPEXAssumingadeclineinelectrolyserinstallationcostsfrom€750/kWin2030to€450/kWin2050,andgridcostsof€10billionto€50billion,thedevelopmentofthehydrogengenerationandinfrastructurerequiresinvestmentsofupto€1,000billionbetween2031and2050(Table6-3).Intheall-electricworldscenario,investmentsinelectrolysersarepushedbacktothe2031-2050periodastheybecomenecessaryonlywithhighlevelsofrenewablesinpowergeneration.Thesefactorscausesignificantdifferencesinannualaverageinvestmentsforthenextdecade(Table6.3).Forthelatterperiod(2031-2050)annualaverageinvestmentsarequitesimilar.Inthenon-hydrogenscenarios,theinvestmentneedsaredominatedbyelectrolyserswhileinthehydrogenimportsscenarioconsiderableinvestmentisrequiredtobuildoutahydrogeninfrastructurefortransportofhydrogenacrosstheEUtoend-users,particularlywithneedsonthedistributionside.Table6-3:Hydrogengeneration&infrastructureinvestments2021-2030&2031-2050Hydrogengeneration&infrastructureinvestments&importcosts(EURbn)20302050ScenarioAll-electricworldHydrogenimportsGreengasesAll-electricworldHydrogenimportsGreengasesPowerplantsforhydrogengeneration40170400560300630Electrolyser45220440325185380Hydrogengrid1050155014530Total954408559356301,040Averageinvestments104585453050Averageannualhydrogenimportcosts0801511055Source:Authors’owncalculation.Allinvestmentsandcostsaredepictedin2020€.Assumingimportsofgreenhydrogen,generatednon-domesticallybywindandsolarsources,andaforeigncapitalcostof8%,hydrogenimportcostswilldeclineto€80/MWhin2050.Thetotalaverageimportcostsforhydrogenin2050willbeinthesameorderasthedomesticallygeneratedhydrogeninvestmentexpenditures(generationandgridinfrastructure).Thehydrogenimportsscenarioseesconsiderableannualexpenditureof€110billiononimports.Inthisscenario,theEUwouldbevulnerabletopricelevelsofhydrogenimports.IPOLPolicyDepartmentforEconomic,ScientificandQualityofLifePoliciesPE695.46994OurestimatesarebasedontheassumptionthattheEUwillhaveaccesstosubstantialhydrogenimportsat€80/MWhwhichappearsreasonable,butisnotcertain.6.3.Methane6.3.1.DownstreamForhydrogenandelectricity,itisunderstoodthatdemandmightgrowfromlow-carbonniches,forexample,electricheatingorhydrogenconsumptioninindustry.Thiswouldrequirecommercialmaturitytobedisplayedandtheroll-outofaccompanyinginfrastructure.Forsyntheticmethane,thesituationisdifferent.Themarketfortheproductexistsalready,andtheeconomicquestionsrevolvearoundthesupplyside.Inthegreengasesscenario,for2050weassumethatsynthetichydrocarbonsprovide30%ofFEC,roughlythesameshareasthatprovidedbyelectricity.Upto2030thesharemayriseto7%ofFEC.Inbothoftheotherscenarios,nosyntheticgasesarepresentinFECby2030,whileby2050theysee300TWhsynthetichydrocarbondemand,primarilyinindustry.Weassumeimportedsynthetichydrocarbonsareusedintheenergysectorforinter-seasonalstorage.a.VolumesandcapacitiesTable6-4:Synthetichydrocarbonsconsumption2030&2050(rounded,inTWh)Synthetichydrocarbonsconsumption(TWh)20302050ScenarioAll-electricworldHydrogenimportsGreengasesAll-electricworldHydrogenimportsGreengasesIndustry90200200700Buildings5001,300Transport300FEC5902002002,300Non-energyuse70100100200Aviation&maritimebunkers60400Energysector330Total7203003003,200Importshare25%25%50%50%Source:Authors’owncalculation.DecarbonisationofEnergy95PE695.4696.3.2.Mid-&upstreamWeassumesynthetichydrocarbonimportcostsidenticaltothoseofhydrogen.Whileimportanddomesticproductioncostswillbesubstantial,infrastructureinvestmentswillbelimitedasexistingpipelinescanbeused.a.VolumesandcapacitiesWeassumethatsynthetichydrocarbonsareproducedfromhydrogen.Therequiredhydrogengenerationfordomesticsynthetichydrocarbonsproductionisincludedinthehydrogenfiguresinsection6.2.Inthegreengasesscenario,averageannualimportcostsare€175billion,assumingacostofaround160EUR/MWhforsyntheticmethaneimports.Similarly,tothehydrogenimportsscenario,thisplacestheEUagaininavulnerablepositiononworldmarkets.Table6-5:Synthetichydrocarbonsimportcosts(rounded,in€bn)Synthetichydrocarbonsimportcosts(€bn)20302050ScenarioAll-electricworldHydrogenimportsGreengasesAll-electricworldHydrogenimportsGreengasesSynthetichydrocarbonsimportcosts002501403553,500Averageannualimportcosts00251020175Source:Authors’owncalculation.Allinvestmentsandcostsaredepictedin2020€.6.4.Electricity6.4.1.DownstreamElectricityreplacesfossilfuelsmainlyinthetransportsectorandinheatingapplications(process,space,andwaterheating).Inheatingapplications,electricitycaneitherbeuseddirectly,orelectricityisappliedinaheat-pumptobringambientheattowarmhouses.Whilethethermalefficiencyofdirectuseisslightlybelow100%,inaheatpumponekilowatt-hourofelectricitycanprovideaboutthreekilowatt-hoursofusefulheat.Thus,totalFECdeclinessignificantlyiffossilfuels103canbereplacedbyambientheatingapplications.Intransport,theefficiencyofelectricvehiclesisthreetimesthatofconventional,fossilfuel-basedcombustionvehicles.ThegreaterefficienciesofelectricityresultinlowerFEC,thelargertheshareofdirectelectrification.103Forexample,anaturalgasboilerhasathermalenergyefficiencyofaround90%.IPOLPolicyDepartmentforEconomic,ScientificandQualityofLifePoliciesPE695.46996a.VolumesandcapacitiesTheclearthemeistheinevitabilityofsignificantelectrification.Eveninourpurposefullyextremescenarios,finalsectoraldemandsforelectricityincreasesineverysectorandscenario.Comparedto2019(2,500TWh),theFECofelectricityintheall-electricworldscenariowillincreaseby30%by2030and130%by2050.Hydrogenimportsseesthelowestelectricitydemands,whicharestilla30%increaseby2030and70%by2050,relativeto2019levels.Inall-electricworld,electricityislargelyuseddirectlyindemandsectors.Intheothertwoscenarios,electricityisadditionallyrequiredforthegenerationofhydrogen.WhiletheFECofelectricityinall-electricworldisthehighest,totalelectricitydemand(includingenergysector)isactuallyhigherinthegreengasesscenarioowingtoenergyneedsinhydrogenproduction.Intotal,electricitydemandisquitesimilaracrossallthreescenariosbecauseofthisfactor.Incasethehighlevelsofimportswhichweassumeforhydrogenandsyntheticmethanedonotmaterialise,energydemandforelectricityinthosescenarioswouldbesubstantiallyhigher.Onlyinall-electricworlddoeselectricityplayaroleintheaviationandmaritimesectors.Theadditionaldemandisnotdramaticintheoverallpicture.Table6-6:Electricityconsumption2030&2050byscenario(rounded,inTWh)Electricityconsumption(TWh)20302050ScenarioAll-electricworldHydrogenimportsGreengasesAll-electricworldHydrogenimportsGreengasesIndustry1,3001,1001,1001,7001,4001,300Buildings1,6001,5001,5001,6001,5001,300Transport300100300800500700FEC3,2002,7002,9004,1003,4003,300Aviation&maritimebunkers10200Energysector1006001,2001,4008001,700Total3,3103,3004,1005,7004,2005,000Source:Authors’owncalculation.DecarbonisationofEnergy97PE695.4696.4.2.Mid-&upstreama.VolumesandcapacitiesWefollowthebreak-downofconventionallygeneratedelectricitypergenerationtypedescribedinJRCfor2030and2050.Weassumefurtherthatadditionallyrequiredelectricityisgeneratedfromrenewablesources(wind,solarandbiomass).WecalibratetheincreaseofRES-capacitiesconsideringtherelativesharebysourceprovidedintheMIX50ImpactAssessmentanalysis.Fortheshareofwindgenerationbyoffshoreandonshore,wefollowtheImpactAssessmentresultsfortheMIX50scenario2020.Thescenariosees80%shareofwindgenerationbeingoffshorein2030,and66%in2050,withonshoreprovidingtheremaininggeneration.Thiselectricityfuelmixisnottobeinterpretedasanoptimalpathway.Rathernuclear,otherRESandfossilfuelsfollowfixedtrajectories,whilewindandsolararevariedtomeetfinaldemandforelectricity.Morecomplexmodellingwouldberequiredtodetermineoptimalsharesofpowergenerationoutput.Table6-7:Electricitygeneration2030&2050(rounded,inTWh)Electricitygeneration-output-(TWh)20302050ScenarioAll-electricworldHydrogenimportsGreengasesAll-electricworldHydrogenimportsGreengasesWind1,7001,5002,1003,9002,7003,200Solar6606108401,3509401,100OtherRES480480480700700700Naturalgas320320320000Coal180180180000Nuclear520520520520520520Total3,9003,6004,4006,5004,9005,500Source:Authors’owncalculation.b.CAPEXandOPEXAverageannualelectricityinvestmentsrangebetween€140and€200billionfrom2020to2030.From2031to2050,thesamerangeis€130–€180billion.Thisimpliesasignificantfrontloadingofinvestmentinrenewableelectricitycapacity.Assumingareplacementof20%ofthecapacitiesinplacein2020,by2030around1,000GWofnewREScapacitieshavetobeinstalledintheall-electricworldandthehydrogenimportsscenarios.Becauseofhighertotalelectricitygeneration,thenewinstallationsinthegreengases2030scenariosumuptoIPOLPolicyDepartmentforEconomic,ScientificandQualityofLifePoliciesPE695.469981,400GW.By2050–assuming80%replacementof2030capacitiesduetoobsolescence–between2,500GWand2,700GWofnewREScapacitieswillhavetobeinstalled.TodeterminetheinvestmentneededforthedevelopmentofnewgenerationcapacitieswefollowassumptionsprovidedbyE3Modelling,EcofysandTractebel2018104.Weassumethatgridextensiontakesplacelinearlydependingontheadditionalfinalconsumptionofelectricity–for2030comparedto2020andfor2050comparedto2030.Weassumeadditionalinvestmentsof€100peradditionalMWoffinalelectricityconsumptionforgridexpansion.Whileinvestmentneedsforthedevelopmentofgenerationcapacitiesinthegreengasesscenarioarethehighest,thetransmissionanddistributioninvestmentsintheall-electricworldscenarioexceedsthatoftheotherscenariosbyafactoroftwoupto2030,and0.5upto2050.Table6-8:Electricitygeneration&infrastructureinvestments2021-2030&2031–2050(rounded,in€bn)Electricitygeneration&infrastructureinvestments(€bn)20302050ScenarioAll-electricworldHydrogenimportsGreengasesAll-electricworldHydrogenimportsGreengasesPowerplants1,1801,0901,5052,5551,8602,095Electricitygrid8453555251,040730390Total2,0001,4002,0003,6002,6002,500Averageinvestments200140200180130130Source:Authors’owncalculation.Allinvestmentsandcostsaredepictedin2020€.6.5.User-sideinvestmentsInourmodelling,wewerenotabletoaccountforuser-sideinvestmentsbecauseoftheunderlyingcomplexity.Costdifferencesbetweentechnologiesattheusersideareverydifficulttopredict,largelybecausewedonotknowthegradientsoflearningcurves–inotherwords,howquicklypriceswilldecreasewithdeployment.Ineachscenariowithgreaterdeploymentofacertaintechnology,onewouldexpectendogenously-drivencostsavings.Nonetheless,demand-sideinvestmentsareveryimportant.Infact,theirrequirementsappeartodominatesupply-side/infrastructureinvestmentsbyafactorof5:1.Thatis,forevery€1spentondecarbonisingthesupply-side,€5mustbespentonnewdemand-sideequipment.Theseconsiderablesumsmustlargelycomefromtheprivatesectorandhouseholds.Itisveryimportantthatclear,earlypolicysignalsareprovidedtosteertheseinvestments.104Technologypathwaysindecarbonisationscenarios,availableat:https://ec.europa.eu/energy/sites/ener/files/documents/2018_06_27_technology_pathways_-_finalreportmain2.pdf.DecarbonisationofEnergy99PE695.469Figure6-1:Averageannualinvestments(€bn,supply&demandsectors)2021-2030Source:Authors’ownelaboration.Allinvestmentsandcostsaredepictedinbillionsof2020€.Figure6-2:Averageannualinvestments(€bn,supply&demandsectors)2031-2050Source:Authors’ownelaborationNote:REGscenariofromECImpactAssessmentSep.2020;Balancedscenario:Evangelopoulouetal(2019).Allinvestmentsandcostsaredepictedinbillionsof2020€.02004006008001.0001.200AverageownscenariosREGBalancedScenarioGenerationcapacitiesPower&HydrogengridDemandsectors(inclTransport)02004006008001.0001.2001.400AverageownscenariosREGBalancedScenarioGenerationcapacitiesPower&HydrogengridDemandsectors(inclTransport)IPOLPolicyDepartmentforEconomic,ScientificandQualityofLifePoliciesPE695.4691006.6.ComparisonofscenariosInFigures6-3and6-4wecompareannualaverageinvestmentsrequiredandfuelimportcostsacrossourthreescenarios.Thelargestportionofinvestmentisrequiredforbuildingoutpower-generationcapacities–morethan50%ofinvestmentneedsinallscenariosandacrossalltimeperiods.Theexactrequirementsdifferbyupto30%intheperiodto2030,andbyupto10%intheperiodto2050.Inbothcases,thelargestexpendituresarerequiredingreengases.Electrolyserinvestmentsarehighestinthegreengasesscenario,butstaybelow20%oftheinvestmentcostofelectricitygenerationcapacities.Electricitygridinvestmentsarehighestintheall-electricworldscenario,owingtolargerdirectelectricitydemand.Hydrogenandsynthetichydrocarbonsimportcostsareasignificantcostcomponentinthehydrogenimportsandgreengasesscenarios,ataroundone-quarterofannualcosts.Totalsystemcosts105rangebetween€180billionand€270billionupto2030,and€220billionand€370billionfor2030-2050.Figure6-3:AverageannualinvestmentsandfuelimportcostsSource:Authors’owncalculation.Allinvestmentsandcostsaredepictedinbillionsof2020€.105Excludingfossilfuelcostsandreinvestmentneedsinnuclearandhydrocapacities.0,050,0100,0150,0200,0250,0300,0"All-electricworld"2021-2030"HydrogenimportstofuelEU"2021-2030"Greengasesinoldpipelines"2021-2030GenerationcapacitiesElectrolyserPowergridHydrogengridHydrogenimportcostsSyntheticmethaneimportcostsDecarbonisationofEnergy101PE695.469Figure6-4:AverageannualinvestmentsandfuelimportcostsSource:Authors’owncalculation.Allinvestmentsandcostsaredepictedinbillionsof2020€.Finally,largesharesofthecostsofthehydrogenimportsandgreengasesscenarioaredrivenbyimportcosts.Wethereforealsopresentresultsexploring(+/-25%)changestothepriceofhydrogenandsyntheticmethaneimports,inthetwoscenariosrespectively.Thiswouldimplylowerboundhydrogenimportcostsof60EUR/MWh,andupperbound120EUR/MWh.Therespectivecostsforsyntheticmethaneimportswouldbe120EUR/MWhand200EUR/MWh.WepresenttheseresultsinFigure6-5.Itisclearthatbothscenariosarehighlyvulnerabletochangesinimportcosts.0,050,0100,0150,0200,0250,0300,0350,0400,0"All-electricworld"2031-2050"HydrogenimportstofuelEU"2031-2050"Greengasesinoldpipelines"2031-2050GenerationcapacitiesElectrolyserPowergridHydrogengridHydrogenimportcostsSyntheticmethaneimportcostsIPOLPolicyDepartmentforEconomic,ScientificandQualityofLifePoliciesPE695.469102Table6-9:Averageannualinvestmentsandfuelimportcosts(€bn)Averageannualinvestmentsandfuelimportcosts(bnEUR)20302050ScenarioAll-electricworldHydrogenimportsGreenGasesAll-electricworldHydrogenImportsGreenGasesGenerationcapacities12011015013095105Electrolyser52040151020Powergrid853555503515Hydrogengrid152372Hydrogenimportcosts0801511555Syntheticmethaneimportcosts0025720175Total210180270220280375Source:Authors’owncalculation.Allinvestmentsandcostsaredepictedin2020€.DecarbonisationofEnergy103PE695.469Figure6-5:AnnualsystemcostssensitivitytoimportpricesSource:Authors’owncalculation.Allinvestmentsandcostsaredepictedinbillionsof2020€.IPOLPolicyDepartmentforEconomic,ScientificandQualityofLifePoliciesPE695.4691047.RECOMMENDATIONSDecarbonisationoftheenergysystemwillrequireamassivetransformationinthewayenergyisprovided,transportedandused.Viewsdivergeonwhatthesystemshouldorwilllooklikein2050.TheEUhassetatargetofcarbonneutralityby2050,butuncertaintyonthepathwayispresentatmanylevels.First,itisunclearwhatEuropewilllooklikein2050intermsofdemographics,politics,economy,technologyandclimate.TheselargelyexogenousfactorswillhaveastrongimpactonEuropeandemandforenergyservicesandtheabilityofEuropeanstopayforthem.Manymodellingstudies,includingtheJRC,donotfeaturedramaticexternalchangesinthemainscenarios.Second,thepathwaywilldependonthebalanceofcapitalandeffortinvestedinreducingdemandforenergyservices(e.g.,throughbetterhomeinsulation,increasedlongevityofproductsormeasurestoreducetransportdemand)andthecapitalandeffortinvestedinprovidinglow-carbonalternatives,suchasheatpumpsandelectricvehicles,tocurrentfossil-fuelledenergysupplies.TheJRCisexpectingthatitwillbeoptimaltodrasticallyreduceheatingenergydemand(about-40%heating-relatedfinalenergyconsumptioninbuildingsby2050comparedtotoday106),whileinvestingsubstantiallyinfuelswitchingandcleanelectricitygeneration107.Theoptimalbalanceissensitivetoassumptions:itwillcertainlydependonchangesinborrowingcostsforthesupplyofcleanenergy(relativelylowasbackedbylargecompanies)andtheborrowingcosthouseholdswillfacewheninvestinginenergyefficiency(likelyhigher,especiallyassomefacecreditconstraints),butalsomanyotherfactors.Third,thepathwaywilldependonthedevelopmentofthemixofcleanfuels.Thereisconsensusthatelectricitywillplayamajorroleinmanyenergyserviceapplications.Butforasubstantialfractionoftheenergymarket,methaneandhydrogenmightbesuitablealternatives.Wehaveassessedthreedifferentscenariosforhowthismixmightevolve.Inpractice,themixwillbedeterminedbythedevelopmentofsectoralenergydemand(seefirstandseconddrivers,above)andseveralspecificfactorsincludingrelativecostdevelopments,acceptability,incumbentinterest,systemeffectsandmarketstructure,whichareoftendifferentacrosssectors,countriesandregions.Finally,thepathwaywill–foreachfuel–dependonthedevelopmentofthecompositionofthesupplysystem.Electricitymightbeimported,producedfromnuclearordifferenttypesofrenewables,fromcentralisedordecentralisedsources.Flexibilityandback-upmightbesecuredthroughbatteries,demand-response,hydrogen,hydro-storageorgeographicalaveraging.Therearealsoverydifferentpossiblesystemconfigurationsforhydrogenandmethanesupplysystems.Giventhemultipleuncertainties,itwouldbeimprudenttohardwireoneenergysystemdevelopmentpath.Thedevelopmentpathwaymustbeadjustedinresponsetonewinformationontheabove-outlinedfactors.Andbettingonjustonesilverbulletisnotaresilientstrategy.Moreover,technicalfeasibilityandcostminimisation(which,aswehaveargued,cannotbedeterminedbecauseofbasicuncertainties)arenottheonlycriteriaforanoptimaldevelopmentpath.Otherfactorsincludingbroadereconomicimplications(e.g.,oninternationaltradeordomesticvaluechains),distributionaleffectsonMemberStates,regions,andpeople,publicacceptanceconsiderations(e.g.,inrelationtopowerlines,nuclearpowerorCCS),andenvironmentalimpactswillhavetobepartofpoliticalconsiderations.Forexample,investmentrequirementswouldfallonverydifferentstakeholdersinourthreescenarios.106OwncalculationsbasedonJRC.107Seehttps://visitors-centre.jrc.ec.europa.eu/tools/energy_scenarios/app.html#today:EU27/2050-ff55-mix-eu:EU27foranoverviewofJRCassumptions.DecarbonisationofEnergy105PE695.469Ifelectricityorhydrogenareusedforprivatetransportationandheating,enduserswouldhavetomakealotofadditionalinvestments,whileinitially,additionalcostsforhouseholdsinascenariothatforeseeshighsharesofsyntheticfuelswouldberatherlow.Thesamewouldbetrueonthenetworkside,withhydrogenandelectricityinfrastructureinvestmentneedslargerthanthoseinalreadyoversizedgasnetworks.Reducedfinal-userinvestmentcostswill,however,comeatsubstantialimportcostinthehydrogenimportsandgreengasesscenarios.Ourfourmainrecommendationsare:•Ensuretheuncontroversialpartsofthesolutionareeffectivelyandefficientlydeployed(section7.1.1);•Forcefullyexplorethebestwaytomeetenergyserviceneedsintheresidualareas,acceptingfailures(section7.1.2);•Activelylearnontheway(section7.1.3);and•Deviseconcretepolicestomakeithappen(see7.2).7.1.1.EnsuretheuncontroversialpartsofthesolutionareeffectivelyandefficientlydeployedWhileaminimumcostenergysystemisimpossibletodetermine(becausetoomanydrivingfactorsareuncertain)wearesufficientlyconfidentonanumberofplausiblesolutions.First,theefficiencyofdirectelectrificationintransportandheatingimpliesthatwhereveritisnotpreventedbyexcessiveinfrastructurecosts,electricsolutionsarealwayspreferable.Publicpolicyshouldthusensurethatnewinvestmentsaredirectedtowardselectricsolutions,andnotintoanyhybrid/bridgetechnologiesthatdonotpassthecarbon-neutralitytest.Ourresultsindicateincreasedfinalelectrificationreducessystemcosts.Second,electrificationoftransportandheating,andalsoanyproductionofhydrogenorsyntheticfuelsinEurope,willrequireamassivebuild-outofrenewableelectricitygeneration.Inourscenarios,cleanelectricitydemandwouldincreasefromlessthan2,500TWhtomorethan5,000TWhinone,andmorethan6,500TWhintwoscenarios.Accordingly,installingtoomuchrenewablegenerationcapacitywillbealmostimpossible.Third,asageneralrulethereshouldbenoinvestmentsinfossil-fuelproduction,transmissionorutilisation,asmostwouldhavetobedecommissionedafterashortperiodwithinthenextfewdecades.Investmentsinsuchassetsshouldonlybeacceptedinexceptionalcircumstanceswherenoalternativeisavailableandtheprojectlogicisclearlycompatiblewiththeclimate-neutralitytarget.Suchprojectsshouldbemadeineligibleforpublicfinancialsupport.Thiswouldapplynotonlytocoal-firedpowerplantsorcombinedcyclegasturbines,butalsotonaturalgaspipelinesandR&Dintomostcombustionengines.Moreover,ourresultsindicatethat‘half-solutions’(blending,mostsyntheticgases,combinedcycleturbine)areoftennotjustifiedonpurecost-efficiencygrounds.Fourth,itisclearthatthecurrentmember-statenationalplans–expressedinNECPs–areinsufficienttoachieveacost-efficientpathwaytoEU-wideclimateneutralityby2050.Consequently,astrongcommitmentframeworkisneededtoensurethatMemberStates’policiescomeintolinewithEUtargets.Fifth,mostoftheinvestmentindecarbonisationwillhavetocomefromend-userschangingtheirappliances;user-sideinvestmentsoutweighsupply-sideinvestmentsbyfivetoone.Finalusersneedveryclearsignalsonthedirectionoftravel,andquickly.Hence,2021-2030shouldbethedecadeofinfrastructureinvestments.IPOLPolicyDepartmentforEconomic,ScientificandQualityofLifePoliciesPE695.469106Whilethosecostrelativelylittle,theyformanimplicitcommitmentfromEuropeansocietythatcleanerappliances(e.g.,electricvehiclesorheatpumps)willbeafuture-proofinvestmentsforendusers.7.1.2.Forcefullyexplorethebestwaytomeetenergyserviceneedsintheresidualareas,acceptingfailuresTheaboveprinciplesareinsufficienttoensurethedecarbonisationofEurope’senergysystem.Hard-to-abatesectorsinindustry,heavytransport,aviationandrenewableenergydroughtsinwinterallposechallengesthatcannotbesolvedby‘uncontroversial’solutions.Itislikelythathydrogenandsyntheticfuelswillbeusefultosolvesomeoftheseissues.Energyefficiencyinvestmentswillalsobecrucial.Butwecannotyetpredictanoptimalmix.However,wedonothavethetimetowaituntilaclearwinneremerges.Moreover,systemandlearningeffectsthatbringdownthecostoftechnologiesastheyaredeployedmakeitimpossibletoperfectlyassessthepotentialofdifferentsolutionsexante.Courageousdeploymentofdifferentsolutionswillthusbenecessary,knowingthatsomewillturnouttobedead-endsinhindsight.Accordingly,policiesshouldleaveroomfornumerousandsufficientlysizeableregulatory108andtechnologyexperimentationatscale–EuropewithitssizeanddifferentMemberStatesoffersveryfertilegroundforthis109.Butitisasimportanttotestmanydifferentsolutionsinparallel,sotheunfitsolutionsareidentifiedandeliminated.7.1.3.ActivelylearnonthewayEuropeplanstoconductamassiveexperimentinchangingtheenergymixatanunprecedentedspeed.Everyyear,some€500billion(demandandsupply-sideinvestments,excepttransport)–or2.5%ofGDP–needstobeinvestedintoenablingthisnewenergyworld(largelyinsteadofcurrentimportcostsandinvestmentsinfossilfuels).Butourunderstandingoftheeconomic,technicalandpolicyrequirementstomakethishappenremainslimited.TheEChaswiththeJRCandPrimes110providedcomprehensiveanalysisofthetransition,andmanyindividualpubliclyfundedresearchprojectshavebuiltabasisforanalysis.Butmuch(oftenalreadyexisting)crucialinformationonthecurrentenergysystemandontheassumptionsunderlyingpolicyplansisnotaccessible.Makingthishighlycomplexinformationavailableonlytoafewministrieswillnotfacilitatethesocietaldiscussionthatisneededtodeterminepoliticallyacceptablesolutionsfortheenergytransition.Currently,theEUhasnoappropriateknowledgeinfrastructuretocollect,structureandensurethequalityofavailableenergy-sectordataandmakesitpubliclyaccessible.Togetthere,theEUcouldseekinspirationfrominternationalexamples:•TheUSfundstheEnergyInformationAdministrationthatmakesalotofenergydata,aswellasitsmodellingsystem,publiclyavailable;•IntheIPCC,theUNFCCChascreatedaninstitutionthatstructurestherelevantscientificliteratureandputsindividualfindingsintoperspective;and•TheInternationalEnergyAgencypublishesrevieweddataandreportsforOECDcountries.108Thismight,forexample,includedeviationsfromunbundlingprinciplesorstate-aidderogationsforwell-designed,regulatoryexperimentsthatareclearlylimitedintime,sectorandspace.109Inthisrespect,theEUcanact–atnationaland/orregionallevel–asaninsurancepool,abletoprovidecompensationforstrandedassetsinsingleregions.Atthesametime,theEUasawholewillbenefitfromregional/nationallearningeffects.110ThePRIMESmodelisanEUenergysystemmodelwhichsimulatesenergyconsumptionandtheenergysupplysystem.Moredetailsareavailablehere:https://ec.europa.eu/clima/eu-action/climate-strategies-targets/economic-analysis/modelling-tools-eu-analysis_en.DecarbonisationofEnergy107PE695.469Giventhehighstakes,theEUshouldnotleavethisessentialtaskoforganisingtheknowledgeforpolicymakingtoprivatecompaniesorfunding.AsecondareaofknowledgemanagementiscooperationbetweenMemberStates.TheNECPsarealreadyaveryusefultooltoputdifferentnationalplansinperspectiveandcomparethemtoEuropeanplans/projections/targets.ThiscanbefurtherdevelopedbycarefullyreviewingthedataMemberStatesprovideandencouragingthemtouseaharmonisedreportingsystem.Finally,theexperimentationdescribedinsection7.1.2needstobeaccompaniedbyrobustex-anteandex-postanalysis,sothatexperimentationreallyservesthepurposeofidentifyingappropriatesolutions.Accordingly,theexperimentsshouldbedesignedinawaythatallowsrobustanalysiswherepossible.Appropriatefundingforsuchscientificsupportshouldbeprovided.7.2.PolicytoolsInthissectionwesummarisesomeofthepoliciesthatwillbeneededtoimplementtheabove-describedpathwaychoices.7.2.1.GreenhousegaspricingToallowallstakeholderstonavigatethecomplexityoftheenergytransformationandtoprioritisethemosteffectiveandefficientsolutions,puttingapriceongreenhousegasemissionsiscrucial.Properpricingofgreenhousegasesnotonlyincentiviseshouseholdsandcompaniestochangetheirinnovation,investmentandoperationbehaviour,italsoencouragesnationalgovernmentsandregional/localadministrationstoenabletheprivatesectortoreducetheirgreenhouse-gasemissioncosts.Acommongreenhouse-gasemissionpricewillalsoensurethatmitigationactivitiesarewellsynchronisedbetweenMemberStates.Moreover,therevenuesgeneratedfromgreenhouse-gaspricingcanbeusedtoensuresocialfairnessandbeinvestedinenablinginfrastructuresandinnovation.TheEC’sproposaltotightentheEUETS,extendittoshippingandintroduceasecondEUETSfortransportandbuildingswillhelptostrengthenthecentralroleofcarbonpricing.Implementingtheproposalwillhaveamajorandlong-lastingpositiveimpactonensuringacost-efficienttransitiontowardsacarbon-neutraleconomy.Basedonourresearch,wewouldpickthreespecificelements:ConvergencetoonepriceEnsuringtheultimateconvergenceofemissionpricesintheexistingandthenewEUETSwillimproveefficiencyandsimplifyandstrengthenthesystem(Edenhoferetal,2021).Thismightbeachievedbydynamicallyreducingthenumberofallowancessoldinthe‘cheaper’systemandsellingthoseinsteadinthemoreexpensivesystem.CovermethaneemissionsalongthevaluechainItisurgenttoreducefugitivemethaneemissionsfromthecoalandnaturalgassectors.Methanehasveryhighglobalwarmingpotentialintheshortrun,estimatedbytheIPCCtobe81timesgreaterthanthatofCO2(over20years).Giventheriskofreachingtippingpointsintheatmosphere,methaneemissionsneedtobereducedquickly.Atthemoment,methaneemissionsarenotpartoftheEUETSandarereportedonlytotheUNFCCC(becausemethaneisaso-calledKyotogas).TheEUneedsinthefirstplacetoestablishitsownstandardsformonitoring,reportingandverification(MRV).Second,fugitivemethaneemissionsfromthecoalandgas(andalsotheoil)sectorsshouldbecappedassoonaspossibleandapolicyintroducedtoreducetheemissions.Suchapolicycould,forexample,followtheexampleoftheEUETSwithamethanecap-and-tradesystem,orintegratemethaneintotheEUIPOLPolicyDepartmentforEconomic,ScientificandQualityofLifePoliciesPE695.469108ETS.Orbeadifferentpolicyapproachcouldbetaken,suchascappingmethaneintensitiesoffossil-fuelproductionunits.However,giventheenormousroleofimportsintheEU’snaturalgas(andalsooil)consumption,itisimportanttoaddressthemethanefootprintofimports.Thiscouldtaketheformofamethanebordertaxorofmaximummethaneleakagerates.CertificationofgreenenergyimportsOuranalysisshowsthatimportsofhydrogenandgreengasesareaplausiblescenario.Moreover,theEUmightalsoimportmoreelectricitydirectlyfromitsneighbours.Inclimatetermsthisonlymakessenseiftheimportedenergyisnotassociatedwithmassiveemissionsintheproducercountry.Thisisnotalwaysstraightforward.AcertificationschemewillbeneededtoquicklyencouragetherightinvestmentsintheEUanditssuppliers.7.2.2.EUenergyinfrastructureEnergyinfrastructureintheEUismainlyprovidedbynationallyregulatednetworkmonopolies.Theregulatorstypicallyfocusonkeepingthecostofthesystemdevelopmentincheck–inordertoreducenetworktariffsthathouseholdshavetopay.Atthemargin,theEU(throughtheprojectsofcommoninterest)andindividualMemberStateshaveprovidedextraincentivesfor“strategic”infrastructure.Thismodel–thatisdeeplyinterwovenintheEuropeanenergymarket-isincrementalandlacksalong-termsystem-planningperspective.Accordingly,theEUstillsupportsgasandoilinfrastructure,whilethereisnovisionforanintercontinentalgridforafullydecarbonisedelectricitysystem.TheFit-for-55discussionsprovidemomentumforadeeprethinkofhowenergyinfrastructureisincentivisedandfinancedintheEU.InadditiontotheneedtoimprovecooperationbetweennationalregulatorsandTSOsforcross-borderinfrastructureplanning,itrequiresideasforthepotentialroll-outofahydrogengrid.Inthepast,beforetheInternalEnergyMarket,(greenfield)infrastructureconstructionwasdonewithinverticallyintegratedcompaniesorextensivelong-termcontracts.AnewenergycarrierhydrogenshouldconformtotherulesoftheEUInternalEnergyMarketandrequiresalternativemodelsofinfrastructurecreation.Atthesametime,partsofthehydrogeninfrastructuremaybeconvertedformernaturalgasinfrastructure,whilesomeothernaturalgasassetsmaybecomeunused(“stranded”).Regulationneedstobedevisedthatfacilitatestheconversion,butalsoregulationthatenablesthepermanentmothballingoffossilinfrastructureassets.7.2.3.EUEnergyMarketDesignEUelectricityandgasmarketsprovidepricesignalstoinvestors,producersandconsumers.Intheshort-termthishelpstheefficientallocationofenergyovertime(whetherstoredorconsumed),betweenplaces(shouldenergyfloweastwardsorwestwards),betweenproducers(whichplantsshouldrun)andconsumers(whoshouldcuttheirdemand).Inthelonger-termpricesignalsdetermineinvestmentinpowerplants,storageanddemand-sideappliances(includingdemand-responsecapabilities).Butcurrentenergymarketsweredesignedforaverydifferentsystemthatincludedahighshareofdispatchablepowerplantsandlimitedsubstitutabilitybetweendifferentenergycarriers.Thenewenergyworldwillconsistofhighsharesofvariablerenewableelectricityaswellasalternativeenergycarriers(greengases,hydrogen,heat),forwhichlocalorregionalmarketsmightmakesense.Themainchallengeinthisnewenergyworldwillbetocarryabundantavailableenergy(especiallyinsummer)overtoperiodswhenenergyisscarcelyavailable(especiallyinwinter).Thisalsoinvolvesthequestionofhowdifferentenergymarketsareco-designed(sector-coupling).Thediscussionhasstartedonwhetherthecurrentmarketmodelbasedon‘scarcitypricing’isenoughtoensurethebehaviourandinvestmentdecisionsneededtomakethenewsystemwork,orwhetheralternativemarketinstrumentsareneeded.DecarbonisationofEnergy109PE695.469Investorswill,however,requiresomeclarityonwhichmarketswillensuretheprofitabilityofinvestmentsthataddressthechallenge.Thisisahigh-stakesdiscussion,whichshouldbepoliticallymoderatedandnotlefttoindustryalone.7.2.4.CleanappliancessupportSpeedupdeploymentofindustrialconsumptionIndustrialsectorswillhavetoreplaceemissions-intensiveproductionprocesseswithlow-carbonalternatives.Thegoodnewsisthatforalmostallsectors,differentlow-carbonproductiontechnologiesexist,atleastatprototypeorpilotstage.Thedifficultyisthat,attoo-lowcarbonprices,manylow-carbontechnologiesarenotyetcompetitiveagainstpollutingprocesses.Onesolutionwillbetoensureaconstantlyincreasinggreenhousegasprice(section7.2.1).However,thisispoliticallydifficultandtheETSmarketischaracterisedbyregulatoryuncertainty.Onesolutiontoprovidealreadytodayhigherpricesignalswouldbeagreenhouse-gaspricing-basedsupportinstrument–‘commercialisationcontracts’(McWilliamsandZachmann,2021).Thesecouldbeimplementedasatemporarymeasuretoremovetheriskassociatedwithuncertaincarbonpricesforambitiouslow-carbonprojects.Theaimofthecontractswouldbetoincreaseprivateinvestmenttothesocially-optimallevel.Contractswouldbeallocatedthroughauctionsinwhichfixedpricesforabatedemissionsoverafixeddurationwouldbeagreedonaproject-by-projectbasis.Onanannualbasis,publicsubsidiesamountingtothedifferencebetweentheagreedcarbonpriceandtheactualEUcarbonpricewouldbeprovidedtoinvestors,dependingonthetotalcarbonemissionsabated.AslongasEUcarbonpricesarelow,investorswouldreceivelargersubsidiestoensuretheircompetitiveness.ContractswouldbeauctionedatEUlevel.Thiswouldgenerateincreasedcompetitioncomparedtonationalauctions,leadingtomoreefficientoutcomesandpreventingfragmentationofthesinglemarket.Fromabout€3billionto€6billionwouldbeprovidedtothemainindustrialemittingsectorsannually,withtheamountreducingastheEUcarbonpricerisesandlow-carbontechnologiesbecomecompetitivewithoutsubsidy.SpeedupdeploymentofhouseholdconsumptionappliancesAsimilarchallengeexistsforhouseholdinvestmentssuchasheatpumps,hydrogenboilersorelectricvehicles(McWilliamsandZachmann,2021b).Aformofinsurancecouldbeofferedtoconsumerssothatwhentheyinvestinfuel-switching(forexample,byinstallinganelectricheatpump),thecleanfuelwillalwaysbecheaperthanthedisplacedfossilfuel.Thiswouldinvolveafixedpricepaidtoconsumersforthereductionincarbonemissionsassociatedwiththeirinvestment.Theamountofsubsidywouldbecalculatedannually,andwoulddependontotalusageoftheappliance.Householdcontractswouldineffectbringforwardthisscenarioforhouseholdsthatwishtoinvesttodayratherthanwaituntil2030.Householdswouldbeguaranteedapriceof,say,€100/tonnefortheannualcarbonemissionsavoidedbyinstallingaheatpump.Withnocarbonpriceinplace(currently,manyEUcountriesdonotexplicitlytaxthecarboncontentoffuelsusedforhouseholdheating),thiswouldinvolvethembeingpaidtheirannualemissionreductionmultipliedbythetargetcarbonprice.Asacarbonpriceonnaturalgasisgraduallyimplemented,thehouseholdwouldbepaidthedifferencebetweenthatyear’scarbonpriceandthetargetprice.Inthiswaythesubsidiestheyreceivewouldbephasedoutastheactualcarbonpriceincreases.Withahighenoughtargetprice,annualpaymentsshouldensurethatclean-fuelappliancesarecheaperthantheirdirtycompetitors.Guaranteesthatcleanfuelswillalwaysbecheaperthanfossilfuelsshouldassuageconcernsthatdecreasingdemandforfossilfuelswillactuallymakethemverycheap,IPOLPolicyDepartmentforEconomic,ScientificandQualityofLifePoliciesPE695.469110andhenceearlyadoptersofcleantechnologyriskbecomingworseoffthanhouseholdsthatstickwithfossil-fuelboilersorcars.EnablinginfrastructureFinally,makingconsumer-endpublicinfrastructure(electriccharging,cleanfuelspipelinesandsufficientelectricityconnectioncapacity)availableiscrucialforenablingconsumerstoswitchtolow-carbonenergyappliances.Thisinfrastructureisnotdeliveredinacompetitivemarket,butinahighlyregulatedenvironment.Moreover,inurbanareas–whichwillbekeyarenasofdecarbonisation–forefficientuseofspaceandresources,modernenergyandtransportnetworksystemsneedtobedesignedsidebyside.However,EUenergyandclimategovernanceisbasedontop-downpoliciesthatarenotcomplementedbyasolidbottom-upsystemthatensuresconsistencyofEU,nationalandlocalmeasures,andthatincentivisesdecarbonisationatcitylevel.Hence,betterintegrationisneededoftop-downenergyandclimatepolicymechanismswithnewbottom-upincentivesthataimtopromotedecarbonisationatcitylevel.Agrant-basedsystemcouldgivetheEUsomecontrolovertheeffectiveimplementationofcities’decarbonisationprojects.EUcountriescouldusecityprogressreportstoprovidefiscalincentivestocitiesthatimplementinpracticetheirclimateplans.ThispremiumsystemwouldmakeeconomicsenseforMemberStatesconsideringthatthebettercitiesperformintermsofdecarbonisation,theeasieritwillbetoachievenationaldecarbonisationtargets(TagliapietraandZachmann,2016).7.2.5.SpeedupthedeploymentofrenewablesInallscenariosahugeamountofrenewableelectricitywillbeneededalreadyby2030.TheEuropeanGreenDealpackageproposedbytheECincludesarevisionoftheRenewableEnergyDirective.ThisproposalincreasesthecurrentEU-level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233–234:1027-1050,2019,availableat:https://doi.org/10.1016/j.apenergy.2018.08.109•Zerrahn,AandW.Schill,Long-RunPowerStorageRequirementsforHighSharesofRenewables:ReviewandaNewModel,RenewableandSustainableEnergyReviews,79:1518-1534,2017,availableat:https://doi.org/10.1016/j.rser.2016.11.098IPOLPolicyDepartmentforEconomic,ScientificandQualityofLifePoliciesPE695.469118APPENDIXA1.MODELDESCRIPTIONDIETERTomodeltheEuropeanelectricitysystem,weusethe“DispatchandInvestmentEvaluationToolwithEndogenousRenewables”(DIETER),acapacityexpansionanddispatchmodeloftheEuropeanelectricitysystem(ZerrahnandSchill,2017)111.TheDIETERmodelusesvariousdatasources112andassumptions113andincludesalmostallEUMemberStatesandSwitzerland114.Themodelcontainsall8760hoursofonespecific(target)yearbutdoesnotmodelpathsbetweenyears.Givendemandforelectricity,weatherpatterns,renewableenergyrequirementsandotherconstraints,themodelcomesupwithacost-minimalpowerplantandstoragefleetaswellastheirusageduringtheyear.Themodeldoesnotcontainanexplicitelectricitygridstructure;everycountryismodelledasa“copperplate”.Electricitycanflowbetweencountriesusinga“nettransfercapacity”model.Theresultsofthemodelcanbeinterpretedaslong-termoptimalequilibriumonthepowermarket,assumingcompletelinearity,perfectforesightfortheentireyear,aswellasperfectcompetition.Themodelhasalreadybeenusedinnumerousstudiesandreports.Gaete-Moraleset.al(2021)provideanoverviewwhereDIETERanditsmodelderivationshavebeenusedpreviously.DIETERaimsatdeterminingtheoptimalpowerfleetcompositionfordifferent“targetyears”.Thesetargetyearsdifferbytherequiredshareofrenewableelectricityproducedofallelectricityconsumedinacountry.Asouranalysishasonlyillustrativepurposes,wedecidedtodeterminetheshareofrenewableelectricity115consumedbyassumingthatthecurrentactualshare(in2020)willincreaseineverycountryinsuchawaythat“almost100%”116ofrenewableelectricityisreachedin2050.Basedonthisassumedlinearincreaseoftherenewableshare,theunderlyingrequiredsharesofrenewableof2030arehigherthancurrently:forexample,weassumeatleast65%renewablesinGermany,84%inAustria,butonly42%inHungaryduetothelowercurrentshare,hencealowerstartingpoint.Asthisanalysisonlyservestoshowstylizedresults,weareawarethatevenhighersharesofrenewableelectricitymightberequiredintheshortrun.Thequalitativeconclusionsyetdonotchange.A2.METHANEEMISSIONWerefertomethaneemissionsdataasreportedtotheUNFCCC.Therearedoubtsastothequalityoftheself-reportingofmethanedatatotheUNFCCCbecauseitisbasedoncalculations(usingparameterslikeenergyinput,emissionfactors,etc.)andthereishardlyanyverificationbymeasurement.111Formoreinformationregardingouropen-sourcemodelDIETER,pleasechecktheinformationprovidedathttps://www.diw.de/dieterandhttps://gitlab.com/diw-evu/dieter_public/dieterpy.Themodelcodeusedinthisreport(https://gitlab.com/diw-evu/projects/decarbonisation-of-energy/)canbedownloaded,usedforfreeandadaptedforownanalysis.112Weathertimeseries(renewableenergycapacityfactors)aretakenfromRenewables.ninja(https://www.renewables.ninja),demandtimeseries(load)aretakenfromENTSO-E(2018)(scenario2040ST,climateyear2007).Forcostassumptions,werefertotheDIETERversion1.3(https://gitlab.com/diw-evu/dieter_public/dietergms/-/tree/1.3.0)andthecostassumptionsdocumentedthere.113Themodelcanchoosefreelytoinvestindifferentgenerationtechnologies,giventherenewableelectricityconstrainsmentionedinthetext.Hydro(damns),run-of-river,biomass,andpumped-hydrostorageplantsgenerationcapacitiescanbeexpandedbymaximally10%beyondcurrentlevels.PhotovoltaicandwindpowergenerationcapacitiescanbeexpandeduptothemaximumboundsinChildetal.(2019).Cross-borderelectricitytransportationcapacitiesaretakenfromtheENTSO-E(2018)(scenario2040ST).114Austria,Belgium,Bulgaria,Switzerland,Czechia,Germany,Denmark,Estonia,Finland,France,Greece,Croatia,Hungary,Italy,Latvia,Lithuania,Netherlands,Norway,Poland,Romania,Sweden,Slovenia,Slovakia.115Renewableelectricitydoesnotencompassnuclearenergyinouranalysis.116Dependingonthecountry,the2050targetrenewablesharesvarybetween97%and99%.Thereasonfornotassuming100%aretechnical.Modellingashareof100%renewableelectricitywithinanisolatedelectricitysectormodel(wedonotincludeothersectors)couldleadtobiasedresults.DecarbonisationofEnergy119PE695.469However,thisistheonlycomprehensivemethaneemissiondatabaseavailableatthemoment.InFigure7-1,wereporttotalgreenhousegasemissionsin2019intheEuropeanUnion(EU27).Incase,theshort-term(20year)globalwarmingpotential(GWP)ofmethaneisconsidered,methaneismorethanaquarter(28%)oftheEU’stotalgreenhousegasemissions.Inthelongrun(100yearglobalwarmingpotential),methanestillmakesupfor12%oftheEU27greenhousegasemissions.Figure7-1onlyincludesdomesticemissionsintheEU27anddoesnottakeintoaccountthemethanefootprintofgas(andoil)imports.ThisisreportedandcomparedtotheEU27sdomesticmethaneemissionsinFigure7-2.Themethanefootprintofnaturalgasimportsis20%largerthanthetotalmethaneemissionsintheEU27energysector.FugitiveemissionsfromtheEU’scoalsectorontheonehandandtheEU’soilandgassectorontheotherhandareeachaboutonethirdofthemethaneemissionsfromtheenergysector.TheenergysectormethaneemissionsareaboutonefifthofthetotalmethaneemissionsintheEU27.Figure7-1:ShareofmethaneintotalGHGemissionsintheEU27in2019(byGWPassumptionformethane)Source:UNFCCCdata,availableat:https://www.eea.europa.eu/data-and-maps/data/national-emissions-reported-to-the-unfccc-and-to-the-eu-greenhouse-gas-monitoring-mechanism-17.Note:CO2equivalentsarecalculatedbasedontheupdatedglobalwarmingpotentials(GWP)ofthedifferentgreenhousegasesinIPCC(2021).TheGWPofCH4is81.2foratimehorizonof20-yeartimehorizonand27.9fora100-yeartimehorizon.ForN20theGWPis273forbothhorizons.ForotherGHGthe100-yearGWPfactorwasassumedinbothgraphsduetoalackofdata.28%12%0500100015002000250030003500400045005000GWP81.2GWP27.9EmissionsinMtCO2eqN2OSF6HFCCO2NF3PFCOtherCh4IPOLPolicyDepartmentforEconomic,ScientificandQualityofLifePoliciesPE695.469120FigureA2-2:MethaneemissionsintheEU27andmethaneleakagefootprintofnaturalgasimportsin2019Source:UNFCCCdatabase.Note:AGWPof81.2isassumedfortheconversionofmethaneemissionstoMtCO2eq.0200400600800100012001400AllCH4emissionsCH4emissionsfromenergyFugitiveCH4emissionsfromsolidfossilfuelsFugitiveCH4emissionsfromoilandgassectorCH4footprintofIntheEUNaturalgasimportsMtCO2eq.DecarbonisationofEnergy121PE695.469A.METHODOLOGYFORSCENARIOANALYSIS(EXTENDEDDESCRIPTION)Thepurposeofouranalysisistoinvestigatetheeconomiceffectsofswitchingbetweendifferentfuelconsumptions.Weinvestigatecornerscenarios,whereextremeassumptionsaretakenforconsumptionofaparticularfuel.OuranalysisisbasedontheMIX-55scenarioresultsreportedbytheJRCfortheevolutionoffinalenergydemandintheEU27to2030and2050.Thisanalysisisavailablehere:https://visitors-centre.jrc.ec.europa.eu/tools/energy_scenarios/.TheJRCsourceprovidessectoralfuelconsumptionsfor2019,2030and2050inareferenceandMIX-55scenario.Theprovidedfiguresarenotfinalenergyconsumptionsbuttothebestofourunderstandingalsoincludeenergytransformationlossesandfuelnon-energyconsumptionsthatareassociatedtothedemandsectors.Tocompensateforthis,weadjustthefiguresbasedonactual2019energybalancestatistics.Thisallowsustoidentifyfinalenergyconsumptionandnon-energyfuelconsumptionperfuelforeachsector.Weextrapolatetheassumptionsmadeonnon-fueldemandandenergytransformationlossesfrom2019throughto2030and2050.Breakdownbasedon:JRC-2030(Mix55)(TWh)ElectricityHeatHydrogenSyntheticmethaneRenewables[solar,geobiofuels,ambient]PetroleumproductsNaturalgasSolidfossilfuelsTotalIndustry1,1002003204009003003,220Buildings1,500300840100900203,660Transport100103002,4001002,910FEC2,7005001001,4602,9001,9003209,790Non-energyuse8002001,000Aviation&maritimebunkers100600610Afterconstructingourreferencescenario,weinvestigatetheeffectsofswitchingfinalenergydemandawayfromthemixdeterminedbytheJRCandtowardelectricity,hydrogen,orgreenfuelsinourthreeseparatecornerscenarios.Afuelswitchisalsoassociatedwithachangeintotalenergyconsumedbyanapplianceinaspecificsector.Forexample,batteryelectricvehiclesconsumelessenergytotravelonekilometrethananinternalcombustionenginevehicle.Inotherwords,changingapplicationsresultsinchangingthermalefficienciesofenergyconversion(whileanICEhasanefficiencybelow50%thatofaBEVisabove80%).IPOLPolicyDepartmentforEconomic,ScientificandQualityofLifePoliciesPE695.469122Therefore,eveniftherequireduseableenergyremainsconstant(e.g.,mechanicalenergyrequiredtomoveavehicleaspecificdistance)theswitchfromonetoanotherfuelmaychangetherequiredfinalenergy.Todealwiththis,weuseestimationsoftheusefulenergydemandperfuelandsector.Weassumethreetypesofusefulenergy:“thermal”,“mechanical”and“ICT&lightning”.Basedonavailablesectoralstatisticsweassigntherespectivefinalenergyconsumptionperfueltothethreeusefulenergytypes(e.g.,70%ofelectricityusedinbuildingsisconsumedinICT&lightningprocessesandtheremaining30%forheating).Theusefulenergyperapplicationandfuelinallsectorsresultsfinallybyconsideringthe(thermal)efficiencyoftherespectiveapplication(e.g.,3,000TWhofoilproductsinthetransportsectorallowsfor1,000TWhofusefulenergy).Thesumofallfuelspecificusefulenergiespersectordefinesthetotalusefulenergyrequiredforoneofthethreeusefulenergytypes(e.g.,thetotalheatgeneratedinbuildingsis3,000TWhandisprovidedby30%ofnaturalgas,10%ofelectricityandsoon.)Basedonthisassessmentforallusefulenergytypesandsectorstheeffectsofafuelswitchcanbecalculated.Therefore,weassumeforeachcornerscenariothepercentageshareofafuelcontributingtotheprovisionoftherequiredusefulenergy(Basedontheexampleforbuildings,providing3,000TWhofheatwithonlyheatpumpsrequiresjust1,000ofelectricity.)Resultingfromthis,foreachscenariothefinalenergyandnon-energyconsumptioncanbecalculated:"All-electricworld"2030(TWh)ElectricityHeatHydrogenSyntheticmethaneRenewables[solar,geobiofuels,ambient]PetroleumproductsNaturalgasSolidfossilfuelsTotalIndustry1,30020004002007002003,000Buildings1,6003001,250100700203,970Transport300103001,9001002,610FEC3,2005001001,9502,2001,5002209,580Non-energyuse608002001,060Aviation&maritimebunkers10500510WhiletheaggregatedFECdemandofallsectorsforallenergycarriersbutelectricityandheatdefinetheprimaryenergysupplyofthosefuels,theprimaryenergyconsumptioninelectricity(andheat)generationintheenergysectorhastobecalculated.Weassumethereforethatchangesinelectricityproduction(comparedtoJRCfigures)resultonlyinchangesofwindandsolargeneration.DecarbonisationofEnergy123PE695.469Therewith,therequiredinvestmentsintheenergysectorcanbecalculated.Theyaredefinedassumofadditionalpowergenerationcapacities(comparedto2020,2030respectively),investmentsinelectrolyserandtransmissiongridsaswellasinvestmentsinhydrogengrids.PE695.469IP/A/ITRE/2021-03PrintISBN978-92-846-8716-9doi:10.2861/646991QA-07-21-057-EN-CPDFISBN978-92-846-8715-2doi:10.2861/21517QA-07-21-057-EN-NDecarbonisingtheenergysystemrequiresafundamentaltransformationinthewaysocietiesgenerate,transportandconsumeenergy.Disagreementstillexistsoverhowthissystemshouldlookin2050.Thefirstprincipleforefficienttransformationshouldbethatuncontroversialtechnologiesareswiftlyandaggressivelydeployed.Second,incontroversialareas,policyshouldforcefullyexploreoptionsandbewillingtoacceptandlearnfromfailures.Thisreportdiscussesconcreteoptionsfordoingso.ThisdocumentwasprovidedbythePolicyDepartmentforEconomic,ScientificandQualityofLifePoliciesattherequestofthecommitteeonIndustry,ResearchandEnergy(ITRE).
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