Page 6 - EurOil Week 29 2021

EurOil COMMENTARY EurOil

EU gas firms brace for

higher carbon costs

Gas companies will pay more for their emissions. And while they stand to benefit

in power generation and shipping, they will lose out in road transport

EU NATURAL gas producers in Europe are bracing factor has the same effect as if it would have
themselves for higher carbon costs following the applied from 2021,” the Commission said.
WHAT: European Commission’s unveiling of its Fit for Currently, the market stability reserve,
The European 55 legislative proposal, aimed at aligning bloc designed to manage permit oversupply, is acti-
Commission has unveiled rules with the target to reduce greenhouse gas vated when the number of allowances in circu-
its Fit for 55 legislative (GHG) emissions by 55% by 2030. lation exceeds 833mn or falls below 400mn. The
package The Fit for 55 package primarily consists of EC has proposed limiting the number of allow-
adjustments to the EU’s Emissions Trading Sys- ances in the reserve to 400mn, and the mecha-
WHY: tem, its flagship tool for reducing emissions that nism’s intake will remain at 24% until the end of
The commission wants requires polluters to purchase permits to cover the decade. It was previously set to drop to 12%
to align EU rules with the the CO2 they emit. The system also sets a cap on from 2024.
bloc’s 55% target for total emissions from sectors that decreases over The Commission also wants to introduce a
emissions reduction. time. buffer rate when the number of allowances in cir-
The cost of permits has seen rapid growth culation is between 833mn and 1.096bn, when
WHAT NEXT: in recent years and is currently over €50 ($59) the intake would be the difference between the
Gas will benefit from per tonne of CO2, up from €20-30 last year. This number in circulation and the 833mn threshold,
displacing coal in power trend has so far been largely to the benefit of nat- in order to limit price volatility. The calculation
generation, while LNG will ural gas, as it has made coal-fired power genera- of permits in circulation should also be amended
make gains in shipping. tion increasingly unprofitable, giving more space to take into account new permits relating to the
But road transport is to gas. aviation and maritime sectors, which the EC
heading in the direction The EC has proposed doubling the annual wants to see covered under ETS.
of electrification. supply cap reduction, maintaining a higher Until this year, oil and gas producers also
intake rate for the market’s stability reserves and received a high number of EU carbon allowances
creating a separate system to cover road trans- for free. But this is being phased out for gas,
port and building CO2. The rate at which the though not for oil. This is because oil production
supply cap is reduced annually will be raised to is included in the carbon leakage list for 2021-
4.2% from 2.2%, and there will be a one-off read- 2030 whereas gas is not. Carbon leakage relates
justment of the cap “so the new linear reduction to the risk of energy intensive sectors simply

P6 www. NEWSBASE .com Week 29 22•July•2021