A long-simmering debate about the future of natural gas has been forced to a head in Europe this month, as the E.U. considers classifying some projects involving the fossil fuel as sustainable investments in official advice for the private sector due to be published by the end of January.
Burning natural gas produces carbon dioxide—but around 50% less than burning coal. The E.U. gets 22% of its energy from natural gas, and to meet its ambitious climate targets, the European Commission says it needs to cut use of the fuel by 37% by 2030. Meanwhile the International Energy Agency, a Paris-based intergovernmental organization, says the world needs to stop all investment in new gas and oil projects from 2021 onwards in order to keep on track to reach net zero emissions by 2050.
So it surprised many when, on Dec. 31, a draft version of the E.U.’s green energy taxonomy—a long-awaited list of investments the bloc considers sustainable for the planet—said that natural gas projects should count as green under certain conditions. (Nuclear energy, which does not emit greenhouse gases but carries other environmental risks, also got a controversial inclusion).
On. Jan 12, a coalition of influential investors including BlackRock, Vanguard and most of the world’s largest asset managers sent an open letter to E.U. representatives urging them to rethink the inclusion of natural gas in the taxonomy. “It is our view that the proposals in the [draft] would seriously compromise Europe’s status as a global leader in sustainable finance, potentially triggering a ‘race to the bottom’,” the Institutional Investors Group on Climate Change wrote, “which could dilute the level of climate ambition within emerging jurisdictional taxonomies.”
With the private sector trying to overhaul its spending to meet a deluge of environmental pledges made in recent years, the goal of the taxonomy is to guide money to the right places and hasten the energy transition.
The taxonomy, a technical document, has become a political battleground for warring visions between member states over the future of natural gas. One side—including many Central and Eastern European countries and Italy—argues that Europe needs to invest more in natural gas as a “bridge fuel” from even-dirtier coal and oil to a fully clean energy future. The other side—including Sweden, Austria, Spain, Ireland and others—says that the E.U. needs to discourage investment in all fossil fuels including gas inside its borders, and instead channel every available resource into ramping up renewables, which make up only around 17% of Europe’s energy supply.
The debate has divided the E.U.’s two largest economies. Germany’s government, a coalition including the Green party, has said the draft taxonomy amounts to “greenwashing,” while France has backed it, largely because it includes nuclear energy, the country’s main energy source.
The draft text has sparked fierce backlash from environmentalists across the bloc, who warn that the E.U.’s green credentials for gas—even with conditions attached—will have implications far beyond the natural gas market in Europe, confusing investors around the world and providing cover for the fossil fuel industry in developing countries.
”As a bloc, we are losing a lot of the legitimacy we need to convince others to shift their policies in order to achieve climate sustainability,” says Mounir Satouri, a Green member of the European Parliament (MEP) from France. “This is a huge mistake.”
The case for natural gas as a transitional fuel
Wind and solar power are becoming very cheap to install, but we still lack some of the technology to store their energy for longer periods when the wind isn’t blowing or sun isn’t shining. Advocates for natural gas argue that it’s easy to store, and power plants running on the fuel can be turned off and on as needed, making it a great complement to renewables for the next decade or so.
The E.U.’s taxonomy labels natural gas as a “transitional fuel,” and investments in it will count as green if power plants produce emissions below 270g of CO2 equivalent per kilowatt-hour and are equipped to burn lower carbon gases, such as green hydrogen. Any new natural gas project must also replace a more polluting fossil fuel plant, and receive a construction permit by Dec. 31, 2030.
The green label “will certainly unlock some investment. But that will be very focalized in those markets where there’s still quite a lot of reliance on coal: in central and eastern Europe and perhaps Germany,” says Massimo Di Odoardo, vice president of global gas research at Wood Mackenzie, an energy consultancy.
The E.U. aims to cut its greenhouse gas emissions by 55% by 2030 in order to stay on track to avoid the worst of climate change. Classing some natural gas as green is a pragmatic decision to help coal-reliant member states shift off coal more quickly and meet that target, according to Christian Ehler, a German MEP from the center-right European People’s Party. “Poland is not jumping from coal to wind [turbines]—there will be a step in between. So politically there needs to be a compromise,” he says. “If a national energy mix includes gas in order to fulfill the 55% ambitions, why should that harm either the environment or the commonly formulated goals? I think this politics of symbolism has to come to an end if you really want to reach those goals.”
Muddying the green waters
But environmentalists reject the idea that natural gas is needed as a bridge fuel. “This transitional mentality arguing in favor of ‘less bad’ energy forces could have worked a couple of decades ago,” says Jakop Dalunde, a Green MEP from Sweden. “But today, in a climate emergency, we have to have full focus on energy sources that are truly sustainable.”
Granting natural gas a “green stamp,” he adds, could divert money from investments in clean energy—a problem, given renewables capacity needs to expand by 12% ever year to stay on track for net zero at 2050, per the IEA. “This [taxonomy] is about the long-term future we want to encourage. Fossil fuels have no place there.”
Though the taxonomy includes fairly stringent conditions for natural-gas projects to be classed as green, campaigners are concerned that it will be difficult to hold projects accountable for meeting them, says Tsvetelina Kuzmanova, a sustainable finance policy advisor at European climate think tank E3G. For example, power plants would need to switch to 100% low-carbon gases by 2035 under the rules, but the technology does not yet exist to run a gas power plant only with low carbon gases, so it is unclear how a gas project seeking green funding in the present would prove it can eventually do that.
Kuzmanova says that any expansion of natural gas poses a threat to the E.U.’s short-term goal on methane—a potent greenhouse gas with 80 times the warming power of CO2—which is the main component of natural gas. At COP26, the U.N. climate conference last November, the E.U. pledged to cut its methane emissions by at least 30% from 2020 levels by 2030. Leaks from natural gas infrastructure are one major source of methane emissions, while the rest mostly come from agriculture. “Reducing natural gas infrastructure really should be the low-hanging fruit on methane,” Kuzmanova says.
The impact beyond Europe
Climate campaigners also worry about the wider signal that the move sends on the urgency of phasing out gas. The E.U. has presented itself as a climate leader for the world in recent years, says Marie Toussaint, a Green MEP from France. “If we then say natural gas can be a sustainable investment, the message that other countries get is that it’s still okay to keep producing gas for many years,” she says, adding that other governments may follow the E.U.’s example but fail to impose the same limiting conditions on gas investments.
Analysts say policy makers in South Korea followed the E.U.’s discussion closely when drafting their own sustainable energy taxonomy, published in December, which also classifies natural gas as a transitional fuel.
And, though the taxonomy is meant only as advice to the private sector, Toussaint says she sees its influence in other E.U. legislation that lawmakers are reviewing as part of the European Green Deal. The European Investment Bank also aligns its lending with the taxonomy.
For Dalunde, the Swedish MEP, a taxonomy that includes natural gas is a wasted opportunity to deliver the level of climate ambition the world urgently needs. “This taxonomy had the potential to be one of the most consequential decisions that we take on climate change, not only for Europe, but globally, because other nations will take inspiration from it,” says Dalunde. “It could have been a quiet revolution. But the inclusion of fossil gas would really undermine that.”