“Eurogas commissioned this study to demonstrate there are many different pathways to 2050, but we wanted to establish which would be the most affordable way. Decarbonised and renewable molecules will help us reach the EU Commission’s 2050 Climate Neutrality Ambition in a more cost effective way than a pathway based on high levels of electrification. One thing is for sure, whichever pathway you want to take, you cannot get to climate neutrality without gaseous molecules.” – Eurogas Secretary General Dr James Watson
In November 2018, the European Commission proposed eight scenarios to achieving its vision of a carbon neutral 2050 energy system. Gas fuels are necessary in all the scenarios identified by the European Commission, but the need for gas is considerably higher in some.
To investigate these scenarios further and understand what would need to change in both our society and our energy mix, Eurogas commissioned a study with consultant DNV GL. This study demonstrates the savings associated with the scenarios that use more gas.
The study presents two competing scenarios Eurogas and 1.5TECH to achieve carbon neutrality by 2050 and compares those to a baseline (ETO2019). The baseline forecasts ‘a best estimate future’ reflecting current global decarbonisation policies. In this future, the Paris Agreement ambitions are not achieved. It forecasts that by 2050 only 76% of energy-related CO2 emissions are mitigated.
Eurogas & 1.5TECH use largely identical assumptions (e.g. renovation rates, technology learning rates, technology efficiencies, etc.) and two of the three pillars of energy policy are fixed: ‘Availability’ (demand and supply are matched in a cost-efficient manner) and ‘Acceptability’ (the net zero CO2 emissions target is met). The main differentiator between the two scenarios is subsequently ‘Affordability’ (the costs Europeans will incur).
Key Findings of the Eurogas Study, available here: Eurogas Slide Deck – Key Findings in a Pathway to European Carbon Neutrality – The Role of Gas
2050 Carbon Neutrality: A Eurogas Vision for an Affordable Energy Transition
Brussels, 30 June 2020. Today sees the launch of the Eurogas study a ‘Pathway to a carbon neutral 2050: the role of gas’, commissioned with international consultant DNV GL. The study achieves the EU’s climate goals at significantly lower costs than European Commission estimates and stresses the need for the development of a hydrogen economy in the 2020s.
James Watson, Eurogas Secretary General, commented: ‘The study demonstrates that the EU can save €4.1 trillion by 2050 – an amount equivalent to Germany’s annual GDP in 2018 – by using a mix of energy carriers to achieve carbon neutrality. Major cost savings in applying this approach in the buildings sector are particularly key to saving this huge amount of money. This finding is of high importance as Europe needs funds to recover from Covid-19.’
He added: ‘The Eurogas study shows that to achieve carbon neutrality by 2050, Europe must start the hydrogen economy now. There is no time for delay. This includes all clean hydrogen options: reforming natural gas through CCS, producing hydrogen from renewables, as well as blending it with methane. The need for CCS is not an option, it is a necessity – if we are to reach our climate ambitions.’
The Eurogas study shows that climate objectives can be met more cost-effectively by using existing assets, limiting subsidy schemes, and leaving market fundamentals in place. The subsidies required to incentivise consumers to choose decarbonised energy are €10.1 trillion (80%) lower in the Eurogas scenario. Further cost savings are made by repurposing the existing gas infrastructure instead of building new electricity infrastructure.
Eurogas commissioned DNV GL – an international consultancy – to assess a pathway to a carbon neutral future, comparing it to the European Commission’s 1.5TECH scenario, outlined in the 2050 long-term decarbonisation strategy. The Eurogas study investigates these scenarios further to understand what would need to change in both our society and our energy mix. This study demonstrates the savings associated with the scenarios that achieve carbon neutrality in 2050 while using a variety of energy carriers. Gas uses the infrastructure Europe already has, reducing the need for costly electricity infrastructure to be built.
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Allowing Competing Technologies Brings Low Cost Rewards
In 2018 the European Commission published the so called 1.5TECH scenario as part of the ‘long-term strategic vision for a prosperous, modern, competitive and climate neutral economy.’ This scenario strongly focused on electrification to reach this goal, without being a ‘full electrification’ scenario.
Natural gas played only a minor role; mainly for backing up the power sector with reliable generation. Thus, it was phased out over time.
On 30 June 2020, Eurogas presented its study “A Pathway to a Carbon Neutral 2050: The Role of Gas.” The study compares the EU 1.5TECH scenario with a competing, Eurogas scenario, which has a far more neutral approach to technology and takes advantage of existing gas infrastructure. Renewable and decarbonized gases play a much more prominent role. Indeed, a mix of natural gas, biomethane and hydrogen is complemented with CCS technology that even allows for net negative emissions.
While both scenarios are reaching carbon neutrality in 2050, the acceptance of different technologies in the Eurogas scenario is rewarded with significantly lower costs.
Without going into all details of the underlying assumptions, the clear advantage of the Eurogas pathway is its significantly lower cost, and therefore the lower financial burden for European industry and consumers.
Even though a climate neutral economy by 2050 appears to become a common target within Europe, acceptance will be challenged when the energy bill rises. So it is particularly important that the Eurogas scenario presents cost-efficient decarbonisation solutions for the building sector. Social acceptance and affordability are barriers that should not be underestimated. Electrification of heating can reduce energy demand compared to gaseous solutions and it should be applied where appropriate, e.g. for new homes. But for a large amount of existing buildings this is not an option, and instead gas offers clear solutions and advantages. Implementation is kept easy and affordability is maintained for households across Europe, when renewable and decarbonised gases are used. The study clearly shows that making use of gaseous solutions across all sectors saves €130 billion per year until 2050. As the main cost driver of the 1.5TECH scenario is the electrification of heating, the incredible amount of more than €10 trillion in subsidies has been identified as the cost of retrofitting existing buildings.
The real challenge will be setting the right political framework to reach the envisaged targets – and particularly doing this cost-effectively. Carbon neutrality is European Union’s (EU) stated target. Thus Uniper would argue that all options need to be kept on the table accordingly if they will support in reaching this target. The EU Emissions Trading Scheme (ETS) is an efficient, market-based instrument, that has been introduced to drive down CO2 emissions from the power and industrial sectors. As such an instrument is not in place for the building or mobility sectors. This means there is a risk of limiting the options according to political preferences. The Eurogas study clearly highlights the consequences for the building sector, the burden for which will largely fall on private households as they pay higher costs to reach carbon neutrality.
As well as what is demonstrated in the Eurogas study, Uniper believes there is greater opportunities for renewable and decarbonised hydrogen and synthetic gases to play a role in the mobility sector. Using synthetic, liquid and gaseous fuels in addition to Battery-Electric Vehicles (BEVs) and Fuel Cell Electric Vehicles (FCEVs) opens up significant potential, and also enables the use of existing infrastructure. With the European Commission’s Energy System Integration strategy, published 8 July 2020, the EU Commission is making it clear that hydrogen and synthetic fuels are needed as the third pillar of the energy system of the future, alongside energy efficiency and electrification.
Andreas Schierenbeck became the CEO of Uniper, the German energy supply company, in September 2019. He was appointed to the German National Hydrogen Council on 10 June 2020. Schierenbeck was previously Chairman of the Board for Thyssenkrupp Elevator AG and spent more than a decade in leadership roles at Siemens AG. Schierenbeck holds a Master’s degree in Electrical Engineering from the University of Dresden and an Advanced Management Program (AMP) Certificate from Harvard Business School.
Beyond Natural Gas – But with Implicit Risks
The Eurogas scenario represents a progressive step forward in the European gas industry seriously seeking to decarbonise. However, its reliance on the role of carbon capture and storage (CCS) and bioenergy with CCS (BECCS) is highly risky. These technologies are central to the scenario – yet they simply may not deliver the carbon capture and sequestration rates currently claimed.
Under the global IEA and IRENA ReMap scenario, the energy sector carbon budget currently stands at roughly 630 GT CO2 until the end of the century. Based on current fossil fuel emissions, this will could be exhausted by 2040. This would leave the world reliant on unproven and risky negative emission technologies. Whilst in theory this approach makes sense, both CCS and BECCS are still very much in development.
Firstly, CCS has been under development for many years, but despite political support, the global roll-out of CCS has not yet occurred. A handful of CCS demonstration plants have been built, but third-party verification indicate the real-world capture of CO2 may not meet the theoretical potential.
Secondly, in theory BECCS removes CO2 from the atmosphere, creating negative emissions (as many assume the emissions associated with the growing of biomass to be carbon neutral.) However, there is growing evidence that biomass feedstock supply chain emissions are likely to be larger than first thought, and that the volume of biomass material required could place demands on agricultural land, potentially increasing food prices.
Thirdly, not only are CCS and BECCS technologically challenging, they are costly. The Eurogas scenario forecasts a low carbon price, which the industry will welcome. If CCS can be delivered at scale with minimal subsidies, then all well and good. However, the industry will no doubt look to other fossil fuel industries with an increasing proportion of assets at risk of becoming stranded and consider if these long lifetime CCS assets will remain cost competitive with electrolysis, and renewables, both of which continue to rapidly decline in costs.
Under the Eurogas scenario, a major source of carbon emissions remains into 2050 and beyond, due to the non-marginal role for unabated natural gas in the heating and electricity sectors. The scenario is dependent on negative emission technologies, principally BECCS, to balance these emissions. The capture rates of CCS are a risk that only time, and evidence will resolve.
The most progressive forecast the Eurogas scenario makes is the significant and growing role it attributes to green hydrogen. Green hydrogen is produced from water and renewable electricity via electrolysis. There are no associated carbon emissions, except those embodied in the manufacturing of the electrolysis infrastructure, which are marginal.
This is prudent economic forecasting. The costs of electrolysis are rapidly declining. In addition, this seemingly points towards a significant transformation of the gas industry itself.
The scenario also comprehensively addresses two fundamental problems that all decarbonisation scenarios struggle with. Firstly, that demand reduction is challenging, without which it’s difficult to see renewables and electrification as viable, and secondly the balancing of variable renewables on the electricity system. The Eurogas applies the CCS and negative emission argument to allow demand to remain closer to today’s levels than other scenarios. It then utilises gas-fired power stations to balance renewables on the grid. But as discussed, this approach embodies risks.
Alternative approaches do already exist. Regarding the integration of variable renewables and the flexibility of the electricity network, there are new technologies which could achieve the sort of flexibility gas power stations provide. These include batteries, bi-directional EV charging, smart appliances, the digitalization of the network itself and many more. Whilst these technologies would increase renewable integrations costs, the declining costs of renewables would likely more than offset these costs. Regarding the difficulty of reducing demand, in recent weeks large oil companies have forecast that oil demand is likely to remain low for years to come. Further, demand reducing policies can be employed to ensure electrified demand doesn’t exceed renewable supply.
In conclusion, the Eurogas scenario represents a progressive step forward, with a strong emphasis on green hydrogen. As the gas industry and policy makers wrestle with the risks of relying on CCS and BECCS, a further progressive step could be for the industry to increasingly move towards green hydrogen, utilising water rather than natural gas as its raw material.
Dr. Daniel Quiggin is Senior Research Fellow for the Energy, Environment and Resources Programme at Chatham House. Daniel has expertise in the modelling, analysis and forecasting of national and global energy systems, having modelled various UK government energy scenarios and published a UK 2030 energy scenario. His PhD was in Energy System Modelling, and he holds two MScs in Particle Physics, and Climate Science.
Due mid-July 2020