The European Union Council has recently adopted a regulation and directive aimed at establishing common internal market rules for renewable and natural gases, including hydrogen.
The newly adopted rules are designed to facilitate the transition to renewable and low-carbon gases, with a particular focus on hydrogen. They set out comprehensive regulations for the natural gas market and lay the groundwork for the future hydrogen market, including infrastructure development. Key provisions include integrated and transparent network planning, a 10-year EU network development plan, and a permanent demand aggregation platform.
The principle of ‘energy efficiency first’ underpins the network planning, which aims to ensure a forward-looking approach in developing both gas and hydrogen networks across the EU.
Transition to Renewable Gas: One of the critical aspects of the legislation is the phase-out of fossil fuels. Long-term contracts for fossil gas will be prohibited from 2049 onwards. The new rules also promote the integration of renewable and low-carbon gases, particularly in regions that are coal and carbon-intensive.
When compared to global standards, the EU’s regulatory framework appears ambitious. For instance, the United States has made significant strides in hydrogen development through initiatives like the Department of Energy’s Hydrogen Shot, aiming to reduce the cost of clean hydrogen by 80% to $1 per kilogram within a decade. The EU’s plan, focusing on integrated network planning and market incentives, complements these efforts but with a broader scope encompassing both gas and hydrogen markets.
The EU’s directive emphasizes infrastructure development and market incentives. However, similar initiatives globally, such as Japan’s Basic Hydrogen Strategy, which aims to establish an international hydrogen supply chain, highlight the importance of early and substantial investment. The EU’s phased approach may require accelerated investment and clearer timelines to match the pace of hydrogen infrastructure development seen in leading countries.
The EU’s approach includes tariff discounts and incentives to facilitate market integration for renewable gases and hydrogen. This is particularly important for nascent markets. However, the success of these incentives will depend on their implementation and the response from market participants.
The new rules also address energy poverty, providing protections for vulnerable customers, especially in remote areas. Measures such as protection from disconnections and appointing suppliers of last resort aim to ensure continuity of supply. These provisions are critical in ensuring a just transition but will require effective enforcement at the national level.
