电脑桌面
添加绿碳小达人到电脑桌面
已经多位好友把绿碳小达人添加到电脑桌面，以后点击桌面图标一键打开，无需搜索，非常快捷！
分享文档
开通下载权限免费下载
赞助
登录  |  注册
首页文档碳中和资料行业政策全球能源经济主题2023(英文版)---牛津大学

全球能源经济主题2023(英文版)---牛津大学VIP专享VIP免费

January 2023
OIES Paper: SP 21
Key Themes for the
Global Energy Economy in 2023
OIES
i
The contents of this paper are the authors’ sole responsibility. They do not
necessarily represent the views of the Oxford Institute for Energy Studies or any of
its members.
Copyright © 2023
Oxford Institute for Energy Studies
(Registered Charity, No. 286084)
This publication may be reproduced in part for educational or non-profit purposes without special
permission from the copyright holder, provided acknowledgment of the source is made. No use of this
publication may be made for resale or for any other commercial purpose whatsoever without prior
permission in writing from the Oxford Institute for Energy Studies.
ISBN 978-1-78467-215-7
ii
Contents .................................................................................................................................................. ii
Figures .................................................................................................................................................... ii
Tables ...................................................................................................................................................... ii
1. Introduction – rebalancing the energy trilemma .............................................................................. 1
2. Oil markets in 2023: the year of the aftershocks ............................................................................. 4
3. European gas demand: key factors to keep an eye on in 2023 ...................................................... 6
4. 2023: A year for the EU to deliver the legislative framework of the Green Deal ............................. 8
5. Storage as an indicator of European market tightness.................................................................. 10
6. Final agreement on wholesale gas price caps foreshadows future challenges for EU energy policy
....................................................................................................................................................... 12
7. The EU regulatory framework governing solidarity during a gas crisis ......................................... 14
8. Where will Europe get its gas from in 2023? ................................................................................. 16
9. China in 2023: A year of two halves .............................................................................................. 18
10. India’s G-20 Presidency ................................................................................................................. 20
11. Revisiting the Africa-Europe energy relationship ........................................................................... 22
12. The Global Stocktake – A critical update on climate action, or lack of it ....................................... 24
13. Progress with climate finance ahead of COP28 will be vital in 2023 ............................................. 26
14. Article 6 post-COP27 ..................................................................................................................... 28
15. Outlook for Carbon Removals Post-COP27 .................................................................................. 30
16. Methane emissions: the increasing importance of measurement, reporting, and verification....... 32
17. As China reopens, expect volatility ................................................................................................ 34
18. Electricity wholesale market design in Europe .............................................................................. 36
19. Nuclear power in 2023: the ‘nuclear renaissance’ resurrected? ................................................... 38
20. How will the US Inflation Reduction Act affect hydrogen developments in 2023? ........................ 40
Figures
Figure 1: Balance of risks ........................................................................................................................ 4
Figure 2: Monthly gas demand in EU27 + UK, 2019-2022 (Bcm) .......................................................... 7
Figure 3: European gas storage stocks (Bcm) ...................................................................................... 10
Figure 4: Europe Balance 2023 ........................................................................................................... 17
Figure 5: Timetable for the Global Stocktake Process ......................................................................... 24
Figure 6: Climate finance flows, actual and needed to limit warming to 1.5°C ..................................... 27
Tables
Table 1: Canadian Methane Emissions Reduction Plan (megatonnes of CO2e) ................................. 33
Table 2: Nuclear reactor plans, by country ........................................................................................... 38
Table 3: US Inflation Reduction Act hydrogen tax credits .................................................................... 41
Contents
/44
文本预览下载提示常见问题
January2023OIESPaper:SP21KeyThemesfortheGlobalEnergyEconomyin2023OIESiThecontentsofthispaperaretheauthors’soleresponsibility.TheydonotnecessarilyrepresenttheviewsoftheOxfordInstituteforEnergyStudiesoranyofitsmembers.Copyright©2023OxfordInstituteforEnergyStudies(RegisteredCharity,No.286084)Thispublicationmaybereproducedinpartforeducationalornon-profitpurposeswithoutspecialpermissionfromthecopyrightholder,providedacknowledgmentofthesourceismade.NouseofthispublicationmaybemadeforresaleorforanyothercommercialpurposewhatsoeverwithoutpriorpermissioninwritingfromtheOxfordInstituteforEnergyStudies.ISBN978-1-78467-215-7iiContents..................................................................................................................................................iiFigures....................................................................................................................................................iiTables......................................................................................................................................................ii1.Introduction–rebalancingtheenergytrilemma..............................................................................12.Oilmarketsin2023:theyearoftheaftershocks.............................................................................43.Europeangasdemand:keyfactorstokeepaneyeonin2023......................................................64.2023:AyearfortheEUtodeliverthelegislativeframeworkoftheGreenDeal.............................85.StorageasanindicatorofEuropeanmarkettightness..................................................................106.FinalagreementonwholesalegaspricecapsforeshadowsfuturechallengesforEUenergypolicy.......................................................................................................................................................127.TheEUregulatoryframeworkgoverningsolidarityduringagascrisis.........................................148.WherewillEuropegetitsgasfromin2023?.................................................................................169.Chinain2023:Ayearoftwohalves..............................................................................................1810.India’sG-20Presidency.................................................................................................................2011.RevisitingtheAfrica-Europeenergyrelationship...........................................................................2212.TheGlobalStocktake–Acriticalupdateonclimateaction,orlackofit.......................................2413.ProgresswithclimatefinanceaheadofCOP28willbevitalin2023.............................................2614.Article6post-COP27.....................................................................................................................2815.OutlookforCarbonRemovalsPost-COP27..................................................................................3016.Methaneemissions:theincreasingimportanceofmeasurement,reporting,andverification.......3217.AsChinareopens,expectvolatility................................................................................................3418.ElectricitywholesalemarketdesigninEurope..............................................................................3619.Nuclearpowerin2023:the‘nuclearrenaissance’resurrected?...................................................3820.HowwilltheUSInflationReductionActaffecthydrogendevelopmentsin2023?........................40FiguresFigure1:Balanceofrisks........................................................................................................................4Figure2:MonthlygasdemandinEU27+UK,2019-2022(Bcm)..........................................................7Figure3:Europeangasstoragestocks(Bcm)......................................................................................10Figure4:EuropeBalance2023...........................................................................................................17Figure5:TimetablefortheGlobalStocktakeProcess.........................................................................24Figure6:Climatefinanceflows,actualandneededtolimitwarmingto1.5°C.....................................27TablesTable1:CanadianMethaneEmissionsReductionPlan(megatonnesofCO2e).................................33Table2:Nuclearreactorplans,bycountry...........................................................................................38Table3:USInflationReductionActhydrogentaxcredits....................................................................41Contents1Thecontentsofthispaperaretheauthors’soleresponsibility.TheydonotnecessarilyrepresenttheviewsoftheOxfordInstituteforEnergyStudiesoranyofitsMembers.1.Introduction–rebalancingtheenergytrilemmaInthislatesteditionofourKeyThemesseriesweexamineanumberoftopicswhichwebelievewillbehighlyrelevanttotheglobalenergyeconomyin2023.Thepasttwelvemonthshaveseenahugere-prioritisationofenergypolicyawayfromenvironmentalissuesandtowardsenergysecurityandaffordability.Manyofthearticlesinthisdocumentquestionwhetherthiswillbealong-termtrendorwhethersustainabilitywillreturntothetopofthepolicymakingagendaoncetheshort-termneedtofocusonsecurityofsupplyhaspassed.Indeed,manyofourcontributorsarguethattheshort-termrebalancingoftheenergytrilemmatowardsenergysecuritymayevenbringenvironmentalbenefitsinthelongertermgiventhedesireofmanycountriestoreducetheirexposuretohydrocarbonsintheaftermathofthewarinUkraineanditsenergy-relatedconsequences.There-balancingoftheenergytrilemmaTheenergytrilemmahasbeenamajorplankofenergypolicythinkingoverthepastdecade,focusingonthebalancebetweenachievingsustainability(decarbonisationoftheenergysystem),equity(accessibilityandaffordabilityforconsumers),andenergysecurity(ensuringadequatesupply).Indevelopedeconomies,growingconcernabouttheenvironmentalimpactoftheenergyeconomymeantthatsustainabilityhadincreasinglybecomethepriority,especiallysincetheParisAgreementatCOP21in2015,withaffordabilityandaccessibilitybeingrelatedconcernsoftheenergytransition,whileenergysecuritywasseenasalesserissuethankstotheavailabilityofdiversifiedsuppliesdeliveredthroughincreasinglyfungibleglobalmarkets.Incontrast,inmanypartsofthedevelopingworld,energyequityandsecurityarguablyrankedabovesustainability,althoughthegrowingfrequencyandimpactofextremeweathereventshasclearlyplacedthelowcarbontransitionhigheronpolicyagendas.Russia’sinvasionofUkrainehasnotonlycausedadramaticreconsiderationofthisprioritisation,withenergysecuritybecomingthenumberonefocusglobally,butithasalsohighlightedthedifferenceinperceptionsofthetrilemmaaroundtheworld.Inaddition,afourthdynamic–governmentintervention–isfurtherhighlightingthedifferencesinperceptionandthedifferenceinabilitytomanagetheenergytrilemma.Theprovisionoffinanceisalsoamajortopicofdebate,especiallyintheGlobalSouthwherecountriesaredemandingsupportfromthedevelopedcountrieswhichareseenasresponsibleforthecurrentenvironmentalissues.2023willseefurtherdebateabouttherebalancingoftheenergytrilemmafromaglobalperspective,withanumberofkeythemessettodominatepolicymaking,corporatedecision-making,andacademicdebate.DifferingregionalperspectivesInEurope,andespeciallytheEU,thedrivetodiversifyawayfromimportsofRussianenergywillcontinue.However,whiletheneedtosecureadequatesupplyforthewinterof2023/24willnecessitateafocusonshort-termaccesstoalternativesourcesofnaturalgas,2023couldalsobeayearinwhichEUplansforafasterenergytransitionstarttocrystallise.TheREPowerEUplanthatwascatalysedbytheRussianinvasionofUkraineisbasedonthethinkingthatamorerapiddecarbonisationoftheEuropeanenergysystemcanprovidemoreenergysecurityoverthelong-termaswellashelpingtoachievethecontinent’sclimateambitions.However,twokeyquestionsthatwillbeintertwinedin2023arefirstlywhetherenergysecurityissueswillcontinuetodominateanddistractpoliticiansawayfromthelonger-termsustainabilitygoals,andsecondlywhetherthelonger-termgoalsthemselves,especiallytheaimtoreducegasdemandsetoutintheREPowerEUplan,couldundermineeffortstosecurenewsuppliesintheshortterm.Thethemeofshort-termenergynecessitymergingintolongertermclimatestrategyisalsoseeninotherregionswhicharestrugglingtobalancetheenergytrilemma.InmanyAsiancountries,forexample,highenergypricesandthereducedavailabilityofLNGtakenbyEuropehaveforcedareconsiderationofenergystrategy.Developmentofdomesticcoalresources,althoughclearlylessenvironmentallyfriendlythanmanyalternativeenergysources,isbecomingapriorityagainascostand2Thecontentsofthispaperaretheauthors’soleresponsibility.TheydonotnecessarilyrepresenttheviewsoftheOxfordInstituteforEnergyStudiesoranyofitsMembers.availabilitytrumpclimateimpact,atleastintheshortterm.MeanwhileinAfrica,theEU’ssearchfornewgassupplyhasrekindledthedrivetodevelopnewgasexportprojectsthatcanalsosupplythedomesticmarket.Inthiscase,adualdesiretogenerateexportrevenuesandtoprovideenergyaccessmeansthattheprioritiesofthetrilemmaarebeingrebalanced.AssessingtechnologyandfinancingoptionsAstheroleofhydrocarbonsisbeingreconsidered,andastherealitythattheymayremainimportanttotheglobalenergysystemforlongerthanmanywouldlikebecomesclear,sothesustainabilityelementofthetrilemmaisbeingadjustedtocope.AsevidencedatCOP27thedevelopmentofcarbonremovaltechnologies,voluntarycarbonmarkets,andcarboncaptureandstoragebusinessmodelsissettobecomeanincreasingthemein2023andbeyond,atleastwithamedium-termperspectiveoffacilitatingamoreorderlytransitiontoacarbon-freeenergysysteminthelongerterm.Thisdoesnotmeanthattheexpansionofrenewablesassoonaspossibleisnotcritical–itclearlyisand2023willprovidemoreevidenceofhowgrowthisaccelerating.However,anotherdynamicthatwillbeacontinuingfocusinthecomingyearisthefinancingofthetransitiontoazero-carboneconomyintheGlobalSouth.WhilerichOECDcountrieshavethewealthtodealwithashort-termenergycrisiswhilealsoplanningforalonger-termcleanenergyfuture,COP27underlinedthatthedevelopingworld,wheremostofthegrowthineconomicactivity,population,andemissionswillbeseenoverthenextthreedecades,donotenjoysimilarwealthandaredemandingassistancefromtheGlobalNorth,whichisthecauseoftheenvironmentalproblemsinthefirstplace.Thisfinancedynamicthatsurroundstheenergytrilemmainmanyregionsoftheworldwillbeahugefocusin2023,asthedebateovertheprovisionoffundsformitigation,adaptationandlossanddamagedevelopsaheadofCOP28attheendoftheyear.GeopoliticswillbecriticalBeyondthisissue,therebalancingoftheenergytrilemmatofocusonenergysecurityhasalsohighlightedsomeofthekeyemergingrisksintheenergytransition.Withrelationsbetweentheworld’stwolargestemitters,ChinaandtheUS,becomingevermorecompetitiveandassertive,aracetobethetechnologyleaderoftheenergytransitioniswellunderway,andhasbeenratchetedupbytherecentUSstrategytodramaticallylimittechnologytransfertoChina.WhilethiswillundoubtedlyhaveanegativeimpactonChina’sabilitytodevelopcertaintechnologiesitalsohighlightsthecardswhichChinahastoplayregardingsecurityofsupplyofcriticalmineralsandmaterials.Itsdominanceofthemining,andespeciallytheprocessing,ofkeyinputstoenergytransitiontechnologiesisbecomingamajorelementoftheenergytrilemmaandofgeopoliticaldebate,whichisafurtherdestabilisingfactorinresolvingtherebalancingquestion.Twofinalpointscanbemadeontheimpactofthisrebalancingprocessandtheuncertaintiessurroundingit.Thefirstisthatitincreasestheriskofstrandedassets–ashort-termfocusonhydrocarbonstoreplaceRussianimportscouldleadtothedevelopmentofnewresourcesthathavealimitedlifespanshouldtheelementsofthetrilemmaberebalancedagaininthenearfuture.Thisleadstoasecondkeycommercialriskforcompanieswhoarethekeyinvestorsintheenergysystem.Howdotheybalanceshort-termneedsforenergysecuritywithlongertermdemandsforaloworzerocarbonenvironment?AndhowdotheyfactorESGrequirementsintotheirinvestmentplanning?Oneansweristhattheywillaimtodevelopanyenergyresources,hydrocarbonsincluded,withaslowacarbonintensityaspossible,but2023islikelytobeanotheryearwherethisassertionisseverelytestedbythecompetinginterestsofenergyconsumers,environmentalNGOs,demandingshareholders,andpolicymakerswithmultipleshort-andlong-termobjectives.Asaresult,in2023,theenergytrilemmawillremaincriticalforanumberofreasonsandwillprovokeawiderangeofvitalquestions.First,asEuropeancountriesseeknewLNGsupplies,willtheseunderminepoliciesaimedatadvancingtheenergytransition?Relatedtothat,willambitioustargetstoreduceemissionsthroughlowergasconsumptionlimitEurope’sabilitytosecurelong-termgassupplies?Next,howwillEuropeanpoliciesandcommercialstrategiesimpacttheavailabilityandaffordabilityofenergy3Thecontentsofthispaperaretheauthors’soleresponsibility.TheydonotnecessarilyrepresenttheviewsoftheOxfordInstituteforEnergyStudiesoranyofitsMembers.indevelopingeconomies?Givensustainabilityconcerns,cannewhydrocarbonprojects—requiredforsupplysecurity—getofftheground?Andhowwillgovernmentpoliciesimpactthesechoices?Already,governments(andEUinstitutions)havebeeninstrumentalindictatingstoragetrends(bothoilstockreleasesandgasstockpiling),whichhaveinturnimpactedpricesignals.Governmentperceptionsofmarketrisksandglobaltrendswillthereforebecriticalin2023astheyinformpolicychoicesandbalancethetrilemma.Finally,andrelatedtothis,governmentchoiceswillleadtofinancingpriorities:willgovernmentsopttosubsidiseenduserstoshieldthemfromtheimpactofhighenergyprices,orwilltheyproceedwithtaxingfossilfuelsandimposingcarbontariffs?Willdevelopedeconomiesinvestinnewhydrocarbonprojects,grids,batteriesorcriticalmaterialsathomeorabroadandhowwilltheseinvestmentchoicesbeperceivedindevelopingcountries?TohelpinassessingthesequestionsandtoprovidesomeinitialresponseswehavegroupedthearticlesinthisKeyThemespaperasfollows.Westartwithinanassessmentof,andoutlookfor,theglobaloilmarket,beforecontinuingwithaseriesofarticlesonEurope,includingtheoutlookforgasdemand,theneedforsignificantregulatoryactivityintheEU,theimportanceofmonitoringgasstoragelevels,andthepotentialimpactofpricescaps.WealsolookatwhetherEUmemberstateswillrespondtosolidarityagreementsinacrisissituation.MovingtoamoreglobalperspectivewethenreviewtheavailabilityofLNGtomeetEuropeandemandandwhatthismightmeanforotherimportingregionsbeforeassessingtheimpactofthere-openingoftheChineseeconomy,theenergyimplicationsofIndiatakingovertheG20presidency,andthedevelopmentofAfrica’shydrocarbonstrategyaspartoftheenergytransition.Thistakesusontoquestionsofamoreenvironmentalnature.WelookattheissuesthatwilllikelyberaisedintheGlobalStocktakewhichwilltakeplacein2023aheadofCOP28andalsoconsiderthecriticalfinancingissuesthatemergedfromCOP27andneedtobeaddressedduringthisyear.WethenreviewtheneedforfurtherprogressonArticle6andthedevelopmentofvoluntarycarbonmarkets,andrelatedtothisweconsidertheoutlookforcarbonremovaltechnologiesandthepotentialforfurtherprogressontheissueofaccountingforgreenhousegasemissionsintheenergyvaluechain.WereturntolookatChina,whichhasalsopledgedtoissueamethaneactionplanthisyearbutwherearapidreboundinenergydemandcoulddelayclimateactionandleadpolicymakerstofocusonavoidingpowershortages.Movingtotheelectricitysector,anothercontributionoutlineswhy2023willbeanimportantyearforelectricitymarketdesigninEurope.Wealsoconsidertheresurgenceofnuclearpoweracrosstheworldandaskwhether2023willseeafurtheraccelerationofthistrend.Finally,wediscusstheimpactoftheUS’sInflationReductionActonthedevelopmentofhydrogentechnologyandaskwhetheritunderminesactivityelsewhereintheworld.Thislistofthemesislongbutitisclearlynotexhaustive.However,ithighlightsmanyofthetopicswhichwewillberesearchingatOIESduring2023andwewouldencourageyoutoaccessourwrittenoutputatwww.oxfordenergy.org.Forfurtherdetailsabouthowtojointhediscussionatthemanyeventswhichweholdforoursponsorsandbenefactors,whereyoucanmeetourfellowsandaddressissuesinmoredetail,pleasecontactKateTeasdaleatkate.teasdale@oxfordenergy.org.JamesHendersonMichalMeidanHeadofResearch,GasProgrammeHeadofResearch,ChinaEnergyProgramme(james.henderson@oxfordenergy.org)(michal.meidan@oxfordenergy.org)4Thecontentsofthispaperaretheauthors’soleresponsibility.TheydonotnecessarilyrepresenttheviewsoftheOxfordInstituteforEnergyStudiesoranyofitsMembers.2.Oilmarketsin2023:theyearoftheaftershocksOilmarketsweresubjecttoaseriesoflargeshocksduring2022:Russia’sinvasionofUkraineinlateFebruaryandtheensuingsanctions,embargoes,andthepricecaponRussianoilimports;acoordinatedresponsebyoil-consumingnations(ledbytheUS)tocontrolpricesbyamassivereleaseofstrategicstocks;recessionaryandinflationarypressuresweighingontheglobaleconomy;China’sdomesticdemandshocksfromitsstrictzero-COVIDpolicy;andthemassivetransformationsincrudeandproductstradeflows,tonamebutafew.Oilmarketsthroughouttheyearshavebeensubjecttobothsupplyanddemandshocks,but2022alsosawanincreaseingovernmentinterventioninglobalenergymarkets,includingoilmarkets,asenergysecurityandaffordabilityconcernsbecamekeydriversofenergypolicy.Theseincreasedgovernmentinterventionshaveelevatedkeyuncertaintiesinthephysicalmarket,whileoilfutureshavealsowitnessedadeclineinliquidityandopeninterest,alongsiderisingcostsofusingthesemarketsforriskmanagement.Theseshocksandelevateduncertaintiesshapedbalancesandmarketexpectations.Thatsaid,theglobaloilmarketadaptedquicklyandphysicalsupplieswerelittleaffected.Infactthemarketbuiltasmallsurplusofaround500,000b/din2022followinga-2.3mb/ddeficitin2021.TheunwindingofOPEC+cuts,thereleaseofSPRoil,theabilityofRussiatoredirectitsexportsawayfromEurope,whichlimitedtheRussiansupplydisruption,andweakdemandgrowthparticularlyinQ3andQ4allcontributedtoafairlybalancedmarketin2022.Theeventsthatunfoldedin2022havesetthestageforanotherunpredictableyear.Figure1belowshowsthebalanceofriskssurroundingourreferenceoutlookfor2023(inourreferencecase,BrentaveragesUSD92.7/bblin2023).Eveninthebearishscenarios(e.g.,deeperandprolongedrecession,lowerrealisationofRussiansupplydisruptions,strongerUSproductiongrowth)theoilpriceremainssupportedataroundUSD70/bblasthelowbuffersinthesystem(i.e.,lowsparecapacityandlowcommercialstocks)keeppricessustained.ThebullishscenariosinwhichpricesmoveaboveUSD100/bblcaptureaperfectstormwherelargesupplydisruptionsfromRussiaamidheightenedgeopoliticalriskselsewhereareconfrontedbyamildrecessionandastrongreboundinChina’sdemand.Figure1:BalanceofrisksNote:BrentpriceSource:OIES(OilMonthly)In2023,pressuresonglobaloildemandareshiftingfromrecessionaryconcernstotheuncertaintyovertheextentanddurationofaglobalrecession.Andeventhoughinflationissettodeclinethisyear,itremainsuncertainhowsooncentralbankswillfeelcomfortableabouteasingmonetarypolicyaswell5Thecontentsofthispaperaretheauthors’soleresponsibility.TheydonotnecessarilyrepresenttheviewsoftheOxfordInstituteforEnergyStudiesoranyofitsMembers.ashowmuchpolicyspacethereistopromotegrowth.Butitisnotallgloomforglobaldemandprospectsin2023.TheconsensuscontinuestopointtowardsonlyamildrecessionintheUS,andtoChinesedemandgrowthinH2.Indiandemandgrowth-abrightspotin2022-isexpectedtosoftenslightly.Intermsofoilproducts,thefocusin2023willremainonmiddledistillateswithjetfuelrecoveryawildcard.Althoughjetfueldemandattheendof2022wasonlymarginallyimprovedfromayearago,estimatedataround20percentbelowpre-pandemiclevels,weexpecttoseetherecoveryacceleratingin2023evenastheairlineindustrycontinuestofacebottlenecks.EuropecontinuestorelyheavilyonRussiandieselimports(whichaccountedforanaverageof45percentofthetotalin2022).TheupcomingembargoonimportsofRussianproductsinFebruary2023willforceEuropetosourcesuppliesfromotherregionstosubstitutefornearly500,000b/dofRussiandieselimportlosses.EventheeconomicrecessionisunlikelytoresolvethedieselsupplydeficitinEurope,whilecommercialstocksremainwellbelowtheirfive-yearaverage.Onthesupplyside,Russiawillremaincentrestagein2023astheEUembargoonRussiancrudeandoilproductstakesfulleffect.In2022,RussiaredirectedsanctionedcrudeparticularlytoIndia,China,andTurkey,allowingitsdomesticoilproductiontoremainclosetopre-warlevels.ButwiththeEUembargooncrudeandproductsexportsinfullforcethiscouldchange.ThefullimpactoftheEUembargoandthepricecaponRussia’sproductionandexportswillnotbefullyunderstoodatleastuntiltheendofQ12023whentheembargoonRussianproductscomesintoeffectonFebruary5.WithitsOctoberdecisiontocutoutput,OPEC+setthetonefor2023andsentaclearsignalthatitiswillingtoactproactivelyandpre-emptivelytobalancethemarket.Inthepast,suchmoveswerelimitedbyweakcohesionwithinOPECandthetimeittooktonegotiateoutputcuts.Asaresult,OPECresponsesalwaysarrivedlateaftermarketbalanceshadweakenedsharply.ButOPEC+cohesionisnowstrongerandthegroupcanrespondinamoretimelymanner.IntheOctobermeeting,OPEC+signalledthatitwilltakeactionatanytimebycallinganextraordinarymeeting.Also,thedynamicswithinthegroupareshapedbythefactthatmostOPEC+producersoutsidetheMiddleEastareproducingatmaximumcapacityandbelowtheirquotas.USshalecontinuestoattractfocuswiththeemergenceofprivateoperatorsasanewforcewithintheshaleindustrywhilegrowthfrompublicoperatorsremainsconstrainedduetoinvestorpressureandbottlenecks,withUScrudeproductiongrowthprojectedtoreach800,000b/dyear-on-yearin2023from600,000b/din2022.TheuseoftheSPRasatoolformarketmanagement-akeyfeaturein2022-islikelytoremainrelevantin2023.Thisincludesannouncedbuybacksbutalsopotentialreleasesshouldthemarkettighten.ThisreflectsamorefundamentalshiftinUSpolicytowardsusingtheSPRtoinfluencemarketbalancesandexpectations.Lastly,geopoliticalrisksoutsideRussiainplaceslikeLibyaalsoremainawildcard,withalongspeculatedreturnofIranianproductionnowcompletelyoffthetablein2023.LastyearalsosawamassiveandstructuraltransformationincrudeoilandproductstradeflowswithUS,WestAfrican,andMiddleEasterncrudesfindingtheirwayintotheMediterraneanandEurope,whileRussianUralscrudehasbeencompetinginAsiawithMiddleEasternandWestAfricancrudes,aswellasothersanctionedcrudesfromIranandVenezuela.Intermsofproducts,Europehasincreaseditsimportsofnon-RussianproductsattractingsuppliesfrommoredistantplacesincludingtheMiddleEast,India,China,andBrazil.Ineffect,theoilmarketinitsvariouslayershasbeenperformingthekeyfunctionofredirectingcrudeandproductsinthefaceofamassiveshock,butasthetraderouteshavebecomelonger,theadjustmentinpricedifferentialssharper,thetankermarketmoresegmented,anewclassoftradingpracticesandentitiesisemerging.Refineriesarehavingtochangetheircrudeslatesresultingattimesinsub-optimaluseofcrudes.Theseshiftsintradeflowswillaccelerateandconsolidatein2023,withwideimplicationsforthestructureofthemarket,geopoliticalrelations,andthedominanceofthedollarinoiltrade.BassamFattouh(mailto:bassam.fattouh@oxfordenergy.org)AndreasEconomou(mailto:andreas.economou@oxfordenergy.org)6Thecontentsofthispaperaretheauthors’soleresponsibility.TheydonotnecessarilyrepresenttheviewsoftheOxfordInstituteforEnergyStudiesoranyofitsMembers.3.Europeangasdemand:keyfactorstokeepaneyeonin2023Europeangasdemandcollapsedin2022onthebackofmildtemperatures,highgasprices,andchangesinconsumerbehaviour(Figure).However,despiteastrongdeclinein2022,additionalgasdemandreductionwillbeneededin2023inpreparationforwinter2023/2024andevenpotentiallyforwinter2024/2025.Gasdemanddriversarecomplexandspecific,butthereareafewkeyfactorstokeepaneyeonduring2023.Tobeginwith,theindustrialsectorhasbeenthemainsourceofgasdemandflexibilityin2022,anditisexpectedtocontinueplayingthisrolethroughvoluntaryreductionanddemandresponse.Formostmanufacturingproduction(thechemicalsectorbeingaclearexception),strongoutputin2022suggestedthatrecordpriceshavenothadasdramaticanimpactasonecouldhaveexpected(yet?)withsignificantswitchingtoalternativeenergysourcesandimprovedoperationalefficiency.However,afteroverayearofhighprices,mostofthe‘lowhangingfruit’islikelytohavebeenharvestedbynow,soitisunclearhoweasyitmightbetofurtherreducegasusewithoutreducingproduction.Inaddition,itseemslikelythatmostofthedeclinehascomefromreductionmeasures(asopposedtomajordemanddestruction),whichmeansthatwhengas/electricitypricesgodown,beitasaresultofthemarketrebalancingorasaresultofsupportmeasuresfromgovernments,asignificantproportionofgasdemandintheindustrialsector(whichseemstohavegonedownbyabout15-20percentin2022)couldcomebackwithinafewweeks,asseeninOctoberwhengaspricesreachedtheirlowestlevelsinmonthsandfertilizerproducersrestartedproductioninEurope.Secondly,warmweatheratthebeginningoftheyearandsimilarlyatthebeginningofthewinterseason2022/23,limitedtheneedforgasuseinspaceheatingin2022.Mildtemperaturesandcontinuedhighgaspricesseemtohavealsofacilitatedanimportantdemandresponsefromsmallresidentialandcommercialconsumers,ausuallyratherinelasticsectorintheshortterm,intheformoflowerproductionandfuelswitchinginsmallbusinessesandlowerenergyuseinthebuildingssector.Continuedparticipationofconsumersindemandsavingmeasuresinbuildingsisgoingtobeessentialthroughout2023.Therearetwomainuncertainties:first,governmentinterventioninsubsidizingenergybillsandcampaignstosaveenergywillneedtosendtherightsignalsinordertokeepconsumptionlow;andsecond,temperatures:coldweathermayerodeconsumers’willingnesstoreducetheirenergyforheating(andpossiblyincreasegasdemandbyupto15-20bcma).Finally,incontrasttothetrendsobservedintheindustrialandheatingsectors,gasusedforelectricitygenerationincreasedyear-on-yearin2022.Threemainelementsinfluencedtheneedtousemoregasinthepowersector(despiteaimstoreduceconsumption):continuedhighelectricitydemandinthefirsteightmonthsoftheyear,beforeenergy-savingmeasuresandeconomicslowdownfinallystartedtohaveanimpactfromSeptemberonwards,andthelowavailabilityofbothnuclearandhydropower.Frenchnucleargenerationtypicallycoversasmuchas15percentofEuropeanelectricityneeds,butin2022,theFrenchutilityEDFfacedawaveofrepairsfollowingthediscoveryofcorrosionissuesandalsodelaystoitsscheduled10-yearmaintenanceduetotheCOVIDpandemic(aswellasstrikesinFranceinOctober).Thisforcedarecordnumberofreactorsofflineformostoftheyear.EDFisracingagainsttheclocktoputasmanyreactorsaspossiblebackinserviceassoonaspossible.BylateDecemberthecompanyhadconfirmeditsexpectationsfor300-330TWhofnucleargenerationin2023,whichwouldstillberelativelylowfortheFrenchnuclearfleetbutaround18-19percenthigherthan2022levels.However,uncertaintiesremainasthecompanyreviseditspredictionsfornucleargenerationdownwardsfourtimesin2022.Inconclusion,thekeyissuestokeepaneyeonin2023willbethepaceofreturnofFrenchnuclearreactors,thewillingnessandabilityoflargeandsmallconsumerstocontinueadaptingtheirusualbehaviorinordertouselessenergy(especiallyduringcolddaysinthewinter),andlastbutnotleast,thedepthofaloomingeconomicrecession.AndwhilethemaindriversarelargelysimilaracrossEurope,theevolutionofgasconsumptionwillcontinuetobediverse,whichcanbeexplainedbyanumberofcountry-specificfactorsincludingtheroleofgasintheenergymix,accesstoalternativefuels7Thecontentsofthispaperaretheauthors’soleresponsibility.TheydonotnecessarilyrepresenttheviewsoftheOxfordInstituteforEnergyStudiesoranyofitsMembers.andthelevels,andextent,ofsupportmeasuresfromgovernmentstoshieldtheirnationalconsumersfromtheworstimpactsofhighenergyandgasprices.Figure2:MonthlygasdemandinEU27+UK,2019-2022(Bcm)Source:DatafromEurostat,IEA,Entsog,GRTgaz,Terega,THE,SNAM,Enagas,NationalGridandFluxys.CalculationsandgraphbytheauthorAnoukHonoré(mailto:anouk.honore@oxfordenergy.org)8Thecontentsofthispaperaretheauthors’soleresponsibility.TheydonotnecessarilyrepresenttheviewsoftheOxfordInstituteforEnergyStudiesoranyofitsMembers.4.2023:AyearfortheEUtodeliverthelegislativeframeworkoftheGreenDealSincetheCommissiontabledthe‘Fitfor55’packagesinJuly/December2021,theEuropeanCouncil(theCouncil)andtheEuropeanParliament(EP)haveworkeddiligentlytoadvancetheseinitiatives.BesidestheactsalreadyagreedinNovemberandDecember2022,allthelegislativeactsofthetwoFitfor55packages,complementedbyanewproposalregardingelectricitymarketdesignandaHydrogenBank,needtobeadoptedbyEuropeanlegislatorsbeforetheendof2023.ThistimingisnotonlycrucialinordertospeeduptheimplementationoftheFitfor55packagesbutisindispensablebecausetheEPwillnotbeabletoexerciseitsroleasco-legislatorafterQ12024duetotheEuropeanelectionsinJune2024andthestartoftheelectioncampaigninApril2024.Thefollowingsectionsprovideanoverviewofthelegislativeprocessthatneedstohappenin2023andhighlightsthemajorissueswhichareatstakeineacharea:LegislationadoptedrelatingtothetwoFitfor55Packagesandduetocomeintoforcein2023TheCouncilandtheEPreachedaprovisionalpoliticalagreementonthereformoftheETS1andtheCBAM2inNovember/December2022pendingformaladoptionbybothinstitutionswhichisdueinearly2023.TheCouncilalsoformallyadoptednewmeasuresonJointPurchasesofGasandaSolidarityMechanisminDecember2022.Inaddition,inDecember2022theCounciladoptedaregulationthatestablishesaMarketCorrectionMechanismtoprotectcitizensandtheeconomyagainstexcessivelyhighprices.TheregulationaimstolimitepisodesofexcessivegaspricesintheEUthatdonotreflectworldmarketprices,whileensuringsecurityofenergysupplyandthestabilityoffinancialmarkets.Allthreemeasuresareduetocomeintoforcein2023.OngoinglegislativedebaterelatingtothetwoFitfor55Packages•RenewableEnergyDirective:Discussionsarecontinuing,withthekeyareasofdebatebeingtheheadlinerenewablestarget,theobligationtoreplace75percentofgreyhydrogeninindustrywithrenewablehydrogenby2030,andtherevisionofguaranteesoforiginforrenewablesources.•REPowerEUAmendments:DiscussionswillstartinJanuaryandthekeyissuesaretherenewableenergyheadlinetarget,theframeworkforrenewablespermitting,andthedefinitionof‘overridingpublicinterests.’•HydrogenandDecarbonisedGasPackage:DiscussionscanonlystartoncetheEPandtheCouncilhaverespectivelyadoptedtheirreportandgeneralapproach,likelyinQ1.•MethaneRegulation:DiscussionscanstartoncetheEPhasadopteditsreport(likelyinJanuary)withthekeyissuesbeingleakdetectionandrepairobligations,monitoringandreportingobligationsforundergroundcoalmines,andtheroleoftheInternationalMethaneEmissionsObservatory.•EnergyEfficiencyDirective:DiscussionsareongoingaroundthescopeoftheenergyefficiencyfirstprincipleandtheEU-wide2030energyefficiencytarget.1EmissionsTradingSystem2CarbonBorderAdjustmentMechanism9Thecontentsofthispaperaretheauthors’soleresponsibility.TheydonotnecessarilyrepresenttheviewsoftheOxfordInstituteforEnergyStudiesoranyofitsMembers.•EnergyTaxDirective:DiscussionswithintheCouncilarecontinuingwiththemainremainingissuesbeingtoallowmoreflexibilityforMemberStates'specificnationalcircumstances,potentialexemptionsforaviationandmaritime,andapotentialtransitionperiodfortheincreasedtaxationoffossilfuels.•Inaddition,EPandCouncilhavetostartandfinalisethediscussionsonthefollowinglegalproposals:EnergyPerformanceofBuildingsDirective;AlternativeFuelsInfrastructureRegulation;ReFuelEUAviationRegulationandReFuelEUMaritimeRegulationNewlegislativediscussionstobestartedbytheEuropeanCommissionin2023•Electricitymarketredesign:Atargeted,structuralreformoftheEUelectricitymarketframeworkwasannouncedbytheCommissionPresidentinSeptember2022asareactiontocriticismofthepresentsysteminthelightofthecurrentenergycrisis.However,theCommissionmaywelllimititsproposalinQ1tothoseelementsthatcanbeseenasanimprovementontheCleanEnergyPackage,suchasgrandfatheringtheinframarginalclawback,consumerprotection,notablyagainsthighenergyprices,long-termcontracts,andpeak-shavingdemandreduction.Forthemorecontroversialtopics(notablythepossiblereplacementordeeperreformofthemeritorderandthemarginalpricingsystem,theintroductionofakindofnodalsystem,andtheEUwideintroductionofcapacitymarkets),moreconsultationsandanalysisareneeded.TheCommissionmightundertakesuchanalysisin2023/24,leavingthetablingofthelegislativeproposaltothenewCommissionin2025.•HydrogenBankproposal:thisproposalwasalsoannouncedbytheCommissionPresidentinSeptember2022.FundingofaroundEUR3billionwillbeproposed,tobeadministeredviatheInnovationFund.ThepilotphaseoftheHydrogenBankwouldstartinQ32023withaCfD3schemeallocatedviaacompetitivebiddingmechanism,withaviewtocoveringthecostgapbetweenrenewablehydrogenandmethaneorhydrogenproducedfromnaturalgasintheEU.AssessmentThisworkprogramfor2023representsahugechallengefortheEuropeaninstitutions.However,theEUmustdeliveronallitsambitiouslegislativeactionsifitwantstoliveuptoitsclimatetargets.ThisneedstohappenatatimewheretheenergycrisisiscausingeconomicandsocialchallengesintheshadowoftheongoingRussianwaragainstUkraine.IfinprevioustimeswhentheEUhadtogothrougheconomicorpoliticalcrisestherewasalwaystheexpectationthatitwouldemergeevenstrongerfromthecrisis,thisexpectationcannotbeentakenforgrantedthistime.ThenegotiationswillshowwhetherornottheMemberStatesintheCouncil,thedifferentpoliticalgroupingsintheEP,andtheCommissionarecapableofstrikingcompromisesthattrulydeliveronallthreeoverarchingenergypolicyobjectives:fosteringsustainabilitybyagreeingonanambitiousbutalsorealisticpathtowardahighlevelofrenewableenergyintheEuropeanmix;safeguardingthesecurityofenergysupplyforallMemberStatesbymovingforwardinsolidarityandacceptinghydrocarbonsandtechnologieslikeCCUSasimportantsteppingstonesforreachingcarbonneutralitywithoutjeopardizingsecurityofsupply;andguaranteeinghouseholdsandindustriesaffordableenergypricesbydevelopingthenecessarysupportinstrumentsatEUandnationallevels,includingtargetedmeasurestohelpthemostvulnerableandenergypoor.OnlyifallactorsconductnegotiationswithallthreeobjectivesinmindcanoneexpectanoutcomethatnotonlymakestheEuropeanenergysystemmoreresilientandfairerbutalsolaysthefoundationforanaccelerationofthedecarbonisationoftheEuropeaneconomyinfutureyears.Klaus-DieterBorchardt(mailto:klaus-dieter.borchardt@oxfordenergy.org)3ContractforDifference10Thecontentsofthispaperaretheauthors’soleresponsibility.TheydonotnecessarilyrepresenttheviewsoftheOxfordInstituteforEnergyStudiesoranyofitsMembers.5.StorageasanindicatorofEuropeanmarkettightnessGasstorage,anditsvitalroleinbalancingtheEuropeangasmarket,increasesinprominenceduringtimesofmarketimbalance.TherapiddrawdownofstocksduringaperiodofunusuallycoldweatherinEurope(‘TheBeastfromtheEast’)inQ12018wasfollowedbytheuseofstoragetoabsorbexcessvolumesfromanoversuppliedmarketinsummer2019andsummer2020.InQ12021,rapidwithdrawalsfromEuropeanstorageoffsetthedropinEuropeanLNGimports,withcargoesbeingdrawnawaytonortheastAsiabyaspellofverycoldweatherandarelatedsurgeinregionaldemand.Ineachofthesecases,therateofstorageinjectionorwithdrawal,alongwithtotalstocklevel,hasbeenanindicatorofmarketover-supplyorunder-supply,withthoseinjectionsandwithdrawalsmotivatedbypricingsignalsthatthemselvesreflectmarketconditions.2022wasdifferent,insofarastheperiodbetween1Apriland1Octobersawrecordnetinjectionsdespiterecordhighprices.Itwasnotsummeroversupply,lowprices,andthepromiseofwidesesasonalspreadsthatmotivatedthoseinjections,butastrongconcernoverlikelyfuturemarkettightnessinwinter2022/23.SuchwasthelevelofconcernthatnetinjectionscontinuedthroughoutOctoberandintomid-November.Thisrecordinjectionthroughintoearlywinterwasmadepossiblebyacombinationofpolicy-drivenandprice-drivendemandreductions,robustpipelinesuppliesfromnon-Russiansuppliers,andrecordLNGimportswithcargoesattractedbyhighprices.Summer2023islikelytoseeasimilarpolicy-drivenpushtoreplenishstorageevenifconditionsfordoingsoareunfavourable.Figure3:Europeangasstoragestocks(Bcm)Source:DatafromGasInfrastructureEuropeAggregatedGasStorageInventory.Graphbytheauthor.Intheperiodbetween14Novemberand31December2022,Europeannetstoragewithdrawalstotalled12.6Bcm.Thiswas8.7Bcm(41percent)loweryear-on-year,and5.5Bcm(30percent)belowtheaverageforthesameperiodin2017-2021.Indeed,2022wasthefirstyearsince2010thatstocksactuallygrewbetween24and31December.Thislower-than-averagewithdrawalreflectsamarketthatremainsrelativelywell-balanced,albeitwithhighpricesnecessarytocontinueattractingsupply.Lookingahead,thereareseveralsignpoststolookfor.Firstly,storagestocklevelsinmid-winter(on1February2023)willprovideanindicatorofhowmuchofa‘buffer’remainstobalancethemarketintheeventofalate-wintersurgeindemand,ashappenedinlateFebruary-earlyMarch2018.Secondly,stocklevelsattheendofwinter(on1April2023)willindicatehowmuchwouldneedtobeinjectedduringsummer2023,inordertobringstocksbacktocapacityby1November2023.Thereafter,stocklevelswillbemonitoredthroughoutthesummer,toassessprogressinbringingthosestocksbacktofullcapacityby1November.ItshouldberememberedthatEuropebenefittedfrom01020304050607080901001102017/182018/192019/202020/212021/222022/2311Thecontentsofthispaperaretheauthors’soleresponsibility.TheydonotnecessarilyrepresenttheviewsoftheOxfordInstituteforEnergyStudiesoranyofitsMembers.unusuallybenignweatherconditionsinOctoberandthefirsthalfofNovember2022,andarepeatofsuchconditionscannotbeguaranteedin2023.Therefore,Europeneedstobeasclosetoitsstoragetargetaspossibleby1October,withstocksascloseaspossibletofillingthe105Bcmstoragecapacity.On31December2022,Europeanstoragestockswerejustover87Bcm,whichwasalmost32Bcmhigherthanon31December2021andjustover14Bcmhigherthanthe31Decemberaveragefor2017-2021.TheaveragestoragewithdrawalinQ1in2018-2022was37.4Bcm,peakingat48.1BcminQ12018andreachingalowof28.1BcminQ12022.IfthatQ12018-2022averagewithdrawalweretoberepeatedinQ12023,Europewouldhavearound50Bcmleftinstorageon1April2023.Ifthemaximumorminimumstoragewithdrawals(inthecoldandmildQ1sof2018and2022,respectively)weretobereplicatedinQ12023,Europewouldbeleftwithaminimumof39Bcmandamaximumof59Bcminstorageon1April2023.‘Average’withdrawalsinQ12023wouldleavenetinjectionsof50Bcmsufficienttobringstocksbacktofullcapacitybythestartofwinter2023/24.The‘MildQ1’or‘ColdQ1’withdrawalswouldmeansummernetinjectionsof40Bcmor60Bcmwouldbeneededtobringstoragebacktofullcapacity.Forcomparison,Europeannetinjectionsinsummer2022werearound72Bcm.InQ12023,thesupply-demandbalancethatwilldeterminewithdrawalvolumeswillberatherdifferenttorecentyears.Demandlookssettobelower,Russianpipelinesuppliesalsolower,andLNGimportshigher.IfpipelinesupplyfromRussiaremainsattheDecember2022level(78MMcm/d),theyear-on-yeardeclineinRussianpipelinesupplytoEuropeinQ12023willbe19.2Bcm.Inabenignscenario,continuedsubdueddemandandrobustLNGimportscouldoffsetthatloss.Forexample,ifLNGimportsinQ12023weremaintainedatthelevelofQ42022,theyear-on-yearincreaseinQ12023wouldbe5.6Bcm.Similarly,demandinQ42022was20percentloweryear-on-year.EvenifdemandinQ12023werejust10percentloweryear-on-year,thiswouldimplyadropof14.9Bcm.Ifnon-Russianpipelineimportsweretoremainunchangedyear-on-year,thisbalance-withlowerdemandandhigherLNGsupplyfullyoffsettinglowerRussianpipelinesupply-wouldallowstoragewithdrawalsinQ12023toalsoremainvirtuallyunchangedyear-on-year,andthe‘MildQ1’scenariowouldbeachieved.Inamorechallengingscenario,asurgeinEuropeangasdemandandAsianLNGdemand,combinedwiththeyear-on-yeardeclineinRussianpipelinesupply,couldmakethedrawdownofstoragestocksmoresubstantial.Forexample,ifnon-Russianimports(pipelineandLNG)andproductionremainedatthelevelofQ12022(thusreversingthegainsinLNGimportsinrecentmonths),demandreturnedtothelevelofQ12022,andRussianpipelinesupplyremainedat57MMcm/d(theaverageforthefirsthalfofJanuary),anetwithdrawalof49BcmwouldberequiredtoachieveaphysicalbalanceontheEuropeanmarket–awithdrawalvolumesimilartothe‘ColdQ1’scenarionotedabove.Itisalsopossibletoconceiveofanextremelychallengingscenario,inwhichcoldweatheracrossthenorthernhemispherebringsEuropeandemandbacktothelevelofQ12018andcausesLNGimportstodeclineby10percentyear-on-yearinthefaceofstrongdemandfromAsia,whiletheother‘challengingscenario’assumptionsregardingproductionandpipelineimportsremainunchanged.Thiswouldrequirestoragewithdrawalsof72Bcm.IfRussianpipelinesupplieshaltedinmid-January,Q12023storagewithdrawalsinthis‘extremelychallenging’scenariowouldriseto77Bcm.Asaresult,althoughpricesremainofcriticalinterestbecausetheymayriseorfalldramaticallyinthespaceofadayorseveraldays,storagestocksareamorefundamentalindicatorofmarketbalanceeventhoughtheymaytakeweeksandmonthstobeaccumulatedordrawndown.IfEuropeweretoapproachmid-Augustwithstockswellshortofthe1Octobertarget,evenaconcertedefforttobuildstockswouldbehamperedbyconstraintsondailyinjectioncapacity.Conversely,ifEuropeweretobeginwinter2023/24withstoragerelativelyfull,thisbufferwouldlastforseveralmonths.Thisslow-movingnatureofstorage–akintoaverylargeconcerthallwithveryfew,narrowentry-exitdoors–meansthatprogresstowardsreplenishingstocksinmid-to-latesummer2023islikelytoinfluencemarketsentiment(and,byextension,forwardprices)forwinter2023/24.JackSharples(jack.sharples@oxfordenergy.org)12Thecontentsofthispaperaretheauthors’soleresponsibility.TheydonotnecessarilyrepresenttheviewsoftheOxfordInstituteforEnergyStudiesoranyofitsMembers.6.FinalagreementonwholesalegaspricecapsforeshadowsfuturechallengesforEUenergypolicyInlate2022theEUCouncilfinallyagreedonawholesalegaspricecapmechanisminresponsetotherecordhighgasprices.However,the‘marketcorrectionmechanism’isproblematicasitdoesnotaddresstheunderlyingcausesofhighgasprices,primarilythereductionofRussiangassuppliesfrom41percentoftheEUgasmarketto9percent,andthelackoflow-costalternativestofillthegap.Itservesasawarningthat,eveninthefaceofaseriousandimmediateemergency,theEUCouncillackseitherthewillortheimaginationtodevelopandimplementpolicieswhichmeetitsstatedobjectives.ThisbodesillforthedecisionsthattheCouncilwillneedtotaketotransformtheEU’senergysystemstomeetitsclimategoalsanditraisesquestionsaboutwhatwillhappenintheEUgasmarketwhenthemechanismtakeseffectinFebruary2023.TheCouncilwasdividedonthevalueofapricecapanditslevel.TheCommissionwasagainstapricecap,andittriedtoavoidonebycreatingaframeworkwithoutanydetail.WhenthiswasrejectedbyseveralMemberStates,theCommissionproposedapricecapatsuchahighlevel(€275/MWh)thatitwouldbeunlikelytobetriggered.Thiswasalsorejectedpriortoagreementonapricecapof€180/MWhattheTTFandiftheTTFpricewasatleast€35/MWhaboveabenchmarkpriceforLNGforatleastthreeworkingdays.Themechanismappliesfrom15February2023,andwilllastforatleasttwentyworkingdaysiftriggered.IftheTTFpricefallsbelowthecapforatleastthreeconsecutiveworkingdays,thecapisautomaticallydeactivated.Therearealso‘safeguards’sothatthecapisdeactivatedifitcausesanincreaseingasdemand,areductioninLNGimports,asignificantdropinTTFliquidity,oriftheEUCommissiondeclaresasupplyemergency.TheCommission,andtheEuropeanenergyandfinancialmarketregulators,ACERandESMA,arechargedwithmonitoringthefunctioningofthemechanism.Ifthemechanismcausesmarketproblems,theCommissionwillsuspendit.Thelegislationmakesgrimlyamusingreading.Thedrafterstiethemselvesinsophisticknotstryingtojustifythepricecap,whileatthesametimeexplainingtheneedforallthesafeguardstopreventitfromharmingtheEUgasmarket.Thisisacirclewhichcannotbesquaredastheproblemsofapricecapareinherenttoitsnature.4Forthecaptohaveanimpactitmustoverridethepriceswhichresultfromnormalmarketfunctioning.Currentpricesarenotcausedbyamarketmalfunction,butbyafundamentalchangeinthesupply-demandbalance.ItisnowonderthatpriceshaveincreaseddramaticallyastheEUhaslostathirdofitsgassupply.Moreover,therecentfallsingaspriceshavebeendrivenbydemandreductionsastheconsumershavereactedtopriceincreases,andtheEUhasbeenblessedwithmildweather.Onlybyrebalancingsupplyanddemandwillpricesbereducedsustainably.Byimplyingthatcurrentpricesarenotareflectionofmarketreality,theverynameofthe‘marketcorrectionmechanism’isdisingenuous.Somemaytakecomfortfromthesafeguardsinthepackagebutinreality,theproblemofthepricecaphasonlybeenkickeddowntheroad.Atthelowerlevelof€180/MWh,gaspricesin2022wouldhavebeenabovethecapforafifthofthetime,comparedtoafiftiethofthetimewiththeCommission’soriginalproposalof€275/MWh.IfthepricecapistriggeredatanypointafterFebruary15thenthemarketwillneedtofindsomeotherwayofbalancingwhichmakesitmorelikelythesafeguardswillbetriggered.Butifthecapissuspendedandpricesrisetotheirnaturallevelthepricecapproponentswilllikelycry‘foul.’Asaresult,theagreementisfragileandcouldleadtosignificantpoliticaldisputeduringtheyearifpricesriseabout€180/MWh.Germanyreluctantlyagreedtothemechanisminreturnformoreambitiousrenewabletargets,butAustriaandtheNetherlandsabstained.AgreementseemstohavebeendrivenmorebytheneedtounblocktheCouncil’sagendathananyrealmeetingofminds.Forexample,price4ForadetailedexaminationoftheissuesseeBarnes(2022)‘EUCommissionproposalforjointgaspurchasing,pricecapsandcollectiveallocationofgas:anassessment’OxfordInstituteforEnergyStudies13Thecontentsofthispaperaretheauthors’soleresponsibility.TheydonotnecessarilyrepresenttheviewsoftheOxfordInstituteforEnergyStudiesoranyofitsMembers.capdiscussionshavedelayedprogressonkeyelementsofthe‘Fitfor55’packageputforwardbytheCommissionin2021,includinglegislationonenergyefficiency,renewables,reformofthegasmarket,andhydrogen.Therefore,itwillbevitaltomonitorallreactionsshouldgaspricesstarttorisetowardsthepricecaplevel,notonlyfrompoliticiansfromthevariousmemberstatesbutalsofrommarketparticipantswhowillhavetodealwiththeconsequencesoftheiractions.Aswithallstate-interventionsinmarkets,theunintendedconsequencescouldbesignificant.AlexBarnes(mailto:alex.barnes@oxfordenergy.org).14Thecontentsofthispaperaretheauthors’soleresponsibility.TheydonotnecessarilyrepresenttheviewsoftheOxfordInstituteforEnergyStudiesoranyofitsMembers.7.TheEUregulatoryframeworkgoverningsolidarityduringagascrisis5TheEUhaswitnessedaseveregas(andenergy)crisissincelate2021and,incertaincircumstances,thecrisiscouldbecomemoreacutenextwinter.Inthiscase,sharingoflimitedgassuppliesacrosstheEUcouldbecomeanecessity.TheSecurityofSupplyRegulation(SOSRegulation,2017),theGasDemandReductionRegulation(GDRRegulation,2022),andthe(draft)EnhancingSolidarityRegulation(ESRegulation,2022)allcontainsolidarityprovisions,aimedatalleviatinganysuchcrisis.However,2023couldtesttheeffectivenessoftheseprovisions,particularlyinrespectofGermany,Czechia,Slovakia,Austria,andHungary.SOSRegulationTheSOSRegulation,adoptedin2017,introducedasolidarityobligation,underwhichaMemberStatewhichisdirectlyconnectedtoarequestingMemberState,isobligedtoreducegassuppliestoitsownnon-solidarityprotectedcustomerstosupportsolidarity-protectedcustomersintherequestingMemberState.Solidarity-protectedcustomersincludeallhouseholdcustomersconnectedtoagasdistributionnetworkandmayincludedistrictheatinginstallationsinsofarastheydeliverheatingtohouseholds(thusexcludingsmallormedium-sizedenterprises)oressentialsocialservices(includingservicessuchashealthcare,essentialsocialcare,emergencyandsecurityservicesbutexcludingeducationalandpublicadministrationservices),andessentialsocialservices,aslongastheyareprotectedcustomers.AMemberStatecanonlyrequesttheapplicationofthesolidaritymechanismwhenthemarketcannotdeliverthesuppliesforitssolidarity-protectedcustomersandafterithasdeclaredanemergency–thehighestcrisislevel(precededbyanearlywarningandanalert).MemberStateswererequiredtoconcludetheirbilateralsolidarityagreements,stipulatingtechnical,legal,andfinancialarrangements,by1December2018butbyJanuary2023,onlysixsuchagreementshavebeenconcluded(betweenGermanyandDenmark,GermanyandAustria,ItalyandSlovenia,LatviaandEstonia,LatviaandLithuania,andEstoniaandFinland).EnhancingSolidarityRegulationInDecember2022,theEUadoptedtheESRegulation,whichalongsidethejointpurchasingplatformandthepricecorrectionmechanism,includedprovisionsonsolidarity,complementingtheSOSRegulation.Inparticular,theESRegulationextendedsolidarityprotectiontocriticalgasvolumesforsecurityofsupplyofelectricity.ThisobligesaMemberStatetoreducegassuppliestoitsowncustomers,except(essential)volumestosolidarity-protectedcustomers,criticalvolumesforsecurityofsupplyofelectricity,volumesfortheelectricityneededfortheproductionandtransportationofgas,andvolumesnecessaryfortheoperationsofvariouscriticalinstallationsandinfrastructureforarequestingMemberStatethatisunabletocover(theessentialvolumesof)itssolidarity-protectedcustomersandsupplythecriticalgasvolumesforelectricitysecurityofsupply.Ithasalsoextendedthesolidarityobligation–currentlyapplicableonlytoMemberStatesdirectlyconnectedtoarequestingMemberState–toMemberStateswithLNGfacilities,providedthatthenecessaryinfrastructureisavailable.Importantly,theRegulationhasintroducedthedefaultrulesgoverningtheimplementationofthesolidaritymechanismforthoseMemberStateswhichfailedtoconcludetheirbilateralsolidarityagreementsbythetimeofasolidaritymeasurebeingrequested.GDRRegulationFollowinganestimationbytheECthata15percentreductionofgasdemandwouldbesufficientfortheEUtoseethroughthewinterof2022/23–evenifallRussiangassuppliesweretobecutoff–inAugust2022theEUadoptedtheGDRRegulation,whichstipulatesavoluntary15percentgasdemandreductionbyeachMemberStatebetween1August2022–31March2023(comparedtotheiraverageconsumptionbetween1Augustand31Marchinthepreceedeingfiveyearperiod).ItbecomesmandatorywhentheCouncil,actingonaproposalfromtheECandsupportedbyaqualifiedmajority,5ThisarticleisbasedonYafimava(2023forthcoming)EUsolidarityatatimeofagascrisis.15Thecontentsofthispaperaretheauthors’soleresponsibility.TheydonotnecessarilyrepresenttheviewsoftheOxfordInstituteforEnergyStudiesoranyofitsMembers.declaresaUnionalert,obligingeachMemberState–althoughexemptionsarepossible–toreduceitsgasconsumptionby15percent,takingthealreadyachievedreductionsintoaccount.EUgasdemandhadalreadydeclinedbyalmost15percentin2022comparedto2021,mostlyduetoveryhighprices(forcingindustrialclosures)andmildtemperatures(leadingtolowerdemandforresidentialheating).ShouldEUgasdemandremainonthistrajectory,anEUalertmightnotbetriggered.TheECmustproposetriggeringanEUalertifatleastfiveMemberStateshavedeclaredanationalalert,orifthereisasubstantialriskofaseveregasshortageorexceptionallyhighgasdemandresultinginasupplyshockbutwherethemarketisstillabletomanagethedisruption.Asthecriteriaisnotclearlydefined,theEChassignificantdiscretionoverwhethertomakesuchaproposal,andthefactorscapableofpromptingittodosoincludeacompletehaltinRussiangasflowstoEurope,asignificantdeviationfromthe15percentdemandreductiontrajectory,lowerLNGimports,andcolderweathercausinganacceleratedstoragedepletion.OncetheEUalertisdeclared,MemberStateswoulddeterminewhosesuppliesgetcutoff,prioritisingsuppliestoprotectedcustomers.Industrialconsumerswouldlikelybethefirsttoexperiencereductions,butdifficulttrade-offswouldhavetobemadewitheachMemberStatedeterminingwhichindustriesareconsideredmorecriticalthanothers.Therewouldalsobemeasuresaimedatreducinggasconsumptionbytheelectricitysector.Overall,theprocessofimplementingthemandatorygasdemandreductionprovisionhasasignificantscopefordisagreements–withinMemberStates,betweenMemberStates,andbetweenMemberStatesandtheEC–overwhoisgoingtobecutoffandwhoisgoingtobeexempted,thuspotentiallyunderminingitseffectivenessduringanactualcrisis.Conclusions:PossibleImpactofSolidarityMeasuresDuringaGasCrisisThesolidaritymeasuresstipulatedinSOS,ES,andGDRRegulationswouldlikelyhavealimited–albeitnotnegligible–impactonthegassupplysituationforthecentralandeastEuropeansub-region,shouldRussianflowsbecutoff.Evenifthesemeasuresareagreedandimplemented–andtherearesignificantdifficultiesassociatedwiththisprocess,someofwhichcouldberesolvedbynextwinter–infrastructureandcapacityconstraintswouldlimitthevolumeof‘solidaritygas’whichwouldbe‘freedup’andwhichcouldflowtothesecountriesfromtheadjacentMemberStates.Intheshortterm–possiblyuntil2025,bywhichtimemoreLNGsupplyandmoreLNGterminalsandinterconnectionsareexpectedtobeavailable–evenwithmaximumassistancefromtheotherMemberStates,thecentralandeastEuropeansub-regioncouldhaveproblemscopingwiththeconsequencesofanyfurthersignificantreductioninRussianflows.Therefore,althoughgasrationingappearsincreasinglyunlikelyduringthecurrentwinter,thereisasignificantriskthatrationingwillbeneededinthewinterof2023/24,unlessarecessiontriggersanevenmoresignificantgasdemandreductionthaniscurrentlybeingobservedinEurope.KatjaYafimava(mailto:katja.yafimava@oxfordenergy.org)16Thecontentsofthispaperaretheauthors’soleresponsibility.TheydonotnecessarilyrepresenttheviewsoftheOxfordInstituteforEnergyStudiesoranyofitsMembers.8.WherewillEuropegetitsgasfromin2023?Atthebeginningof2022,ifsomeonehadtoldyouthatEuropean6pipelinegasimportsfromRussiawoulddeclineby55percentorsome83bcmandthatnotonlywouldgassupplytobuildingsbemaintainedinthedepthsofwinter,buttherewouldberecordgasstorageinjections,youwouldhavequestionedtheiranalyticalcapabilityandprobablytheirsanity.Whilethatispreciselywhathappened,Europewasveryluckyinthattheweatherin2022wasextremelywarmatthebeginningandendoftheyear,significantlyreducingheatingdemandforgas,andtheregionalsomanagedtoincreaseitsLNGimportsbysome63bcmover2021,ariseofover60percent.Theveryhighpricesalsosignificantlyreducedgasdemandinindustryandprobablyalsoaffectedhouseholdbehaviourtolimitenergyconsumptionaswinterapproached.TheriseinLNGimportsreflectednotonlyareboundinglobalLNGsupplyofsome28bcm(6percent),aftertheissuesandconstraintsin2021,butalsodiversionsofcargoesawayfromothermarkets,especiallyChina,whereLNGimportsweredownbysome21.5bcm,wipingoutalmostallgrowthsince2019.Europe’soverall2022balancesawthedeclineinpipeimportsfromRussiaby83bcmbeingmorethanoffsetbya74bcmdemandreduction,increasedLNGimportsofsome63bcm,plusaslightincreaseinproductionandnetpipelineimportsfromothersourceswhichwerehigherbysome5bcm.Thisadditional‘supply’ofaround59bcmenablednetstorageinjectionsof32bcmin2022,comparedtoanetwithdrawalof22bcmin2021.7Turningto2023,wearealreadylookingatayear-on-yearreductioninpipeimportsfromRussiaofaround40bcm,assumingthatflowscontinueatcurrentratesviaUkraineandTurkstream.EvenincludingflowstoTurkey,pipeimportsfromRussiawillbedowntoroughly45bcm,8against168bcmin2021.However,ifgasdemandweretoremainatthesamelevelin2023asin2022(althoughthisassumesanotherverywarmyearandnoreboundinindustrialgasdemand)andthelevelofproduction,netpipelineimports(otherthanfromRussia),andLNGimportswereunchanged,thenthereductioninpipeimportsfromRussiacouldbemetbynetwithdrawalsfromstorageofsome10bcm(comparedtothenetinjectionof32bcmin2022,soanetchangeofaround40bcm),asshownbelow.ThenetwithdrawalsfromstoragecouldbereducedbyadditionalLNGimports,especiallyintoGermany,withthenewLNGimportterminalscomingonstreamin2023.ThegrowthinoverallLNGsupplylooksreasonablyrobustin2023withprospectivegrowthofjustunder30bcm,althoughthereareveryfewnewexportterminalscomingonstreamthisyear.ThegrowthmostlycomesfromtechnicalissuesbeingresolvedatprojectsinNorway,Malaysia,andtheUS(Freeport),additionalfeedgasinTrinidadandNigeria,andtherampupofvolumesfromprojectswhichstartedupin2022,suchasCalcasieuPassintheUSandCoralFLNGinMozambique.Europemightbeexpectedtobeabletogetatleasthalfthe30bcmriseinLNGsupply,whichwouldeliminatetheneedfornetstoragewithdrawalsin2023.However,LNGimportsseemlikelytobouncebackintherestoftheworld.ChinaislikelytoseesomerecoveryinLNGimportsevenasdomesticproductionandpipelineimportsarelikelytomeetmuchoftheincrementaldemand.TheemergingsoutheastAsianmarketsarealsogrowing.AnyrecoveryintheverypricesensitivemarketsofIndia,Pakistan,andBangladeshmaydependonLNGspotpricelevelsin2023.6EuropeincludestheEU27plustheUK,Norway,Switzerland,Serbia,Bosnia-Herzegovina,NorthMacedonia,Albania,andTurkey.7Theadditionalsupply(basedonchangesinflowsbetween2022and2021)is59bcm(74bcmlowerdemandplus63bcmmoreLNG,5bcmmoreproductionandotherpipelineimportsminus83bcmlossofRussianpipeimport)whichaccountsbroadlyforthechangeinthenetstorageinjections/withdrawalsof54bcm(32bcmnetinjectionin2022minusthe22bcmofnetwithdrawalsin2021).8Around20bcmtoTurkeyand25bcmtotheEUandBalkans.17Thecontentsofthispaperaretheauthors’soleresponsibility.TheydonotnecessarilyrepresenttheviewsoftheOxfordInstituteforEnergyStudiesoranyofitsMembers.Figure4:EuropeBalance2023BLUEdemandismetbyORANGEsupplySource:IEA,ENTSOG,KPLERdata,NexantECAWGM,OIESestimatesThereare,however,somedangerstothispotentiallybenignoutlookforEurope,whichhasassumedthattheotherkeyparametersintermsofsupplyanddemandinEuropein2023remainthesameasin2022,plusarisingglobalLNGsupply.TheIEA,inarecentnote,9suggestedthatEuropeangasdemandcouldbehigherbysome20bcmasaresultofslightlycolder2023weatherandavoidingproductioncurtailmentsinenergy-intensiveindustries.Inaddition,thereremainsastrongpossibilitythatflowsofRussianpipelinegasthroughUkrainecouldbecompletelycutoffasthewarcontinuesandifPresidentPutindecidestotightentheenergyscrewevenfurther.Atcurrentrates–around40mmcmd–thefullyearflowsofgasalongtheUkraineroutewouldbesome14.5bcm.AshutdownforhalftheyearwouldincreaseEurope’sneedbysome7bcm.ThiscouldalsoleadtoUkraineandMoldovarequiringmoreimportsfromtheEU,addingmoresupplyrequirements.IfEuropeweretoneedanother30bcminsupplyin2023,comparedtotheinitialrelativelybenignoutlook,significantpressurewouldbeplacedontheLNGmarketandthelevelofglobalprices.LNGvolumestothemorepricesensitiveAsianmarketswouldbeparticularlyatrisk.Ultimately,Europecouldbefacedwithaninabilitytorefillstorageduringthesummerand/ormorecurtailmentsofindustrialgasdemand,ifLNGcouldnotbedivertedfromothermarkets.Asaresult,althoughtheoutlookfor2023appearsmorepositivethanmanymighthavethoughteventhreemonthsago,therisksofasupplyshortageandhigherpricescannotbediscountedandthekeyparameterswillneedtobecarefullymonitoredthroughouttheyear.MikeFulwood(mailto:mike.fulwood@oxfordenergy.org)9HowtoAvoidGasShortageintheEuropeanUnionin2023.IEA,Paris,December202218Thecontentsofthispaperaretheauthors’soleresponsibility.TheydonotnecessarilyrepresenttheviewsoftheOxfordInstituteforEnergyStudiesoranyofitsMembers.9.Chinain2023:AyearoftwohalvesAseeminglymundaneannouncementon7December202210effectivelysignalledtheendofChina’sstrictzero-COVIDpolicy.Thepolicyreversalhascomeasasurprisetomany,especiallygiventhatthegovernmentseemstohavemadefewpreparationsforit,suchasrollingoutvaccinationsfortheelderlyorpreparingintensivecareunits.Andwithlimiteddata,theseverityoftheimpactremainsunclear.SinceearlyDecember,thevirushasbeenspreadinginChina’slargecities-withestimatespeggingthenumberofinfectedataround250millioninthefirsttwentydaysofDecember11-alongsideanecdotalreportsofaspikeindeaths.Buttheofficialdeathtollreportedon4January2023was5,253sincethestartofthepandemic.Meanwhile,theeconomycontinuedtoslow,withfactoryactivityinDecemberChinashrinkingforthethirdconsecutivemonthasCOVIDinfectionssweepsthroughproductionlines.Thisdecelerationwilllikelycontinuethroughearly2023asinfectionscontinue,althoughChina’sNationalHealthCommissionreportedlyexpectsoutbreakstopeakinJanuary.12Whatisclear,then,isthatChinaislearningtolivewithCOVIDandthatmuchoftheeconomicfalloutwillbefeltinthefirstquarterof2023,withsomelingeringeffectsinthefirsthalf.WhetherinfectionspeakinJanuary,asthegovernmentexpects,orlaterinthewinter,remainstobeseen.This,inturn,willbecriticalforChina’seconomicoutlookaswellasforitsenergydemand.Butthelongertheeconomicdeceleration,thesharperthereboundislikelytobeasthegovernmentseemstobeswitchingtoapro-growthmind-set.TheCentralEconomicWorkConference(CEWC)-themostimportantParty-ledannualeconomicmeeting-whichconvenedon15-16December,focusedontherealestatesectorandeffortstoensurethatstalledconstructionprojectsarecompletedandthatdevelopershavesufficientcredittoexecutethem.Bankfundingandcreditlineshavesincebeenmadeavailabletodevelopers.TheCEWCalsogaveanodtoamoreproactivefiscalpolicyandindicatedpotentialsupportforthetechsector.Putsimply,announcementsinDecemberseemtobehintingattheunravellingofalmostthreeyearsofmacroeconomicpoliciesthatsqueezedtherealestatesectorandprivateentrepreneursalongsidethestrictCOVIDcontrols.TheextenttowhichtheseareshorttermmeasurestosupportgrowthoradeeperU-turningovernmentpriorities,willbeakeyquestionfor2023.Thesteepnessoftherecovery,aftertheinitialhit,isalsoanopenquestion.TheChinesegovernmentdidnotsetaGDPgrowthtargetattheCEWC(itmightstillissueoneduringtheParliamentarysessionsinMarch),buttheIMFnowexpectsChina’sGDPtogrowby4.4percentyear-on-yearin2023,afteraweakerexpansionof3.2percentin2022.13Tobesure,viewsofChina’sgrowthpotentialvarywidely,withestimatesrangingfrom3percentto5percentfor2023.Proponentsoflowergrowthrateshighlightstructuralmacroeconomicfactorsthatwillimpedeareturntotheheydayofrapidgrowth,suchashighlevelsoflocaldebtandalong-termslowdowninhousingdemandwhichwillholdbackexpansionininfrastructurethathadservedasamaingrowthleverforoveradecade.Butthedomesticstructuralissuesmaynotmanifestthemselvesin2023.Thereopeningofthecountrywilllikelyresultinareboundinconsumptionandtravel-withtravelalreadybeginningtorecoverinlargecities-aswellasfewersupplychaindisruptions.AsChina’ssupplychainsreturntonormal,businesssentimentwithinChinaaswellasinternationalconfidenceinChinaasamanufacturingbasecould10NationalHealthCommission,“NoticeonFurtherOptimisingandImplementingthePreventionandControlMeasuresofCOVID-19”,7December2022,http://www.nhc.gov.cn/xcs/gzzcwj/202212/8278e7a7aee34e5bb378f0e0fc94e0f0.shtml11QianerLiu,ChengLeng,SunYu,RyanMcMorrow,“Chinaestimates250mnpeoplehavecaughtCovidin20days”,FinancialTimes,25December2022,https://www.ft.com/content/1fb6044a-3050-44d8-b715-80c18ca5c9ab12“ChineseCitiesSeeCovidPeakinginJanuaryasOfficialDataGetsObscured,”Bloomberg,26December2022,https://www.bloomberg.com/news/articles/2022-12-26/china-cities-covid-estimates-suggest-infections-may-peak-in-january?leadSource=uverify%20wall13BasedonXiJinping’sNewYear’sspeech,however,theeconomygrewin2022atover4percent,LauraHe,“XiJinpingestimatesChina’s2022GDPgrewatleast4.4%.ButCovidmiserylooms”,CNN,2January2023,https://edition.cnn.com/2023/01/02/economy/xi-jinping-china-gdp-estimate-covid-intl-hnk/index.html19Thecontentsofthispaperaretheauthors’soleresponsibility.TheydonotnecessarilyrepresenttheviewsoftheOxfordInstituteforEnergyStudiesoranyofitsMembers.improve,leadingnotonlytoacatch-upinproduction,butpotentiallytoafurtherboostindemandformanufacturing,eventhoughtherecessioninEuropecoulddampenappetiteforexports.Thelowgrowthforecastsmayproveoverlypessimistic,butequally,thereareheadwindsbuffetingaverystrongeconomicexpansion.Inlightofthis,energydemandislikelytoremainsubduedinitially,andseeastrongrecoveryinthesecondhalfof2023.Bothoilandgasdemandaresettogrowaseconomicactivityrebounds.Oilproductdemandwillseegrowthacrossthebarrel:fromindustrialfuelsforconstructionactivitythroughtotransportfuelsasdomesticandinternationaltravelresume.Atthesametime,crudeimportsandproductexportsdependonquotasandlicences.Andinapro-growthenvironment,thegovernmentmayissueadditionalallowancesforindependentstoimportcrudeandforthemajorstoexportproductsasameansofboostinggrowth.Nonetheless,inthefirsthalfoftheyear,inthecontextofweakdomesticdemand,crudeimportgrowthcouldbemutedevenasproductexportsrise.Whatismore,itwillbeimportanttowatchifenvironmentalcontrolpoliciesandtaxcrackdownswillbesoftened,allowingtheShandongindependentsaswellasnewrefineriestothrive.Ifenvironmentalprotectiontakesabackseattogrowth,crudeimportsandrefinerythroughputswillrisestronglythisyear,butdomesticdemandincreaseswillmoderateproductexportsinthesecondhalfoftheyear.Gasdemandmayonlypickuplaterintheyear,althoughspotLNGpurchasesareslowlyresuming.Eventhoughanuptickinindustrialactivitywillsupportgasdemand,itwillonlyleadtomorespotLNGpurchasesifpricesdonotspike.Indeed,withadditionalflowsonthePowerofSiberiaandastrongpolicymandatetofocusondomesticproduction,mostoftheincrementalgasdemandwillbemetbypipelinesanddomesticsupply.Thatsaid,withnewLNGterminalsandSPAsstartingup,LNGflowswillpickupfromtheir2022levels,risingby6-8bcm,afteracloseto20bcmdropin2022.Thepotential,atleastforthesecondhalfoftheyear,islikelyskewedtotheupside.MichalMeidan(mailto:michal.meidan@oxfordenergy.org)20Thecontentsofthispaperaretheauthors’soleresponsibility.TheydonotnecessarilyrepresenttheviewsoftheOxfordInstituteforEnergyStudiesoranyofitsMembers.10.India’sG-20PresidencyTheenergytrilemma(balancingenergyaffordabilityandaccessibilitywhilemaintainingsecurityofsupplyandensuringenvironmentalprotection)shiftedin2022toanoverwhelmingemphasisonenergysecurity,particularlyindevelopedcountries.Thiscreatednegativeconsequencesfordevelopingcountries,regardingenergyaffordabilityandthe3Fs:‘food,fuel,andfertilizers’.Inlightofthesechallenges,globaldialogueandcoordinationforahaveassumedaddedimportance.TheG-20isagroupingof19developinganddevelopedcountries(includingChina),plustheEU.14Togetherthesecountriesrepresent90percentofglobalGDP,80percentofglobaltrade,and67percentoftheworld'spopulation.IndiaholdstheG-20Presidencyin2023andwillleadanine-monthglobaldeliberationtoshapetheagendaforaSeptembersummit.India’spriorityareasincludetheenergytransition,climatefinance,cleantechnology-sharinginsteadofdominance,pursuitoftheSustainableDevelopmentGoals(SDGs)includingthe3Fs,anddigitalpublicinfrastructure.15Forthefirsttime,allG-20troikamembersaredevelopingcountries(Indonesia,India,andBrazil).16Theywillreinforceacommonsetofrelevantpriorities,addressthe3Fs,andseekmorebalanceintheenergytrilemma,awayfromenergysecurityaloneandtowardsagreateremphasisonaffordabilityandaccess,aswellasenvironmentalprotection.TheworkoftheG-20takesplaceontwotracks,leadinguptothesummit:theFinancetrack,andtheSherpa17track.ThelatterwillsetthedevelopmentandenergyagendafortheG-20leaders.Sherpawilllead13workinggroupscovering:energy,trade,investment,development,employment,tourism,agriculture,digitalinfrastructure,health,education,culture,environment,andanti-corruption.Indiahasplannedover200meetingsacross32workstreamsin50cities,involvingministers,governmentofficials,andcivilsocietymembersintheleaduptothesummit.Indiaaimstoinfluencetheglobalconversationinthreeprimaryareas:(i)energytransition,includingpushingforequaltreatmentofallfossilfuels;(ii)multilateraldevelopmentbank(MDB)reformstosupportclimatefinancethroughnewfinancialinstrumentsthatdonotincreasedevelopingcountryindebtednesswhenborrowingforglobalpublicgoods;and(iii)digitalpublicinfrastructuretosupportenergyefficiencyandSDGprogress,throughenablingadoptionofemergingtechnologyareassuchas5G,IoT,artificialintelligence,machinelearning,blockchain,drones,robotics,additivemanufacturing,nano-baseddevices,etc.IndiahassomeexperiencewithdigitaltechnologyinSDGapplicationsinagriculture,health,cybersecurity,smartcities,andautomation,withspecialfocusonsolvingreal-lifeproblemswithinformationtechnologyleadingtoincreasedenergyefficiency/carboncredits.18Smartmetersareanother14Argentina,Australia,Brazil,Canada,China,EU,France,Germany,India,Indonesia,Italy,Japan,Mexico,Russia,SaudiArabia,SouthAfrica,SouthKorea,Turkey,UK,andUSA.15Digitalinfrastructurereferstophysicalresourcesnecessaryfortheuseofdata,computeriseddevices,systemsforscalingandfasterimpact,andmonitoringandverification.Indiahasnearlyhalfabillioninternetusersandmanyindigenousdigitalservices,platforms,andsolutionsitiswillingtosharewithpeers.16The“troika”referstothepast,present,andnextpresidencyoftheG-20.Itsmandatedcollaborationensurescontinuityofinitiativesunderway,aswellasbuy-intonewareas.17Sherpasarepersonalrepresentativesofleadersofmembercountriesatsuchinternationalsummits,withthetermbeingderivedfromtheNepalesewhoserveasguidesformountaineersintheHimalayas.18Indiahasalargeongoinggovernmentprogramtoreducetheuseoffossilfuels(includingdiesel)inagriculturalpumpingandtoincentivizefarmers,throughdirectdigitalpaymenttransfers,toshifttosolarpoweredpumps.TherearealsonumerousICT-basedenergyefficiencyapplications(apps)andpilotprojectsbeingtriedinvariouspartsofthecountry,forintelligentwatermanagement,smartbuildings,solarpoweredrefrigeratedwarehousestoreducepost-harvestlosses,smarttransportetc,allwithaviewtosavingenergyandrealizingquantifiablesavings.Allthesetechnologiesusetheinternetforreal-timecommunicationanddatacapture,whichisessentialforenteringtheseinitiativesinthecarboncreditsmarket.Indiahasfrequentlyofferedtoshareitsdigitaltechnologieswithotherdevelopingcountriesatcostorasadonation,egCOWINwhichisitsCovidvaccinetrackingportalthatcontainsdetailsofover2billionadministeredvaccinations.21Thecontentsofthispaperaretheauthors’soleresponsibility.TheydonotnecessarilyrepresenttheviewsoftheOxfordInstituteforEnergyStudiesoranyofitsMembers.applicationthatcanleadtobetterenergymanagement,providedthattheunderlyingdigitalinfrastructureisinplace.Indiawillsupportotherdevelopingcountriesbyofferingsomeofthesedigitaltechnologies.Otherpriorityareasinclude:•GreenGridsInitiative/OSOWOG:19Cross-bordertransmissionnetworksfortradeinsolarenergyduringeveningpeaks,takingadvantageoftimedifferencese.gOman/QatarhaveafternoonsunshinewhenIndiaandsoutheastAsiaaredark;solartradecanavoidtheuseoffossilfuelsattheeveningpeak.•Globalcapacitybuildingandclimateresilience-buildingassociationssuchastheInternationalSolarAlliance;GlobalBiofuelsalliance(Biogas,Ethanol);nature-basedcarbonsinksolutions(e.g.,MangroveAlliance);thecoalitionforDisasterRiskReductionetc.ThesewillbestrengthenedforcontinuitybeyondIndia’spresidency.•GreenhydrogenandsharedR&Dtolowercostsinpursuitofcleanfuelsforindustrialisationandtransportneeds.•Innovativelow-costcoolingtechnologies(inthefaceoflife-threateningtemperaturerises).•Adaptationinthefaceofclimatehazards(heat,drought,flood,fires)thatjeopardizefoodsecurityandSDGnutritionachievements.2023istheUN’sinternationalyearofmillets,adrought-andheat-tolerantcrop.•“MissionLiFE”whichpushesclimateactionfromthecountryleveldowntoindividuals,companies,andgovernments,withproposalsfortheirrespectiverolesIndiabelievesthattoday’s‘energytransitionbyonlythosewhocanaffordit’mustnotcontinuetobethewayforward.MohuaMukherjee(mohua.mukherjee@oxfordenergy.org)19OneSun-OneWorld-OneGrid,aninitiativeofPMModithatisbackedbyseveralcountriesincludingtheUK,currentlyatfeasibilitystudy.22Thecontentsofthispaperaretheauthors’soleresponsibility.TheydonotnecessarilyrepresenttheviewsoftheOxfordInstituteforEnergyStudiesoranyofitsMembers.11.RevisitingtheAfrica-EuropeenergyrelationshipLastyear,Europe’sfranticsearchforalternativenaturalgassuppliestoreplaceRussiangasimportsledtoanunexpectedinterestinAfricangas.Presently,EuropeaccountsforthebulkofAfrica’snaturalgasexports,andEuropeangovernmentsarehopingtotemporarilyincreaseAfrica’sshareoftheseimportsstillfurther.Thus,aneffectiveenergyrelationshipbetweenthesetworegionsiscrucial.UntiltheeruptionoftheRussia-UkrainewarandtheworseningofEurope’senergycrisis,thisrelationshipwasmainlyconductedinacommercialwaybyEuropeanorinternationalenergycompaniesandrelevantAfricanhydrocarbonentities(nationalcompaniesand/ornational/internationalcompanypartnerships).ThisseemstobechangingwiththeEuropeanUnion(EU)takingamoreinterventionistroleinthe‘management’ofEurope’sgasimports.20Unfortunately,therehasbeenalackofconsistencyinrecentEUpolicieswhichiscreatingsomeconfusionamonggassuppliers.TwoEUpolicyannouncementsissuedinDecember2022couldraisetensionthisyearbetweenEuropeanditsnon-EUgassuppliers.ThefirstistheEUclimateactionregardingtheCarbonBorderAdjustmentMechanismorCBAM21andthesecondisitsgaspricecapmechanismdecision.22Althoughtheyet-to-befullyadoptedCBAMdoesnotcoverhydrocarbonimports,itdoestargetenergy-intensiveproductsexportedbyAfricanandMiddleEasternhydrocarbonproducers.Nevertheless,itwasthegaspricecapdecision,whichdirectlyrelatestonaturalgastrade,whichtriggeredimmediateAfricanreactions.Algeria’senergyministerwasthefirsttorespondbystatingthat‘Algeriadoesnotsupporttheideaofcappinggasprices’.TheAlgerianministeraddedthat,‘open,transparent,non-restricted,andnon-discriminatorygasmarketsaremorethannecessary…’.23Interestingly,thiswassomethingtheEuropeanCommissionstronglypushedforafewdecadesagoduringitsgasmarketliberalizationnegotiationswithgasexporters.IncrementalAfricangasvolumesareplannedtobesuppliedtoEuropestartingthisyearandnewinternationalgasprojectinvestmentsarealsoexpectedtobesanctionedin2023andfutureyears(e.g.,thefinalinvestmentdecision-FID-forthenextphase(s)ofMauritania-Senegal’sGrandTortueAhmeyimLNGproject).TheEUgaspricecapistemporary,anditisnotclearhowitwouldbeimplemented,ifatall.ButitcouldunnecessarilyaffectFIDsofpotentialneworexpandedAfricangasexportschemes.Could2023bringthemomentoftruthforalltheAfricangassupplyplansandexpectationsannouncedlastyear?CouldanincreaseinAfricangasexportstoEuropeandAfricangasprojectFIDsmaterializethisyear?AllthisistakingplaceagainstthebackgroundofAfrica’ssearchforanasyetelusivefairenergytransition.AfterthemixedresultsofCOP27,theroadtoCOP28thisyearwillagainbeachallengingoneforAfricanpolicymakers.ExistingandfutureAfricangasexportingcountriesareatdifferentstagesintheformulationoftheirenergytransitionstrategies,butforallofthem,naturalgasisexpectedtoplayafundamentalrolenotonlyintheirenergytransitionstrategies,butintheiroveralleconomicdevelopment.ItwouldbenaïveandirresponsibletothinkthatgasproductioninAfricacouldsuddenlybestopped,significantlyreduced,oravoidedaltogether.20AsformallyframedintheEU’sREPowerEUplanandincludingtherecentgaspriceinterventionannouncement(footnote3seebelow).21EuropeanCouncil(2022).“EUclimateaction:provisionalagreementreachedonCarbonBorderAdjustmentMechanism(CBAM)”,13December.https://www.consilium.europa.eu/en/press/press-releases/2022/12/13/eu-climate-action-provisional-agreement-reached-on-carbon-border-adjustment-mechanism-cbam/22EuropeanCouncil(2022).“Councilagreesontemporarymechanismtolimitexcessivegasprices”,19December.https://www.consilium.europa.eu/en/press/press-releases/2022/12/19/council-agrees-on-temporary-mechanism-to-limit-excessive-gas-prices/pdf23AlgeriePresseService(2022).“Arkab:l'Algérienesoutientpasl'idéedeplafonnementdesprixdugaznaturel”,20December.https://www.aps.dz/economie/149037-arkab-l-algerie-ne-soutient-pas-l-idee-de-plafonnement-des-prix-du-gaz-naturel23Thecontentsofthispaperaretheauthors’soleresponsibility.TheydonotnecessarilyrepresenttheviewsoftheOxfordInstituteforEnergyStudiesoranyofitsMembers.However,thelong-termuncertaintiesaboutthefutureofunabatedgassuppliesposeaproblemnotonlyforgasexportstoEurope,butalsoforsuppliestoAfricandomesticenergymarkets.ItishighlylikelythatEuropeanorinternationalcompanies’investmentsinAfricangasdevelopmentprojectswillbeaffectedbyfutureEuropeandecarbonizationmeasures,andthereforebothAfricangasproducersandinternationalinvestorswillneedtofocusoncarboncapture,storageandutilizationprojectsandtheurgentreductionofassociatedgasflaringandmethaneemissions.EuropecouldplayaroleinassistingAfricanhydrocarbon-producingcountriesintheirenergytransitionstrategies.AseriesofAfrica-Europeinitiatives,includingtheAfrica-EUEnergyPartnership,24weresetup,butthesehavehadlimitedimpactsofar.Initially,therewereAfricanconcernsabouttheEUGreenDeal,specifically‘thatitwasimposedonthem’andthatitwasfocusedon‘mitigation,circulareconomy,andcarbontaxes’.25Insomecases,attemptsbyEUgovernmentstodevelopcleanenergyinitiativesinAfricahavebeenbasedonoldenergytrademodelsappliedtonewcleanproducts,suchastheambitiousplanstoexportNorthAfricangreenhydrogentoEuropeusingmassivededicatedrenewableenergycapacityinNorthAfrica,whilelevelsofcleanelectrificationinAfricaremainfarfromsatisfactory.Therefore,theAfrica-EuropeenergyrelationshipwillneedtoberevisitedtoaddressnotonlyEurope’sshorttomediumtermgasimportneeds,butalsoAfrica’slonger-termdomesticenergyconsumptionandenergytransitionconcerns.Could2023bethetriggeryearforamoreeffectiveandsustainableAfrica-EuropeenergypartnershiporwillitbeayearofaccentuatedtensionsbetweenEuropeanditsAfricangassuppliers?MostefaOuki(mostefa.ouki@oxfordenergy.org)24https://africa-eu-energy-partnership.org/25HanneKnaepen(2020).“BarrierstoEurope-AfricaCooperationonClimateChange”,ISPI,21December.https://www.ispionline.it/it/pubblicazione/barriers-europe-africa-cooperation-climate-change-2864524Thecontentsofthispaperaretheauthors’soleresponsibility.TheydonotnecessarilyrepresenttheviewsoftheOxfordInstituteforEnergyStudiesoranyofitsMembers.12.TheGlobalStocktake–Acriticalupdateonclimateaction,orlackofitCOP27,heldinEgyptinNovember2022,boastedafewnotablesuccesses,inparticulartheestablishmentofaLossandDamageFundtocompensatedevelopingcountriesfortheimpactofclimatechange.However,oneofthemostobviousdeficiencieswasthelackofsignificantprogressonsettingandimplementingmoreambitiousemissionsreductiontargets.PriortotheconferenceaseriesofIPCCreportshadhighlightedthattheworldisnotontargettomeetits1.5owarmingtargetandduringtheeventitselftheNGOClimateTrackerhighlightedthatonthebasisofcurrentpolicyimplementationtheworldwillwarmby2.7oby2100.26Tomitigatethis,countrieshadagreedatCOP26in2021toupdatetheirnationalplans(ornationallydeterminedcontributions,NDCs)during2022withmoreambitioustargets,butonly20ofthe193partieshaddonethisbyNovember.27Asaresult,UNSecretary-GeneralAntonioGuterresfeltcompelledtowarn,‘weareonahighwaytoclimatehellwithourfootstillontheaccelerator’.28ThissituationhashighlightedtheimportanceofaprocessestablishedunderArticle14oftheParisAgreementknownastheGlobalStocktake(GST).Itspurposeistoassessprogresson‘mitigation,adaptation,andthemeansofimplementationandsupport,andinthelightofequityandthebestavailablescience’.29Inotherwordshowarecountriesdoingintheireffortstobringdownemissions,howpreparedaretheytoadapttoachangingenvironment,andwhatprogressisbeingmadetoprovidehelptopoorercountries,especiallywithclimatefinance.TheGSTtakesplaceonceeveryfiveyearsintandemwiththesettingofnewNDCs,asshowninthechartbelow.Inthecurrentcycle,progressonimplementingtheNDCtargetssetin2020/21(aprocessthatwasdelayedbyCOVID19)isbeingreviewedin2022/23aheadofthepresentationofnewNDCsin2025.Thesewillthenbereviewedin2027/28aheadofafurthersetofnewNDCtargetsin2030,aspartoftheratchetingprocessestablishedintheParisAgreement.Figure5:TimetablefortheGlobalStocktakeProcessSource:AuthorCOP27markedtheendofthesecondofthreephasesinthecurrentcycle.Phase1,whichbeganatCOP26,hasinvolvedthegatheringofinformation,whilephase2hasbeenthetechnicalassessmentofthatdataandareviewprocesswhichcommencedatCOP27.TheSharmElSheikhImplementationPlan,publishedattheendoftheconference,30notedtheimportanceofthisperiodicreviewanditissignificantthatthediscussionsaroundtheGSTtookplaceatnumerousroundtablesthatinvolved26Bloomberg,10November2022,“ClimateProjectionsAgainPointtoDangerous2.7CRiseby2100”27SeeClimateActionTrackerathttps://climateactiontracker.org/climate-target-update-tracker-2022/28IISDDailyReportfromCOP27,Monday7November29https://unfccc.int/sites/default/files/english_paris_agreement.pdf30SharmElSheikhImplementationPlan,SectionXII,UNFCCC,athttps://unfccc.int/documents/62444420202030202820252023NDCupdatesannouncedNDCupdatesannouncedNDCupdatesannouncedGlobalStocktakeProcessInformationcollectionandpreparationTechnicalAssessmentConsiderationofOutputsCOP28COP35COP30COP33COP26(deferredfrom2021duetoCOVID)GlobalStocktakeProcessInformationcollectionandpreparationTechnicalAssessmentConsiderationofOutputsPublicationofIPCCSynthesisReportsPublicationofIPCCSynthesisReports25Thecontentsofthispaperaretheauthors’soleresponsibility.TheydonotnecessarilyrepresenttheviewsoftheOxfordInstituteforEnergyStudiesoranyofitsMembers.participantsfromawiderangeofaffiliations,underliningtheintendedinclusiveandcollaborativenatureoftheprocess.However,althoughtheCOP27discussionsontheGSTwerepositive,despitesomecomplaintsaboutthepresenceofoilandgasindustrylobbyists,31therealtestoftheprocesswillcomein2023whentheresultsaremadepublicandthepoliticalnegotiationsabouthowtorespondtothembegin.OnemajorissuewillbethepledgebydevelopedcountriestoprovideUSD100billionofclimatefinanceforthedevelopedworldby2020.Thisgoalhasalreadybeenmissed,butanewpromisetoachieveitby2023willbereviewedintheGSTandtheoutcomewillnodoubtbehighlighted.Furthermore,althoughtheperformanceofindividualcountrieswillnotbeafocus,inordertoavoidexcessivefinger-pointing,itshouldalsobecomeabundantlyclearwhethertheworldasawholeisimplementingemissionsreductionplansandisontargettomeetitsclimateobjectives.Asthisisunlikelytobethecase,controversialquestionsaboutwhynotandwhatcanbedonewillnodoubtberaisedandvociferouslydebated.ThefirstsignofresultsfromtheGSTprocessshouldstarttoemergeinFebruary2023whenthe193partiesintheUNFCCCprocess,aswellasinterestednon-parties(suchasNGOs)havebeeninvitedtoofferthoughtsonhowtheoutputsshouldbeconsidered.AmorespecificconsultationprocessisthenplannedforAprilbeforeanin-personworkshopinOctober,aheadofCOP28whichisduetotakeplaceintheUAEfrom30Novemberto12December.TofurtheremphasizetheimportanceoftheGST,theUNSecretary-Generalhasinvitedallpartiestoa‘climateambitionsummit’aheadoftheconclusionoftheGSTtoensurethattheoutputsarefullyunderstoodandthatresultingplansofactionareconsidered.Asaresult,althoughtheGSThasbeendescribedassomethingofa‘sleeperissue’itsimportanceissettobecomeveryclearin2023asittakescentrestageinthedebateabouttheworld’sprogress,orlackofit,towardsmeetingclimategoalsandabouttheplansthatneedtobeputinplacetocloseanygaps.Thiscouldthereforebethemomentwhentherealityoftheclimateemergencyislaidbareandcouldactasanimportantcatalystforpolicy-makerstostarttomakemoreconcreteplanstorectifythesituation,withsignificantimplicationsforcountriesandcompaniesalike.JamesHenderson(james.henderson@oxfordenergy.org)31https://www.carbonbrief.org/cop27-key-outcomes-agreed-at-the-un-climate-talks-in-sharm-el-sheikh/#:~:text=Back%20to%20top-,Sharm%20el%2DSheikh%20implementation%20plan,last%20year's%20Glasgow%20Climate%20Pact.26Thecontentsofthispaperaretheauthors’soleresponsibility.TheydonotnecessarilyrepresenttheviewsoftheOxfordInstituteforEnergyStudiesoranyofitsMembers.13.ProgresswithclimatefinanceaheadofCOP28willbevitalin2023Oneofthemajorthemesforadvancingclimatemitigationandadaptationin2023willbethestatusandprogressofclimatefinance.TheyearsfollowingtheParisAgreementin2015weremarkedbyasustainedgrowthofcapitalallocationtowardsclimatemitigationandadaptation,32withmajorinnovationsalsointermsoffinancinginstrumentsadoptedtochannelcapital.33However,2022markedamajorbreakinthistrendwiththefocusofglobalpolicy-makersmovingfromlong-termenvironmentalgovernancetoshort-termenergyanddebtaffordability,whileinvestorsbecamelessinterestedinpro-environmentalinvestmentsandmoreconcernedaboutinflation,interestrate,andcurrencyrisks.Whilethecurrentenergycrisisislikelytoincreasethelonger-termmotivationtodeveloplow-carbonenergysources,ithasalsohighlightedthatthecostsoftheenergytransitionandoflimitingclimatechangearefarhigherthanpreviouslythought.Asaresult,in2023thechallengesofnavigatingthecurrentuncertaineconomicenvironmentcouldunderminehopeforanymajorinnovationsinclimatefinance,despitethefactthatitwillbecomeincreasinglyclearthatmorefinanceisneedediftheworldistogetbackontracktomeetitsclimategoals.Lookingbackat2022,twomainthemesareparticularlynotableandwhoseconsequenceswillbeparticularlyrelevanttomonitorfor2023.Firstaretheoutcomesandconsequencesofrecentinternationalclimatenegotiations.AcoreobjectiveofdelegatesatCOP27,particularlythoserepresentingdevelopingcountries,wastobringthespotlightbackontotheroleofclimatefinance.ThefactthatCOP27washostedinAfricagavemajorimpetusforthehostcountrytoensurethistopicwashighontheagenda,despitethemajorheadwindscreatedbytheenergyandgeopoliticalcrisesin2022.34Themainachievementwastheannouncement,onthefinaldaysoftheconference,ofthecommitmenttosetupafundforlossanddamagearisingfromclimatechange.Whiletheannouncementhashugesignificanceandreiteratesonceagaintheprincipleof‘commonbutdifferentiatedresponsibilities’35,theoperationalizationandactualfinancialcommitmentsstillneedtobeagreedwiththedetailsexpectedtobepartofmorecomplexnegotiationsbetweendevelopedanddevelopingcountriesin2023andduringfutureCOPs.Thesecondkeyissuefor2023iswhethertherewillbearecoveryinthescaleofclimatefinancing,followingasharpdeclineinglobalissuancevolumesin2022asaresultoftheglobaleconomicheadwinds.Recentdevelopmentsininstrumentssuchasgreenbonds(andmoregenerallyGreen,Social,andSustainabilityBondscollectivelyreferredas‘GSS’bonds)andSustainability-Linkedbonds,havemarkedanimportantmilestoneinfacilitatingtheallocationofcapitaltowardsprojectsandassetsforclimatemitigationandadaptation.However,thecurrentglobaleconomicenvironment,withrisinginterestratesinmajoreconomies,hascreatedmajorchallengesfortheabilityofemergingcountriestoattractinvestorsandrepaycurrentoutstandingdebtsduetothesharpappreciationoftheUSdollaragainstothercurrencies.Againstthisbackground,multilateraldevelopmentbanks(MDBs)canplayanimportantroleinsupportingriskmitigationandpromotingfinancingstructuresfordevelopingcountries.WhileMDBshavehistoricallymostlyfocusedonprivateblendedfinancetransactions,2022markedthefirsttransactioninwhichtheWorldBanksupportedthede-riskingofpublicly-tradedgreenbondsissued32GlobalinvestmentinassetsandprojectsdirectedtoclimatemitigationandadaptationreachedUSD650billionin2022aloneaccordingtoIMFestimates.TheInternationalEnergyAgency(IEA)estimatedtotalinvestmentsbetween2016and2020averagedUSD1.5trillion.See:“NetZeroby2050.ARoadmapfortheGlobalEnergySector”,2021,https://www.iea.org/reports/net-zero-by-2050.33Forinstancegreenandotherthematicloans/debtmarketaswellascarbonmarketsinitsvariousforms.GreenbondsgrewasanimportantassetclassinthesameperiodreachingthemilestoneofUSD1trillionofdebtoutstandingin2021.34AlreadyaheadofCOP27,developedcountrieshadpromisedtomeettheirUSD100billionfinancingtarget,asagreedinCOP15inCopenhagen,by2023atthelatestafteradelayfrom2020duetothecovidpandemic.Limitedresultshavebeenachievedsofaronthatfront.35The‘commonbutdifferentiatedresponsibilities’intheUnitedNationsFrameworkConventiononClimateChangeacknowledgesthatdevelopedeconomiescarryamajorresponsibilityinaddressingthecurrentclimatecrisis27Thecontentsofthispaperaretheauthors’soleresponsibility.TheydonotnecessarilyrepresenttheviewsoftheOxfordInstituteforEnergyStudiesoranyofitsMembers.bydevelopingcountries.36TheroleofMDBsgloballywillbecarefullymonitoredin2023,especiallyastheneedforchangewasactivelydiscussedatCOP27.Theglobalstocktakewillalsohavesignificantimplicationsforclimatefinancein2023.Itwillreviewtheperformanceofcountriesagainsttheirclimateplansandwilloutlinewhatisneededtoachievethe2050climategoals,mostlikelyhighlightingtheneedtoscale-upinvestments(andthusfinancing)towardsclimatemitigationandadaptation.CurrentfiguresestimatedbytheIMFshowalargegapbetweencurrentcommitmentsandtherequiredscale.OnlyUSD630billionwereinvestedin2022comparedtotheneedtoachievestableflowsofinvestmentsoftheorderofUSD3-6trillionbetween2030and2050,seeFigure1.37WiththetotalshareofglobalfinancialassetsatUSD470trillion,38themainchallengethatpolicymakerswillfacein2023andfortheyearsaheadishowtoshapeincentivestodirectcapitaltowardsclimatemitigationandadaptionassetsandprojectswhilenavigatingthecurrentchallengingeconomicandgeopoliticalenvironment.Figure6:Climatefinanceflows,actualandneededtolimitwarmingto1.5°CSources:GeorgievaK.,AdrianT.,GlobalLandscapeofClimateFinance2021,ClimatePolicyInitiative,IMF,August2022,https://www.imf.org/en/Blogs/Articles/2022/08/18/public-sector-must-play-major-role-in-catalyzing-private-climate-financeAndreaMaino(andrea.maino@oxfordenergy.org)36https://pressroom.ifc.org/all/pages/PressDetail.aspx?ID=2668837TheInternationalEnergyAgency(IEA)estimatesthatinanet-zeroscenario(NZE),investmentsintheglobalenergysystemneedtoincreasefromthecurrentlevelofUSD1.5trillionayeartoUSD4.5–5.0trillionayearbetween2030and2050.TotalinvestmentsrangebetweenUSD100trillionandUSD150trillionbetween2020and2050.See:“NetZeroby2050.ARoadmapfortheGlobalEnergySector”,2021,https://www.iea.org/reports/net-zero-by-2050.38In2020totalglobalfinancialassetsexhibitedstronggrowthin2020,increasingby11percentwiththeglobalnon-bankingfinancialIntermediation(NBFI)sector,constitutingmainlypensionfunds,insurancecorporations,andotherfinancialintermediariesexperiencingassetgrowthof8percent,reachingUSD230trillion.See:https://www.fsb.org/2021/12/global-monitoring-report-on-non-bank-financial-intermediation-2021/28Thecontentsofthispaperaretheauthors’soleresponsibility.TheydonotnecessarilyrepresenttheviewsoftheOxfordInstituteforEnergyStudiesoranyofitsMembers.14.Article6post-COP27AtCOP26in2021therulebookforArticle6oftheParisAgreement(whichcoveredthecreationofamarketforcarboncredits)wasfinallyestablished,andthefocusthenshiftedtowardsputtingthecreditingmechanismsandframeworksincludedinitintooperation.However,despitetheoptimisminthelead-uptoCOP27,marketparticipantswereleftwithabittersweetfeeling,withtheresolutionofmanykeyissuespertainingtoArticle6beingpushedbacktoCOP28in2023.Negotiationsinthelead-uptoandduringCOP28,alongsidetherecommendationsofvariousinitiativessuchastheIntegrityCouncilfortheVoluntaryCarbonMarket(IC-VCM)andtheVoluntaryCarbonMarketsIntegrityInitiative(VCMI),willhaveimportantimplicationsforthedevelopmentofwidercarbonmarkets,includingvoluntarycarbonmarkets(VCMs),andmoregenerally,forthespectrumofpoliciesthatcountriescanimplementtoattractclimatefinanceviacarbonmarkets.IntermsofadvancingtheoperationalizationofArticle6inCOP27,thePartiesagreedonkeyreportingtemplates,particularlythe‘InitialReport’andthe‘AnnextotheBilateralTransparencyReport’.SomeobserversbelievethefinalizationofthesetemplatesshouldenablecountriestostartdevelopingcooperativeapproachesandsigningbilateralandmultilateralagreementsunderArticle6.2.UnderArticle6.2,ahostcountryhastherighttoauthorisethetransferofInternationallyTradedMitigationOutcomes(ITMOs)whichcanbeusedeitherbycredit-buyingcountriestowardsachievingtheirnationallydeterminedcontributions(NDCs),inmarket-basedschemessuchastheCarbonOffsettingandReductionSchemeforInternationalAviation(CORSIA)orbycompaniestooffsettheiremissions.Perhapsthemostcontentiousissuewhichremainsunresolvedistheoptionalityofhostcountriestorevoketheauthorisationforcorrespondingadjustments(CAs)ofcreditsissuedunderArticle6.2(butalsounderArticle6.4).Thisisparticularlyimportantforinvestors,projectdevelopers,andthewidermarketwhichneedpredictabilitytobeabletoattractthenecessaryfinanceforscalabilityandforcarbonprojectstobebankable.Thisissuealsorelatestohostcountries’concernsofover-sellingcheapercreditsattheriskofincreasingthecostofachievingtheirclimatetargets.ThishasledafewcountriessuchasIndiatorethinktheirstrategiesandlimittheexportofcarboncreditstoensurethatthecreditsarefirstusedtowardsmeetingtheirownNDCs,withthesurplusallowedtobetransferredabroad.Whatisalsobecomingincreasinglyclearistheimportanceofcapacitybuildinginhostcountriestoenabletheset-upofproperregistriesandaccountinginfrastructure.Particularlywithregardstocapacitybuilding,multilateraldevelopmentbanksareexpectedtoplayamajorrolegoingforwardwithseveralinitiativesandpilotschemesalreadyunderway.Anotherissuerelatestotheconfidentialityofreporting,wheretheagreedtextprovidesaparticipatingpartytherightto‘designateinformationprovidedtotheArticle6technicalexpertreviewteamduringthereviewasconfidential’,whichdoesnothelpthetransparencyoftheverificationprocess.Despitetheseoutstandingissues,somecountriesarealreadyinkingbilateralagreementsunderArticle6.2,ledsofarbySwitzerland,Singapore,andSweden.Otherunresolvedissuesincludethedefinitionoftheroleofcarbonremoval,bothengineeredandnature-based,underArticle6.Particularly,Partiesareyettoagreeonappropriateaccountingmethods,monitoring,andreportingstandardsforcarbonremoval,includinginrelationtoreversalandleakageissuesandtheneedtoavoidnegativeenvironmentalandsocialsideeffects.AnotherunresolvedissueiswhethercreditsgeneratedfromemissionsavoidanceprojectsshouldbeincludedwithintheframeworkofArticle6atall.Ontheupside,moreclarityhasbeenprovidedontheprocesstofollowfortransitioninglegacycreditsundertheCleanDevelopmentMechanism(CDM)totheArticle6.4creditingmechanism,withatemplatefortransitionrequestsforprojectdevelopersexpectedtobepublishedinJune2023.AnotherdevelopmentconcerningArticle6.4wastheclarificationoftheroleofITMOswhicharenotauthorizedandhencenotcorrespondinglyadjusted.Article6.4effectivelyestablishesanewtypeofcarboncredits,called‘mitigationcontributions’,whichcannotbeusedtomakeoffsetclaimsatthenationallevel(i.e.towardsmeetingcountries’NDCs).Thesemitigationcontributions‘maybeused,interalia,forresults-basedclimatefinance,domesticmitigationpricingschemes,ordomesticprice-based29Thecontentsofthispaperaretheauthors’soleresponsibility.TheydonotnecessarilyrepresenttheviewsoftheOxfordInstituteforEnergyStudiesoranyofitsMembers.measures,forthepurposeofcontributingtothereductionofemissionlevelsinthehostcountry’.Itdoesindirectlyreducetheirscopebyimplyingthatthesecreditscannotbeusedforoffsetting,eventhoughtheissueofregulatingcorporateclaimsintheVCMdoesnotfallunderthejurisdictionoftheCOP.However,therehavebeencallsfornationalgovernmentstoplayamoreactiveroleinprovidingaregulatoryenvironmentandclarifyingtherulesaroundtheVCM.Theterm‘interalia’inreferencetotheusageof‘mitigationcontributions’isofsignificanceandhascreateddebateamongobservers.Thelegalterm,meaning‘amongotherthings’,suggeststhatcarboncreditswithnoCAcanbeusedintheVCM.Thismaycreateatwo-tiersystemandratherthanconvergence,mayleadtodivergence,withbuyerspreferringtopurchase‘authorized’and‘adjusted’credits,althoughthesecreditsmaynotnecessarilybeofhigherqualitybutmaybeperceivedtobeso.Also,thetypeofclaimswhichcanbemadeusingthesemitigationcontributionswillaffectbuyers’demandastheirprimemotivationinusingthesecreditsistooffsetpartoftheiremissionsratherthanusingthemforresults-basedclimatefinance.Therefore,theultimatedecisionsstemmingfromArticle6.4willhaveindirectimplicationsfortheVCMbothonthesupplyanddemandforcarboncreditsthoughthesewillnotbefullyunderstooduntiltheoperationalizationofArticle6.4bytheSupervisoryBody(SB),whichisnotlikelytooccurbefore2024.Inparallel,anumberofnewinitiativeswereannouncedatCOP27.OfnoteareJohnKerry’sEnergyTransitionAccelerator,whichhastheaimofdevelopingaVCMtounlockprivatesourcesoffinancetohelpdevelopingcountriesphaseoutfossilfuelsandaccelerateinvestmentinrenewables;thecreationoftheGlobalCarbonTrust(GCT)asaplatformthatenhancestransparencyandliquidityinthemarketbyensuringdefinedcreditstandardsaremetandperformanceisdelivered;andtheAfricaCarbonMarketsInitiativewhichaimstoproduce300millioncarboncreditsannuallyby2030.Itisimportantthatthemyriadofgrowinginitiativesiscomplementaryinnatureandensuresadditionality,andthatthefundedprojectsgeneratehighqualitycredits.Additionallyitiskeythatframeworksandguidanceonhowcorporationscanusethesecreditsundertheseschemesisconsistentwiththeexistingstandards,currentinitiatives,andArticle6.2023promisestobetheyearwherefurtherclarityisprovidedonhowdifferentmechanismsunderArticle6wouldbeeffectivelyputintopractice.ParticipantsincarbonmarketswillbecloselyexaminingthepolicyframeworksgoverningtransactionsunderArticle6.2andthenextnegotiationssurroundingArticles6.4,aswellasfurtherclarificationbythemajorstandardisationbodiesandthevariousinitiatives,suchastheIC-VCMandtheVCMI.Untilsomeofthekeyuncertaintiesareresolvedandsomeoftherulesareclarified,carbonmarketsareunlikelytofulfiltheirmaximumpotential.Intheshortterm,thepricesofstandardizedcarboncontractstradedonexchangesareexpectedtocontinuetoexperiencehighvolatility,likethatseeninDecember2022,onthebackofthinliquidity,higherinterestrates,averyuncertainmacroeconomicpicture,andalsoabroaderdisappointmentaboutCOP27whichdidnotprovidemarketparticipantswithmoreclarityanddidnotfullycapitalizeonthemomentumbuiltinCOP26.Itistobehopedthat2023andCOP28canprovideamorepositiveoutcomeandmomentumtowardsthefulloperationalizationofArticle6.BassamFattouh(bassam.fattouh@oxfordenergy.org)AndreaMaino(mailto:andrea.maino@oxfordenergy.org)HasanMuslemani(mailto:hasan.muslemani@oxfordenergy.org)30Thecontentsofthispaperaretheauthors’soleresponsibility.TheydonotnecessarilyrepresenttheviewsoftheOxfordInstituteforEnergyStudiesoranyofitsMembers.15.OutlookforCarbonRemovalsPost-COP27Withover70side-eventsfocusedoncarbonremovalsatCOP27,theConferencewouldgoontobeaptlydubbedthe‘RemovalsCOP’byitsconclusion.This,however,shouldhavecomeasnosurprise.Themarketforcarbonremovalcreditshadattainedrecordgrowthanddeliveryratesin2022,witharound600,000tonnesofpurchasesmadeinthemarket,afigurethatwasoverfivetimeshigherthanpurchasesmadethepreviousyear.Thistrendissettocontinueinto2023andbeyond,especiallyasmanynewremovalcreditsuppliersenterthemarket.Nevertheless,itisimperativetonotethatmanyofthesedealswerebilateral‘pre-purchase’agreements,wheresuppliersandbuyersenterintolong-termcontractstoremoveCO2inthefuture.Additionally,thebulkofthisfigurewasduetoonemega-deal(400,000tonnes)involvingtheaviationcompanyAirbusand1PointFive,whoaredevelopingprojectsusingCarbonEngineering’sDirectAirCapture(DAC)technology.2022alsosawtheemergenceand/orexpansionofanumberofmarketplacesdedicatedtosellingremovalcredits,notablyPuro.Earth,Carbonfuture,Patch,Watershed,andSupercritical.Thisisbothgoodandbadnews.Thegoodnewsisthatamarketforremovals,whethertech-ornature-based,hasfinallypickedupandthatDAC,aclimatesolutiononcethoughttooexpensivetopursue,isseeinganunprecedentedsurgeindemand.Inpart,thisisduetoitshighpermanenceofremovalbutalsotoitseffectivenessinaddressinglegacyemissions,whichhasmadeitanecessaryinclusionintheIPCC’s1.5°Cclimatescenario.Theemergenceofdifferentmarketplacesisalsoaclearsignalthatamarketforremoval-basedcreditsexists.Thebadnewsisthatatleasthalfofthepre-purchaseorders(involvingDACandconcretemineralization)willtakefourtofiveyearstofulfilandsotheywillnotcontributetoimmediateclimateaction.Also,themarketisstilllimitedtoaveryselectnumberofsuppliersandlargecorporatebuyerswithvoluntaryclimatetargets,suchasShopify,Microsoft,SwissRe,Stripe,andJPMorganChase.Thedevelopmentofdifferentstandardsandremovalmethodologiesalsoriskscreatingfragmentationandconfusioninthemarket,iftheyarenotproperlyalignedacrossdifferentverificationbodies.Indeed,itwasthislatterverificationandcertificationpointthattookcentrestageinthelead-uptothediscussionsatCOP27.Notonlyhavedifferentinitiativesandstandardsemergedforremovalmethodologiesincarbonmarkets,includingbyVerra,GoldStandard,CCS+Initiative,andPuro.Earth,butgovernmentsarealsoexploringhowtobestincorporateremovalsintotheirclimatepolicies.Earlierin2022,theBidenadministrationpassedthehistoricInflationReductionAct(IRA)whichincreasedtheleveloftaxcreditsforcarbonremovalsandcarboncaptureandstoragetechnologiesrelativetoits45Qpredecessor,amoveconsideredasagamechangerfortheentireindustryasitexpandstherangeofmarketadoptionandrendersmoreprojectsfinanceableintheUS.InNovember2022,theEUputforthaproposalforacarbonremovalcertificationframework(CRCF)thatwouldreliablycertifyhigh-qualitycarbonremovalsandharmoniseactionacrossEurope.TheCRCFisbasedonfourkeyprinciplesthatensure:accuracyofquantificationofremovalbenefits;additionality;long-termstorage;andenvironmentalsustainability.Throughout2023,theEuropeanCommissionwillconsultanexpertgrouptodeveloptailoredcertificationmethodologiesforthedifferenttypesofremovalactivities.Itisalsoworthnotingthat,asofyet,certifiedcarbonremovalsarenotincludedinthescopeoftheEU-ETSwhichwassetupwithemissionreductionsinmind.IntroducingremovalsintotheEuropeancompliancemarketcanhelptheEUreachanet-negativetargetbutmayrequirefundamentalchangestoitsstructure.COP27wasalsoastagefortheinaugurationofotherremoval-focused,cross-borderagreements.TheCarbonDioxideRemoval(CDR)Missionlaunchedthe‘CDRLaunchpad’,acoalitionofgovernmentscommittedtoadvancingdevelopmentofremovaltechnologiesbyinvestingindemonstrationprojectsandencouragingknowledgeexchangeacrossparties.First-waveparticipantsincludetheEU,UK,Norway,US,Canada,andJapanandtheinitiativeisaimedatdrivingcostsofCDRdowntolessthan31Thecontentsofthispaperaretheauthors’soleresponsibility.TheydonotnecessarilyrepresenttheviewsoftheOxfordInstituteforEnergyStudiesoranyofitsMembers.USD100/tonneandenablingthescale-uptothelevelneededformeaningfulresults,definedasgigatonnesremovedperyeargloballywithintwodecades.TheConferencealsosawanumberofleadersfromtheGlobalSouthvoicetheirsupportfordeployingcarbonremovalsolutionsintheirrespectivecountries,alongwiththepassageoflocallegislativeactstosupportCDRinvestmentsinMassachusettsandCalifornia.Perhapsmostcritically,COP27aimedtoaddresskeyissuesfortheinclusionofremovalsolutionswithintheframeworkofArticle6,includingwhatcountsas‘removal’activities,butunfortunatelyfellshortofaddressingthemintime.SomeoftheoutstandingissuestobeaddressedthisyearatCOP28includehowtomonitorremovalsandoverwhattimeframes,howtoaccountforleakageandliabilityincaseofreversalsandhowtoensurehumanandindigenouspeople’srightsarenotviolated.TheArticle6.4SupervisoryBoardhascalledformoreinputfrompartiesbyMarch2023andwilltakeitsrecommendationsintoCOP28.Inshortandonanoptimisticnote,2022andCOP27representedamajormilestoneforcarbonremovals;thegroundisnowsetfornecessarynextstepstotakeplacethroughout2023,includingadoptingappropriateandunifiedmethodologiesandeffectivesupportingpolicies.However,itisworthnotingthatwhileactionshouldbetakentoensureCO2stocksintheairareurgentlyandswiftlyreduced,thisshouldbedonefairlyandequitably,notattheexpenseofotheremissionsreductionandmitigationefforts.Thisstartswithensuringcorporationsandgovernmentsinvestinremovalactivitiesasacomplementarysolutiontoneutralisinghard-to-abatesectorsandtowardsachievingnet-zero,andevennet-negative,targets.ThiswillbeanimportantfocusofpolicymakingintherunuptoCOP28.HasanMuslemani(hasan.muslemani@oxfordenergy.org)32Thecontentsofthispaperaretheauthors’soleresponsibility.TheydonotnecessarilyrepresenttheviewsoftheOxfordInstituteforEnergyStudiesoranyofitsMembers.16.Methaneemissions:theincreasingimportanceofmeasurement,reporting,andverificationThepressureoncompaniesandgovernmentstoreducegreenhousegas(GHG)emissionsisincreasing.Declarationstomeetcarbonneutralornetzeroemissionstargetsforyearsordecadesaheadremainimportant,butdemonstratingthatthesearemorethanaspirationsonpaperwillrequiresubstantiallymoredetailofongoingprogress.Thisrequiresmeasurement,reporting,andverification(MRV)ofallGHGemissions,withtheemphasisswitchingtomethane.Thepasttwoyearshaveseenabroadrecognitionbygovernmentsthatmethaneaccountsfornearly20percentofglobalGHGemissions(thesecondmostimportantgasaftercarbondioxide)andreductionoftheseemissionsfromtheenergysectorcanbeachievedmorerapidlyandatalowercostthanfromanyothersource,resultinginsignificanttemperaturereductionbymid-century.ThesigningoftheGlobalMethanePledgeatCOP26markedakeyturningpointinnationalandcorporaterecognitionoftheproblem,anddiscussionsatCOP27continuedthemomentum.2023willbeanotherkeyyearasplanstoaccuratelyaccountfor,andreduce,emissionsarefurthermaturedaheadofCOP28.EUandUSLegislationandRegulationIn2021,theEuropeanCommissionpublisheditsproposedregulationonmethaneemissionsreductionintheenergysector.TheobligationtoprovideemissionsinformationwillbeonEUimporterswhoarerequiredtoverifytheextenttowhichtheircontractualcounterpartsareundertakingmeasurementconsistentwithUNFCCCandOGMPstandards.39Theinference(butnotaclearstatement)isthatifimportersareunabletoobtainthisinformation,theCommissionwilldesignateastandardforsuchimports.Oilandgas(andeventuallyalsocoal)importswhichfailtomeetthisstandardwouldbesubjecttoataxorfee.In2022,theUSInflationReductionActincludedaspecificmethanefeerisingfromUSD900/tonnetoUSD1500/tonnefrom2024-26,appliedtodomesticpetroleumandnaturalgassupplychainfunctions(compression,transmissionandstorage,processing,LNG(export,import,andstorage),gatheringandboosting)inexcessofaspecifiedpercentageofemissions.TheActrequiresreportingofemissionstomovefromengineering-basedestimatestoempiricalmeasurementsfrom2026.InternationalInitiativesThepastdecadehasseenaplethoraofintergovernmentalandindustryinitiativesbutitisunclearhowtheyhelptomonitorprogressinrelationtonationalandcorporatecommitments.40ThehighprofileGlobalMethanePledge(GMP),signedatCOP26in2021is`acollectiveefforttoreduceglobalmethaneemissionsbyatleast30percentfrom2020levelsby2030whichcouldeliminateover0.2degreesCwarmingby2050’.41AyearlateratCOP27aUS/EUpressreleasestated:42‘CountryendorsementsoftheGMPhavegrownfromjustover100lastyearto150,morethan50countrieshavedevelopednationalmethaneactionplansorareintheprocessofdoingso,substantialnewfinancialresourcesarebeingdirectedtomethaneaction,andpartnershavelaunched“pathways”ofpoliciesandinitiativestodrivemethanereductionsinkeymethane-emittingsectors–aGMPEnergyPathwaylaunchedattheJune202239UnitedNationalFrameworkConventiononClimateChangeandOilandGasMethanePartnershipVersion2.040TheGlobalMethanePledge,theInternationalMethaneEmissionsObservatory,theMethaneGuidingPrinciples,OilandGasClimateInitiative,GlobalMethaneInitiative,OneFuture,CollaboratorytoAdvanceMethaneScience,OilandGasMethanePartnership,andmostrecentlytheUSNationalPetroleumCouncilstudyonnaturalgasGreenhouseGases,andtheJointDeclarationfromEnergyImportersandExportersonReducingGreenhouseGasEmissionsfromFossilFuels.41FormoredetailsofthePledgesee:JonathanStern,`TheGlobalMethanePledge:AnUrgentNeedForProgressAtCop27’,OxfordEnergyForum,Issue133,October2022,pp.63-65.42GlobalMethanePledge:FromMomenttoMomentum,https://www.state.gov/global-methane-pledge-from-moment-to-momentum/33Thecontentsofthispaperaretheauthors’soleresponsibility.TheydonotnecessarilyrepresenttheviewsoftheOxfordInstituteforEnergyStudiesoranyofitsMembers.MajorEconomiesForumonEnergyandClimateandaGMPFoodandAgriculturePathwayandGMPWastePathwaybothlaunchedtodayatCOP27.’Butdespitethesignificantincreaseinendorsements,Azerbaijan,China,India,Iran,Kazakhstan,Russia,SouthAfrica,TurkmenistanandVenezuela–extremelyimportantfossilfuelproducing,consuming,andexportingcountries–remainabsentfromthePledge.Perhapsevenmoreimportantistheabsenceofdetailedcommitmentsastohowsignatoriesplantoachievethe30percentgoal.Workontheseissueswillbeapriorityin2023,andwillbereviewedagainatCOP28aspartoftheGlobalStocktake.Table1:CanadianMethaneEmissionsReductionPlan(megatonnesofCO2e)Source:EnvironmentandClimateChangeCanada,FasterandFurther:Canada’sMethaneStrategy,September2022,Table1,p.13.AnotableexceptionistheCanadianmethaneemissionsreductionplan(above)whichhasthevirtueofprovidingdetailedtargetsbyyearandbysectorsothatprogresscanbetracked.Italsoshowsthatmorethan60percentofthereductionswillcomefromtheoilandgassectorwithalmostalltherestfromwaste.Therewillbeaslightdeclineinbuildingsandagriculture(thelatterpeakinginmid-decade)whileelectricity,heavyindustry,andtransportationemissionsareexpectedtoincreaseslightly.Thisauthorhasnotbeenabletolocateanysimilarlydetailedofficialstatementofhowothergovernmentsintendtomeettheirpledge,43butitistobehopedthat2023willseethepublicationofsimilardocumentsthatwillhelptocrystallisetheimplementationoftheGlobalMethanePledge.Challengesfor2023Overall,encouraginggovernmentsandcompaniestoimprovethetransparencyofmeasurement,reporting,andverificationofemissionstodemonstrateprogresstowardsreductioncommitmentswillbeonemajorchallengefor2023.Anotherwillbetopersuademorenon-OECDgovernmentsandtheirenergycompaniestojoinwhatarenotyet,butneedtobecome,`global’initiatives.COP28intheUAEinNovemberwillbethenextformalgatheringwhereprogressisreviewedbutbeforethenitishopedthatJohnKerry,theUSclimateenvoy,willcontinuethelobbyingworkthatheundertookatCOP27tobringmorecountriesonboard.JonathanStern(jonathan.stern@oxfordenergy.org)43AnNGOproposalfortheUKinvolvessignificantemissionreductionsinagricultureandwasteaswellasenergy.GreenAlliance,TheGlobalMethanePledge:howtheUKcanmeetitscommitment,November2022,p.19.34Thecontentsofthispaperaretheauthors’soleresponsibility.TheydonotnecessarilyrepresenttheviewsoftheOxfordInstituteforEnergyStudiesoranyofitsMembers.17.AsChinareopens,expectvolatilityIn2023,Chinaisheadingintoaperiodofespeciallyhighuncertainty,whichwillbereflectedinoverallenergyconsumptiongrowth.Thishas,infact,beenthecasesincethebeginningofthepandemic:in1Q2020,electricityconsumptionfell6.5percentyear-on-yearandGDPdropped6.8percentyear-on-year.Then,in2021electricityconsumptionshotupby10.1percentyear-on-year,contributingtopowershortages.44FollowingChina’ssuddenlooseningofCovidrestrictionsinearlyDecember2022,infectionsarelikelytoweighheavilyoneconomicactivityandpowerdemandinthefirstfewmonthsoftheyear,followedbyarecoveryinthesecondhalf.Whilethetimingandstrengthofthereboundremainanopenquestion,theeconomicexpansionislikelytospurenergydemandfromboththeconsumersectorand,perhapsmoresignificantly,frominfrastructuresectorsthatthegovernmenttypicallyturnstoforeconomicstimulus.ThiscouldleadtoareturnofthepowershortagesthathaveplaguedChinaoverthepasttwoyears.Whilepricecontrolsandadministrativemandatesforproductionandrestockinghaveboostedphysicalcoalsupplies,China’srecentshortageofhydrocouldbecomeaconstraintin2023.Beijinghasbeenemphasisingsuppliesinpolicydocuments,45includingintheNationalEnergyAdministration’s(NEA)2023guidance.46ThefirstitemontheNEA’sagendafor2023is,‘improvingtheabilitytoguaranteeenergyproduction.’47Alreadyin2022,coalproductioncapacityincreasedbyastaggering8percentyear-on-yeareventhoughdemandgrowthwasslower.Coal-firedpowercapacityadditionshavealsoaccelerated,reaching8.9GWin1H2021,andareported165GWareinthepipelinecurrently,ahugenumberevenifonlyafractionofthatgetsbuilt.48Theguidancefor2023includespromotingtheconstructionofintelligentcoalminesaswellasenhancingsafeandresilientincreasesincoalproduction.ThegovernmentisalsoreportedlymullingliftingitsinformalbanonAustraliancoalimports.49Whilecoalisclearlyameansofensuringsupplysecurity,renewableinstallationshavebeenrisingstrongly.Inthatvein,solarandwindadditionsinthefirst11monthsoftheyearreached65.7GWand22.5GW,respectively,outofaplanned120GWin2022.TheNEAaimstoadd160GWofwindandsolarin2023.50Meanwhile,thegovernmentcontinuestoemphasizemarketreformsinprinciple,whileinpracticelimitingthepotentialforanyvolatilitybysettinganewstandardoflockingin90percentofindustrialpowerdemandviamonthlyandannualcontracts,limitingtheroleofanyspotmarkets.51TheNEAguidancealsoechoesthegovernment’sbroaderstimuluseffortswithafocusonphysicalinfrastructure,specificallymorepipelines,longdistancetransmissionlines,andelectricvehicles.China’selectricvehiclemarketandbatterymanufacturingsectorsarepoisedformoregrowth.In2022,44ElectricitydemandgrowthislooselycorrelatedwithGDPgrowth;thetwosometimesdivergeduringperiodsofeconomicdownturnsandrecoveries.SeeBoqiangLin,YaoWang,“InconsistencyofeconomicgrowthandelectricityconsumptioninChina:ApanelVARapproach”2019,https://www.sciencedirect.com/science/article/abs/pii/S095965261931497045MichalMeidan,AndersHove,“China’s20thPartyCongressandenergy:Thegood,thebadandtheunknown”,OIESComment,November2022,https://www.oxfordenergy.org/publications/chinas-20th-party-congress-and-energy-the-good-the-bad-and-the-unknown/46NationalEnergyAdministration“StudyandImplementtheSpiritofthe20thCCPCongress;ProvideStrongEnergyGuaranteesfortheConstructionofaSocialismModernCountry;the2023NationalEnergyWorkConferencewashelpinBeijing”;30December2023,http://www.nea.gov.cn/2022-12/30/c_1310687421.htm472023年能源工作安排来了，风光累计装机将达9.2亿千瓦https://m.jiemian.com/article/8669261.html48“Chinaisdoublingdownoncoaldespiteitsgreenambitions”,JapanTimes,31October2022,https://www.japantimes.co.jp/news/2022/10/31/business/china-doubles-down-coal/49“ChinaconsidersliftingbanonAustraliancoalimports.”Argus,4January202350风光新增装机规模将达1.6亿千瓦！明年能源工作划重点,https://news.cnstock.com/news,bwkx-202212-5000072.htm51NDRC,国家发展改革委国家能源局关于做好2023年电力中长期合同签订履约工作的通知,https://www.ndrc.gov.cn/xxgk/zcfb/tz/202212/t20221222_1343756.html35Thecontentsofthispaperaretheauthors’soleresponsibility.TheydonotnecessarilyrepresenttheviewsoftheOxfordInstituteforEnergyStudiesoranyofitsMembers.China’snewenergyvehicle(NEV52)marketreachednearly7millionsales,thesecondconsecutiveyearthatChina’sEVmarkethasdoubled.EvenasCovidlockdownschilledconsumeractivity,NEVscapturedover35percentofthepassengervehiclemarketinNovember2022,upfromjustover5percentonly24monthsago.Chinaisontracktovastlyexceeditsofficial2025NEVmarketsharetargetof20percent,potentiallyreaching10millionEVsalesin2023,nearlyhalfofthepassengervehiclemarket.In2023,thegovernmentcouldraisetheoutdatedNEVtarget,settargetsforfleetelectrification,andintroducenewEVincentivesintotheheavy-dutytruckingfield.Onclimate,Chinaispoisedtotakeactiononmethane.,AjointworkinggrouponmethaneemissionswaspartoftheUS-ChinajointdeclarationatCOP26inGlasgow,whileatCOP27,Chinaannouncednewstrategicplanoncontrollingmethane.Actiononmethaneisimportantbecauseoftheimpactonclimate-theUNFCCCestimatesimplementingtheglobalpledgeonmethanewouldprevent0.3degreesCofwarmingby2050-butalsoduetoitsimpactontheenergysector.TheIEAestimatesChinaisresponsiblefor16percentofglobalmethaneemissions,and48percentofglobalmethaneemissionsfromenergy.53China’senergy-relatedemissionsstandat28milliontonnesperyear,accordingtotheIEA,andthemajorityofChina’smethaneemissionscomefromcoal,includingbothventedgasesandfugitivegasemissions.Methaneemissionsfromtheoilandgasindustryaccountfor3milliontonnesannually.China’snationaloilcompanieshavepledgedsignificantreductionsaspartoftheircarbonneutralitycommitments.Itwillbeimportanttoseeifthenationalmethanereductionplanisindeedissued,andifcompaniesandprovincesissueadditionalactionplans.Theextenttowhichprovincialofficialsandcoalminingcompanieswillrampupmonitoringandregulatingmethaneemissionsisalsoanopenquestion.Policiesmayfocusonshuttingdownorconsolidatingsmallerminingoperationswithbiggerplayerswhichhavetheresourcestodealwithmethane.Boththeissuingandimplementationofplansin2023willbeimportanttowatchasanindicatorofhowChinathinksaboutthecompatibilityofeconomicgrowthandthelowcarbontransition.AndersHove(anders.hove@oxfordenergy.org)MichalMeidan(michal.meidan@oxfordenergy.org)52TheNEVcategoryincludesmainlypureEVsbutalsoplug-inhybridsandasmallnumberoffuelcellvehicles,thelattermainlybusesandtrucks53https://www.iea.org/reports/global-methane-tracker-2022/methane-and-climate-change36Thecontentsofthispaperaretheauthors’soleresponsibility.TheydonotnecessarilyrepresenttheviewsoftheOxfordInstituteforEnergyStudiesoranyofitsMembers.18.ElectricitywholesalemarketdesigninEuropeOneofthekeyenergypolicyissuesin2023isthefuturedesignoftheEuropeanelectricitymarket.ThisisalreadyanimportanttopicinEurope,withcountriestakingquitedifferentpositionsonwhetherandhowtoreformthecurrent‘marginalist’marketdesign,andonwhetherthesereformsaredesignedsolelytoconfrontthecurrentemergencyorshouldbepermanent.Thedebatecouldleadeithertoastrengtheningofcompetitivemarkets,ortogrowingrelianceongovernmentsandthedemiseofliberalisation.TherecoveryfromCovidduring2021andtheninparticulartheRussia-UkrainewarhaveledtounprecedentedincreasesinEuropeanpricesofnaturalgasandelectricity.Otherfactors,includingunexpectedlylowwind,hydro,andnucleargeneration,havealsocontributedtothehighelectricityprices.Inresponsetothese,beforetheRussianinvasionofUkraine,mostEuropeangovernmentsfollowedEuropeanCommissionadvice,whichwastoreducetaxesandleviesandtomakefinancialtransferstoconsumers.Thiswasconsideredsufficientbecause,inmostEuropeancountries,retailpriceswerefixedforlongperiodsandtheexpectation(orhope)wasthatwholesalepriceswouldreturntonormalbeforetoolong.However,therewasanimportantexception.InSeptember2021,Spainwasthefirsttotakemeasurestocontrolwholesaleelectricityprices,introducingtheequivalentofawindfallprofittaxrelatedtorisinggasprices.Althoughthismeasurewaslaterwatereddowntoreflectthefactthatmostenergywassoldbycontractsthatwerewellbelowwholesaleprices,Spainhadsetaprecedent.TheSpanishgovernmenthadactedquicklybecause10millionconsumerswereonaregulateddefaulttariffthatwasdirectlyindexedtowholesalespotprices;andbecausethattariffwastheelectricitycomponentusedtodefinethenationalinflationindex.AftertheRussianinvasionofUkraine,thepressuretointerveneinEuropeanwholesalemarketsgrew.TheEUformallyapprovedwhatwascalledtheIberianException,theaimofwhichwastodecouplerisingwholesalegaspricesfromelectricitypricesinSpainandPortugal.Othercountries,notablyFrance,Italy,Greece,andRomaniaalsodecidedtointervene.Asthecrisishascontinued,twokeyquestionsstillfaceEuropeanpolicymakersandrequiresomeanswersin2023.Theyare:1)whetherandhowgovernmentsshouldinterveneinwholesaleelectricitymarketsduringthecrisis;and2)whetheranewmarketdesignisrequiredforthelongertermtodelivernetzeroemissions.Whereasthefirstofthesequestionsreflectsalarmoververyhighgasandelectricityprices,thesecondrespondstoarealisticconcernthatfuturewholesaleelectricitypriceswillbetoolowanduncertaintojustifytheneededinvestmentinrenewablesandflexibility.Thetwoquestionsoverlap.Acentralissueforbothisthatthecurrent‘marginalist’marketdesignis‘payasclear’,soallelectricityistradedinday-aheadmarketsatasinglewholesalepricethatreflectstheshort-runmarginalcost(SRMC)oftheresourceneededtoclearthemarketinanyhour.FormanyEuropeancountriesthatresourceisfrequentlynaturalgas,orhydro,whoseopportunitycostisusuallythecostofgas.However,asintermittentrenewablespenetratedeeplyandstarttosetwholesalemarketelectricityprices,thesepricesareexpectedtobezeroornearzerowithincreasingfrequency,potentiallyundermininginvestmentinfurtherrenewablesandmoreflexibleresources.Therearemanyotherproblemswiththecurrentmarketdesign,includingpoorlocationalsignals,lackoflong-terminvestmentsignals,andinadequateparticipationofdemand-sideresources.Thequestionfacedbypolicymakerstoaddressthelonger-termchallengeiswhethertointroducegradualreformsormakesignificantstructuralchangestothedesignofthemarket.ThepoliticaldebateintheEUhassofarconcentratedonshort-termdecouplingofgasfromelectricitytolowerprices,andonproposalsforgradualreformtotheexistingmarketdesign.However,justbeforeChristmas2022,theEuropeanCommissionleakeda‘non-paper’onelectricitymarketdesign.Itmentionsexplicitlytheideaofpayingeachgenerationtechnologybyreferencetoitscosts.Thisleaves37Thecontentsofthispaperaretheauthors’soleresponsibility.TheydonotnecessarilyrepresenttheviewsoftheOxfordInstituteforEnergyStudiesoranyofitsMembers.openmanydesignoptions,butessentiallyimpliesamoveawayfromthemarginalistmarketdesign.Itremainstobeseenwhetherthisideawillprosper.Inthenon-paper,theCommissionsaysitwilllaunchapublicconsultationonmarketdesignandwillpublishthefindingsaswellasastaffworkingdocumentassessingoptions‘earlyin2023’.AnystructuralreformalongtheselineswillbeverydifficulttoagreebecausethesupportersofthecurrentsystemincludekeyplayerssuchasGermany,theNetherlands,Austria,andtheNordiccountries.However,failuretoreachanagreementonthefuturemarketdesignwillundermineinvestorconfidence,whichisalreadydentedduetothemultipleinterventionsofthepasteighteenmonths.Bycontrast,theUKhasalreadyinitiatedaseriousdebateabouttheneedforlongtermstructuralchange.TheReviewofElectricityMarketArrangements(REMA)waspublishedinJuly2022,launchingapublicconsultationonthedesignofwholesaleelectricitymarketsrequiredtodelivernetzeroemissionsby2035.REMAisalsoinfluencingthedebateaboutcrisismanagement,especiallywithrespecttodecouplingofgasfromelectricityprices.TheUKhasmovedfasterthantheEUonthiscriticalstructuralissueprobablybecauseofthedeeperdecarbonizationoccurringinthecountrybutalsobecauseofitslimitedinterconnectionwithothersystems.IntheUKandtheEU,themarketreformdebatewillfocusonthefuturerolesofgovernmentandmarkets.Somegovernments,notablyinsouthernEurope,viewthedebateasanopportunitytostrengthengovernmentcontroloverconsumerprices,resourcemix,supplysecurity,andelectricitycompanyprofitability.Others,notablyinnorthernEurope,seektomaintainthemarginalistmarketdesignandtorelyonmarketsratherthangovernmentstodriveinvestment,pricingandotherkeydecisions.ThewriterofthispieceandOIEScolleagueMalcolmKeayhavearguedforathirdway,TheDecarbonisedElectricitySystemoftheFuture:TheTwoMarketApproach,whichreliesonanewversionofcompetitivemarketsdesignedfor21stcenturyeconomicsandtechnologies,andwhichreflectsconsumerpreferences.In2023wewillstarttoseethedirectionthatEUandUKgovernmentsaremindedtoadoptforthefuturedesignofelectricitymarkets.DavidRobinson(david.robinson@oxfordenergy.org)38Thecontentsofthispaperaretheauthors’soleresponsibility.TheydonotnecessarilyrepresenttheviewsoftheOxfordInstituteforEnergyStudiesoranyofitsMembers.19.Nuclearpowerin2023:the‘nuclearrenaissance’resurrected?Twentyyearsago,therewasalotoftalkamongsupportersofcivilnuclearpowerofa‘nuclearrenaissance’.Theirargumentwasthatnuclearpowerprovidedenergysecuritycombinedwithlowcarbondioxideemissions.Thestrengthofnuclear’scasesteadilydeclinedasthecostsofnewplantsroseandtheircommercialviabilityincompetitivemarketsdeclined.The2011FukushimaDaiichinuclearaccidentinJapanappeared,atthetime,tothenprovidethedeathknellforcivilnuclearpower.However,thelastfewyearshaveseenthisformofenergygraduallyreturntofavourasthechallengeofclimatechangemitigationincreasesinseverity.EmblematicofthiswasthevoteintheEuropeanParliamentinJuly2022tosupporttheCommission’sproposaltoclassifynuclearpowerasgreenenergy.Finally,theconflictinUkraineanditseffectoninternationalenergymarketshashighlightedtheimportanceofenergysecurity.Thus,in2022wesawanumberofcountriesreversingoratleastpostponingdecisionstophaseoutnuclearpowerand,insomecases,toconstructnewreactors.Meanwhile,severalnationshavebeenembarkingontheirfirstnuclearpowerprogrammes,mostlytoaddressenergysupplyshortages.Theyears2022and2023maybeviewedinlateryearsasmarkingacriticalturningpointinthehistoryofnuclearpower.TheeffectofthewarinUkrainehasbeenparticularlystriking.InEurope,bothGermanyandBelgiumhavepostponedthephase-outoftheirnuclearfleet,sotheseplantswillstillbeoperatingin2023.Ofgreaterconsequencehavebeenthedecisionsofcountriesthatareheavilyreliantonnuclearpower.France’sPresidentMacronhasannouncedanambitiontobuild6(possibly14)newreactorsinthecomingyears.TheUKcontinuestoseekinvestorsinreactorsattwositesandissupportingthedevelopmentofsmallmodularreactors(SMRs).InnortheastAsia,theJapanesegovernmentdecidedinDecember2022thatnuclearenergyshouldremainattheheartofitspowersupplyfortheforeseeablefuturethroughacombinationoflifeextensionsandnewreactors.Likewise,thenewgovernmentinKoreahasreversedthedecisionofitspredecessortophaseoutnuclearpower.Instead,workwillcontinueonthosereactorscurrentlyunderconstruction,otherswillstartconstructionin2023,and4newreactorsareplanned.BothJapanandKoreahopetodeploynewtypesofreactor,bothSMRsandthoseusingadvancedtechnologies,so-calledGenerationIVreactors.With11reactorsunderconstruction,India’sgovernmentgavefinancialsanctionfor10newreactorsinDecember2022.Meanwhile,Chinawiththeworld’sthirdlargestfleetofreactorscontinueswithitsambitiousprogramme,having22reactorsunderconstructionandanother47planned.Russiaisalsoexpandingitslargefleet.Asidefromtheselargeractors,numerouscountriesareadding,planningtoaddorconsideringaddingtotheirexistingsmallfleetsofreactors(seeError!Referencesourcenotfound.).Table2:Nuclearreactorplans,bycountryCountryRecentlycompletedreactorsReactorsunderconstructionPlansforreactorsNewreactorsunderconsiderationEuropeFinlandOlkiluoto3Slovakia1CzechiaYesBulgariaYesHungaryYesRomaniaYesNetherlands239Thecontentsofthispaperaretheauthors’soleresponsibility.TheydonotnecessarilyrepresenttheviewsoftheOxfordInstituteforEnergyStudiesoranyofitsMembers.LatinAmericaBrazil1YesArgentina1YesSouthAsiaPakistan21Behindtheseestablishednuclearpowernationsisalongqueueofso-called‘newcomers’.Thesearecountriesinwhichthegovernmentsareatvariousstagesofconsidering,planningorbuildingtheirfirstcommercialnuclearreactors.Fiveofthesenewcomershavereactorsrecentlycompletedorunderconstruction.TheUAEhasthreereactorsofKoreandesignincommercialoperationandafourthunderconstruction.ThefourothercountriesarereliantonRussiandesignandsupport,namelyBelarus,Turkey,Bangladesh,andEgypt.PolandandthePhilippines,in2021and2022respectively,declaredfirmdecisionstoembarkonanuclearpowerprogramme,whilemostoftheremainingnewcomersarestilltomakeafirmdecision.SoutheastAsiaisaregionwherenuclearpowerisunderseriousconsideration.Indonesia,Malaysia,Vietnam,andThailandhavebuiltexpertiseinthefieldovermanyyearsandcouldlaunchanuclearpowerprogrammeatanytime.Vietnamisthecountrymostlikelytomakeafirmcommitmentinthenearfutureaspoliticalconditionsinthethreeothercountriesarelessfavourableforsuchafar-reachingdecision.In2022Singaporestatedpublicly,forthefirsttime,thatnuclearpowerwasanoptionforthecitystate,dependingontechnologicaldevelopments.Akeyunknownisthefutureofnewtechnologies.Twotypescanbedistinguished:SMRsbasedonconventionaltechnologies,andthosebasedonadvancedtechnologies.Severallong-establishednuclearpowercountriesarepursuingbothoptions.RussiawasthefirsttoputSMRsintocommercialoperation,thebargetransportableAkademikLomonosov1and2reactorsin2022.InChina,twohigh-temperature,gas-cooledreactorshaveundergonetestsandwillbereadyforcommercialoperationin2023.Thenextyearorsowillstarttorevealwhich,ifany,ofthemanydesignsbecomingavailablewillbeattractivetobuyers.Regardlessofwhichtechnologies,conventionalornew,aredeployed,theseambitionsandplanswillfacetwomainhurdles.Thefirstisthelongstandingchallengeofcost.Russiahasbeengenerousinitsfinancialsupporttothosepurchasingitsreactors.Theextenttowhichthiscancontinueisunclear.Mostothervendorsarelessgenerous.SMRsareintendedtoprovidethesolutiontothecostproblem,butthishasyettobedemonstrated.OnethingtowatchforistheapprovalofSMRdesignsbynationalnuclearregulators.In2022,theUSNuclearRegulatoryCommission(NRC)formallycertifiedthedesignofNuScale’sSMRforuseinthecountry,thefirstSMRtoreceiveNRCcertification.Alsolastyear,RollsRoycesubmitteditsSMRdesignforapprovalbytheUK’sOfficeforNuclearRegulation.Inaddition,companiesinCanada,Japan,SouthKorea,India,China,andRussiaareallworkingonSMRdesigns.Asecondchallengemayarisefromsupplychainfailures.Recentyearshavedemonstratedthevulnerabilitiesofsupplychainsfortechnologiesandrawmaterials.Thenuclearpowersectorhasaparticularproblemwithashortageofskilledmanpower.PhilipAndrews-Speed(philip.andrews-speed@oxfordenergy.org)40Thecontentsofthispaperaretheauthors’soleresponsibility.TheydonotnecessarilyrepresenttheviewsoftheOxfordInstituteforEnergyStudiesoranyofitsMembers.20.HowwilltheUSInflationReductionActaffecthydrogendevelopmentsin2023?Hydrogen(H2)willmakeanimportantcontributiontotheenergytransition,although,asOIEShasbeenarguingforsomeyears,itisnotthe‘silverbullet’thatsomewouldadvocate.54Toberelevanttoadecarbonisedenergysystem,hydrogenwillneedtotransitionfromitscurrenthighcarbonproductionmethods,mainlyusingnaturalgas,tolowercarbonalternatives,eitherbycapturingmostoftheCO2orbyelectrolysisusingrenewablepowergeneration.Since2020,manygovernmentsaroundtheworldhavesetincreasinglyambitioustargetsforproductionofcleanhydrogen55butithasbeenprovingdifficulttotranslatetheseboldambitionsintosignificantprojectsontheground.Indeed,intheOIESKeyThemesfor2022,publishedayearago,wehighlighted,basedondataintheIEAHydrogenDatabase,56thosesignificant(>100MW)hydrogenproductionprojectswhichwereclaiminganonstreamdatein2023/4,makingtheassumptionthatifsuchanonstreamdateweretoberealised,thevastmajoritywouldneedtotakeafinalinvestmentdecision(FID)in2022.Wenoted(basedonelectricalinputcapacity)projectstotalling5000MWinEurope,2000MWinAustralia,andaround1500MWeachintheAmericasandChina.ReviewingthelistofprojectsinthelatestupdatetotheIEAdatabase,wefindthatonlyone200MWproject(HollandHydrogen1electrolyserintheNetherlands)actuallytookFIDandstartedconstructionin2022andisnowshowinganonstreamdateof2025.200MWisasignificantstepupfrompreviouselectrolyserprojectsinEurope(andthereisjustonecomparablesizedprojectunderconstructioninChina),butisclearlyfarshortofthe10,000MWgloballyenvisagedjustoneyearpreviously.Thatsaid,thereweresomesignificantpolicydevelopmentsbothinEuropeandtheUSAin2022,leadingtoourkeythemefor2023totrackwhethertherewillbeashiftinfocusforcleanhydrogendevelopmentstowardstheUSA.Thekeypolicydevelopmentstoconsiderare:•TheUSA’sInflationReductionAct(IRA)signedintolawinAugust2022,which,despiteitssomewhatmisleadingnamehasbeenbilledasthe‘largestclimatelegislationinUShistory’57•TheEuropeanUnion’sREPowerEUdocuments,primarilyintendedtoreduceEuropeanrelianceonRussiannaturalgasfollowingRussia’sinvasionofUkraineinFebruary2022,whichsignificantlyincreasedtheEuropeanambitionforlow-carbonhydrogenby2030.58TheIRAcontainssomeveryspecificandpotentiallyveryattractiveincentivesforproductionoflowcarbonhydrogen,bothusingelectrolysisandwithcarboncaptureandstorage.Thekey45V59ProductionTaxCredits(PTC)andInvestmentTaxCredits(ITC)areshowninError!Referencesourcenotfound..Theprecisemechanismforcalculatingcarbonintensityisstilltobedetermined,butisenvisagedtousethewell-establishedUSGREETmodelandwillalsoincludeupstreamemissions(includingmethaneemissionsinthenaturalgaschain).ItisthereforelikelythatthehighestUSD3.00/kgPTCwillonlyapplytoelectrolytichydrogenproducedusingpurelyrenewableelectricity,sincegrid-basedelectricitywouldhavetoohighacarbonintensity.Atverylowcapacityfactors,itmaybemoreattractivetousetheITC,butitisgenerallyassumedthatmostprojectswillchoosetousethePTC.TheIRAalsocontaineda‘45Q’taxcreditforcarboncaptureandstorageofUSD85/tonneCO2stored.54https://a9w7k6q9.stackpathcdn.com/wpcms/wp-content/uploads/2020/03/Insight-66-Hydrogen-and-Decarbonisation-of-Gas.pdf55Weuse‘cleanhydrogen’asacollectivewaytodescribebothhydrogenfromfossilfuelswithCCS(sometimescalled‘blue’hydrogen”)andhydrogenfromelectrolysiswithrenewablepower(sometimescalled‘electrolytic’or‘green’hydrogen).56https://www.iea.org/data-and-statistics/data-product/hydrogen-projects-database57https://www.whitehouse.gov/cleanenergy/inflation-reduction-act-guidebook/#:~:text=On%20August%2016%2C%202022%2C%20President,change%20in%20the%20nation%27s%20history.58ForamoredetailedanalysisofthehydrogenprovisionsofREPowerEUseehttps://a9w7k6q9.stackpathcdn.com/wpcms/wp-content/uploads/2022/07/RePowerEU-Can-Renewable-Gas-help-reduce-Russian-gas-imports-by-2030.pdf59‘45V’and‘45Q’refertotherelevantsectionsoftheUStaxlegislation,theinternalrevenuecode41Thecontentsofthispaperaretheauthors’soleresponsibility.TheydonotnecessarilyrepresenttheviewsoftheOxfordInstituteforEnergyStudiesoranyofitsMembers.Assuming10kgCO2/kgH2(asistypicalforproductionfromnaturalgas),thisisapproximatelyequivalenttoUSD0.85/kgH2,somaybemoreattractivethan45Vforabluehydrogenprojectdeveloper.Table3:USInflationReductionActhydrogentaxcreditsCarbonIntensity(kgCO2/kgH2)HydrogenProductionTaxCredit($/kgH2)HydrogenInvestmentTaxCredit(%)0-0.45$3.00300.45-1.5$1.00101.5-2.5$0.757.52.5–4$0.606TheUSD3/kgPTCappearsveryattractive,andbysomeanalysescouldreducetheeffectivecostofgreenhydrogentoaroundzero,60providingastrongincentiveforexistinghydrogenproducers(e.g.inrefineriesandpetrochemicalplants)toswitchtogreenhydrogen.Bycontrast,whileREPowerEUincludedasignificantstepupinthetargetforhydrogenproductionby2030to10milliontonnesperyearwithintheEUand10milliontonnesofimports,itwasmuchlessclearonhowproducerswouldbeincentivisedtodeliverthis.Someinitiativeshavebeenannounced,includingtheGermanH2Globaltenderforimportsofammonia,EUR3bntobemadeavailableviatheEuropeanHydrogenBankandinclusionofhydrogenwithin‘ImportantProjectsofCommonEuropeanInterest’(IPCEI),butthesedonotyetformarobustbasisforaprojecttotakeFID.IntheUK,progressisbeingmadeondevelopingContractsforDifferenceaspartoftheUKHydrogenBusinessmodel,andthismayproveaconceptwhichtheEUcouldbuildon.Atthisstage,therefore,whiletherearealwaysmanystepsforaspecificprojecttoreachFID,itappearsthattheframeworkintheUSAprovidesmuchstrongerincentivestopromoteinvestmentthanthemorecomplexandlessdevelopedframeworkinEurope.Anecdotalevidencefromvariousconversations,andsomepressreleases61indicatesthatdemandforelectrolysersisbeingdrawntotheUSA.Itwillbeinstructivethrough2023totrackwhetherthistrendcontinues,theextentandlocationofactualFIDsandwhetherEurope,aswellasotherpartsoftheworld,includingChina,respondtothestronghydrogenincentivesintheInflationReductionAct.MartinLambert(martin.lambert@oxfordenergy.org)60Seeforexample:https://www.rff.org/publications/reports/incentives-for-clean-hydrogen-production-in-the-inflation-reduction-act/61Seeforexample:https://www.hydrogeninsight.com/electrolysers/nel-wins-56m-electrolyser-order-for-290mw-us-green-hydrogen-project-helped-along-by-new-h2-tax-credits/2-1-1335821
查看更多

1、当您付费下载文档后，您只拥有了使用权限，并不意味着购买了版权，文档只能用于自身使用，不得用于其他商业用途（如 [转卖]进行直接盈利或[编辑后售卖]进行间接盈利）。
2、本站所有内容均由合作方或网友上传，本站不对文档的完整性、权威性及其观点立场正确性做任何保证或承诺！文档内容仅供研究参考，付费前请自行鉴别。
3、如文档内容存在违规，或者侵犯商业秘密、侵犯著作权等，请点击“违规举报”。

碎片内容

碳中和的最新文档
VIP
使绿色金融分类标准与“双碳目标”保持一致（英文版）
免费
0下载
VIP
评估中国水泥行业的净零排放路径（英文版）
免费
0下载
VIP
韩国2050年航运净零排放路径研究（英文版）
免费
0下载
VIP
国金证券：氢能&燃料电池行业研究：M1-10 FCV上险达5705辆，电解槽招标超GW
免费
0下载
VIP
边境碳调整机制及其对越南的影响（英文版）
免费
0下载
VIP
NDC、NCQG 和转型融资：释放流量，实现净零未来（英文版）
免费
0下载
VIP
2024年可持续与气候趋势展望
免费
0下载
VIP
2024年第3季度全球ESG监管政策发展报告
免费
0下载
VIP
风电、光伏项目前期及建设手续办理流程汇编
免费
0下载
VIP
李 政：碳达峰碳中和与能源转型
免费
1下载
碳中和
已认证
内容提供者

碳中和

收藏店铺 进入空间
月度热门下载

阅读排行

最新文章
热门标签
# 招标# 政策# 证券# 中标# 中国# 关于# 行业# 绿色# 能源# 排放# 报告# 2023# 发展# 储能# 系统# 碳达# 新能源# 项目# 中和# 低碳
确认删除?
取消确定
回到顶部
微信客服
  • 管理员微信
QQ客服
  • QQ客服点击这里给我发消息
客服邮箱