Designing an EU methane import standard
Policymakers around the world are recognising the urgent need to drastically reduce global methane emissions. Methane is a greenhouse gas that traps 80 times more heat compared to CO2 over its first 20 years in the atmosphere. Reducing methane emissions is the single biggest mitigation measure we can take to slow global warming and reduce the chances of passing irreversible climate tipping points. These emissions continue to rise every year, and concentrations are currently far past the 1.5 or 2°C scenarios envisioned by the IPCC.
As the world’s largest importer of oil and natural gas, the European Union is in a unique position. It can leverage its buying power, climate ambition, and technical expertise to drastically reduce global methane emissions from the oil and gas sector, which account for 23% of total anthropogenic methane emissions. The EU imports 90% of the gas and 97% of the oil it consumes, which means that by implementing a rigorous import standard for these fossil fuels, the EU can take steps to drive methane reduction among its trade partners, reducing the global emissions associated with Europe’s gas consumption.
If implemented correctly, an import standard will have a positive impact by slowing climate change, increasing global energy security, and mitigating serious health risks associated with oil and gas emissions in energy producing countries. The European Commission, European Parliament, and Member States are starting trilogue negotiations on the Methane Regulation later this month and will have an opportunity to include such a standard in the final agreement.
Figure 1 : Methane EF of countries exporting natural gas and LNG to the EU (2019)
According to recent polling of European voters, a methane import standard that applies regulatory measures on EU oil and gas suppliers was strongly supported by voters – even if it means a small increase in household energy bills. Given the very low cost of methane abatement measures – which typically work by keeping gas in the pipe instead of releasing it so that producers and processors of gas end up with more gas to sell – it is clear that increases in costs resulting from import standards will either be small or negligible.
In order to provide a pathway for how the EU could implement a methane import standard, CATF and Carbon Limits organised a “co-creation workshop” and a series of interviews in early 2023 with a group of 29 experts affiliated to more than 15 organisations, ranging from the International Energy Agency to the Oxford Institute of Energy Studies. From those conversations, two types of methane import standard were identified and outlined in a new joint report. First, a “prescriptive standard,” which regulates practices and technologies for oil and gas producers abroad. Second, an “intensity standard” representing the maximum level of acceptable emissions for imported gas to the EU.
Ideally, the EU methane import standard could utilise both prescriptive and intensity standards for oil and gas imports, which is in line with the European Parliament’s position in the Methane Regulation. Legal analysis of the two standards concluded that there are no insuperable obstacles to establishing either standard, so applying both sets of rules could provide the most comprehensive path towards global methane emissions reductions.
Two Types of Import Standards
With the true success of any import standard depending heavily on how it is implemented, measured, and verified, it is essential to clarify the legal, technical, and regulatory steps necessary to create these two complementary types of standards.i For both methane standards, responsibilities lie with the importer – over which the EU has jurisdiction – and should apply to ongoing contracts as well as contracts signed after the creation of the standard. Both standards would ensure compliance by charging a fee or penalty for imports that do not meet the standard. The fees collected through the implementation of these mechanisms could be used for creating an EU methane fund that could be used for methane emission mitigation in the oil and gas sector in lower-income countries.
The first, “prescriptive,” standard would require stakeholders to use best-practices and technologies to minimise methane emissions, including as a minimum i) monitoring, reporting, and verification (MRV); ii) Leak Detection and Repair (LDAR), and; iii) limitations on venting and flaring. A prescriptive standard can be enforced using an equivalence principle, meaning that exporting countriesii should have the possibility to demonstrate that they have prescriptive requirements in place that lead to similar methane emissions intensity as the requirements set by the EU Commission.
The second standard sets an emission intensity target that regulates the maximum level of acceptable emissions per amount of gas produced. In the simplest terms, if the reported emission intensity is above the set target, the importer could be subject to an incentive mechanism for the emissions that exceed the maximum level.
As methane emissions vary along the value chain, the “intensity standard” could be differentiated by upstream, midstream, and downstream activities, or applicable to the full supply chain. For this standard to succeed, it would be necessary to develop robust methodologies for methane emissions quantification, reporting, and verification for exporting entities. For establishing the maximum level of emissions, the European Commission could use industry’s best practice targets as a starting point, such as the Oil and Gas Climate Initiative 2025 target for upstream gas production which is “well below 0.2%.” A separate target for the oil sector would need to be established to build a comprehensive “intensity standard.”
To ensure that countries or companies are meeting requirements, both a prescriptive and intensity standard should be regularly monitored by a verifying body, which should rely on third party verifiers. To measure compliance with an intensity standard, the verifying body can cross-reference data from trusted sources, such as the UNEP’s International Methane Emissions Observatory (IMEO), the Oil & Gas Methane Partnership (OGMP), and the International Energy Agency (IEA).
For both standards, thorough legal analysis concluded that there are no insuperable legal obstacles to establishing an import standard for oil and gas imports to the EU.iii There are several precedent approaches establishing import standards set under other EU legal frameworks,iv although it should be noted that under WTO rules, imposing a methane intensity standard on imported gas requires that a similar intensity standard exists for production within the EU.
Figure 6 : Data flow and responsibilities of different bodies in the emission intensity standard
Conclusion and Next Steps
The European Parliament agreed to support both import standards on oil and gas in its position on the forthcoming Methane Regulation, with the details on certification and verification frameworks to be clarified by the European Commission at a later stage. As the European Commission, European Parliament, and EU Member States move towards a compromise on the Methane Regulation, institutions should align on an approach for an EU import standard that utilises both prescriptive and intensity standards, for example a ban on venting and flaring, and strong MRV combined with intensity standards for both oil and gas. This should be complemented by a deeper cost-benefit evaluation associated with the import standard, which would allow the EU to design its import standard in a way that maximises both the economic benefits and the reduction of global methane emissions.v
In an important step towards this type of cooperation, the EU recently joined Japan, South Korea, Australia, and the U.S. in a new voluntary initiative called CLEAN to track the methane intensity of LNG projects. While the initiative is a welcome development, establishing an EU methane import standard could help stretch collective ambition further and create a backbone for a shared system for measurement and verification of collected data, as well as common targets for emissions reductions and methane intensity.
With COP28 just around the corner, and progress towards achieving the Global Methane Pledge at risk of slowing, the EU cannot miss this opportunity to demonstrate global leadership on methane emissions reductions. By implementing a methane import standard, the EU would not only be levelling the playing field between local producers and foreign producers that export to the EU, but it would also foster constructive dialogues with other major importers and exporters to align regulations, verification practices, and similar methane import standards.
i This report collects the viewpoints of an expert stakeholder’s workshop held on 14 February 2023, which focused on designing a methane import standard for the European Union. Discussions were summarized into two types of import standard. Stakeholders were divided into groups to discuss different topics, hence not all stakeholders participated in every discussion. Any reference to stakeholder agreement, recommendations and consensus refers to the conclusions that had the most weight and does not necessarily reflect the individual viewpoints of the stakeholders.
ii In this report, exporting countries could be a country or states whom the EU methane import standard applies to. For simplicity, the phrase exporting country encompasses both the producing country/state and the final exporting country/state (transit) when they are different.
iii Including compliance with the rules of the World Trade Organization (WTO), the international climate change regime under United Nations Framework Convention on Climate Change (UNFCCC) and the Paris Agreement and the science that informs these regimes
iv There are an increasing number of precedents for the imposition of EU import standards to achieve social or environmental outcomes. Such precedents include EU regulation relating to deforestation, biofuels, corporate due diligence and illegal fishing.
v Further analysis could be conducted on the economic efficiency of the import standards, and the interconnections between the price of gas traded globally and regionally and the cost-saving effects on downstream and upstream sectors.
