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29th Feb 2024

New EU rules for energy-project funding to keep fossil gas

  • According to critics, the lack of focus on renewable hydrogen 'serves the gas industry as an excuse to keep on expanding gas infrastructure subsidised with public money' (Photo: European Parliament)

The European Commission is expected to unveil on Tuesday (15 December) a reform of EU rules for selecting energy infrastructure projects for financial support - with an increased focus on hydrogen.

However, green groups have already slammed the proposal for not explicitly excluding fossil-gas subsidies - arguing that Europe does not need more gas infrastructure to achieve climate neutrality.

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In the EU, fossil gas is already responsible for more emissions than coal.

The revision of the TEN-E regulation is aimed at aligning a key piece of energy policy with the Green Deal, but also at accelerating procedures for those energy cross-border projects labelled as so-called "Projects of Common Interest" (PCI).

The current PCI list made it possible for 55 fossil-gas projects to receive public funds through the European Investment Bank (EIB).

These include five liquified natural gas (LNG) projects, five gas storage sites and several pipeline projects such as the controversial EastMed pipeline, designed to link Israel and Cyprus to Greece.

Following the EIB's decision last year to phase out financing for all fossil fuels, the TEN-E regulation has been dogged by controversy, since the system has funded up to €4bn of new gas infrastructure in Europe without fully considering the associated climate risks.

Earlier this year, the European Ombudsman said that "given the EU's objectives concerning climate change and sustainability, it is regrettable that gas projects were included on previous PCI lists, without having their sustainability properly assessed".

In the reform of the TEN-E regulation, a draft version of which was obtained by EUobserver, the EU executive will remove all direct support for fossil-gas projects.

But it will continue expanding gas infrastructure by funding hydrogen, smart gas grids and electrolysers - without explicitly ruling out fossil gas.

"This means that the commission will continue subsidising fossil-gas projects instead of redirecting public funds into the 'no-regret' solutions which are energy efficiency and direct electrification with renewables," said Esther Bollendorff, coordinator at NGO Climate Action Network.

By 2030, total investment needed in hydrogen electrolysers is estimated between €24 to €42bn, while €65bn will be needed for hydrogen transport, distribution and storage.

'Grey' hydrogen

Yet, where the hydrogen originates from makes a difference. Experts differentiate between 'grey', 'blue' and 'green' hydrogen.

Grey hydrogen comes from natural gas and still generates significant carbon emissions, while blue hydrogen production relies on controversial technologies that can capture and store carbon emissions (CCS).

The cleanest version of all is green hydrogen as it is generated by renewable electricity without producing emissions - although this option is also the most expensive at the moment.

However, currently more than 90 percent of hydrogen is produced with fossil fuels, specifically natural gas.

EU ambassadors adopted on Friday a common position on Europe's hydrogen strategy, calling on the commission to support the development of hydrogen grids in the upcoming revision of the TEN-E regulation.

So far, the draft proposal foresees the development of at least five hydrogen projects by 2026.

In the conclusions, the European Council emphasised the need to boost renewable hydrogen over fossil hydrogen and to invest in local hydrogen grids.

EU ambassadors also referred to 'blue' hydrogen as "a solution temporarily complementing the renewable hydrogen production for scaling up the hydrogen market".

However, according to Bollendorff, "the narrative of gas being needed as a transition fuel, with blue hydrogen required in the first phase while making renewable hydrogen fit for the market, serves the gas industry as an excuse to keep on expanding gas infrastructure subsidised with public money."

EU lawmakers and EU energy ministers now have to agree their separate positions on the new TEN-E rules by next summer before entering negotiations to finalise the law.

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