SWOT-PESTEL Study of Constraints to Decarbonization of the Natural Gas System in the EU:

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SWOT-PESTEL Study of

Constraints to Decarbonization of

the Natural Gas System in the EU:

Techno-economic analysis of hydrogen

production in Portugal

Rohan Adithya Vasudevan

Master of Science Thesis TRITA-ITM-EX 2021:69

KTH School of Industrial Engineering and Management Division of Energy Systems, Department of Energy Technology

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Master of Science Thesis EGI TRITA-ITM-EX 2021:69

SWOT-PESTEL Study of Constraints to Decarbonization of the Natural Gas

System in the EU:

Techno-economic analysis of hydrogen production in Portugal

ROHAN ADITHYA VASUDEVAN Approved 26 March 2021 Examiner Dilip Khatiwada Supervisor Dilip Khatiwada (KTH) Bruno Henrique Santos (REN Portgas)

Commissioner

Bruno Henrique Santos (REN Portgas)

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Abstract

The exigent need to address climate change and its adverse effects is felt all around the world. As pioneers in tackling carbon emissions, the European Union continue to be head and shoulders above other continents by implementing policies and keeping a tab on its carbon dependence and emissions. However, being one of the largest importers of Natural Gas in the world, the EU remains dependent on a fossil fuel to meet its demands.

The aim of the research is to investigate the barriers and constraints in the EU policies and framework that affects the natural gas decarbonization and to investigate the levelized cost of hydrogen production (LCOH) that would be used to decarbonize the natural gas sector. Thus a comprehensive study, based on existing academic and scientific literature, EU policies, framework and regulations pertinent to Natural gas and a techno economic analysis of possible substitution of natural gas with Hydrogen, is performed. The motivation behind choosing hydrogen is based on various research studies that indicate the importance and ability to replace to natural gas. In addition, Portugal provides a great environment for cheap green hydrogen production and thus chosen as the main region of evaluation.

The study evaluates the current framework based on a SWOT ((Strength, Weakness, and Opportunities & Weakness) analysis, which includes a PESTEL (Political, Economic, Social, Technological, Environmental & Legal) macroeconomic factor assessment and an expert elicitation. The levelized cost of hydrogen is calculated for blue (SMR - Steam Methane Reforming with natural gas as the feedstock) and green hydrogen (Electrolyzer with electricity from grid, solar and wind sources). The costs were specific to Portuguese conditions and for the years 2020, 2030 and 2050 based on availability of data and the alignment with the National Energy and Climate Plan (NECP) and the climate action framework 2050. The sizes of Electrolyzers are based on the current Market capacities while SMR is capped at 300MW. The thesis only considers production of hydrogen. Transmission, distribution and storage of hydrogen are beyond the scope of the analysis.

Results show that the barriers are mainly related to costs competitiveness, amendments in rules/regulations, provisions of incentives, and constraints in the creation of market demand for low carbon gases. Ensuring energy security and supply while being economically feasible demands immediate amendments to the regulations and policies such as incentivizing supply, creating a demand for low carbon gases and taxation on carbon.

Considering the LCOH, the cheapest production costs continue to be dominated by blue hydrogen (1.33 € per kg of H2) in comparison to green hydrogen (4.27 and 3.68 € per kg of

H2) from grid electricity and solar power respectively. The sensitivity analysis shows the

importance of investments costs and the efficiency in case of electrolyzers and the carbon tax in the case of SMR. With improvements in electrolyzer technologies and increased carbon tax, the uptake of green hydrogen would be easier, ensuring a fair yet competitive gas market.

Keywords: Decarbonization, Natural Gas System, SWOT (Strength, Weakness, and Opportunities &

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Sammanfattning

Det starka behovet av att ta itu med klimatförändringarna och deras negativa effekter är omfattande världen över. Den europeiska unionen utgör en pionjär när det gäller att såväl hantera sina koldioxidberoende och utsläpp som att implementera reglerande miljöpolitik, och framstår därmed som överlägsen andra stater och organisationer i detta hänseende. Unionen är emellertid fortfarande mycket beroende av fossilt bränsle för att uppfylla sina energibehov, och kvarstår därför som en av världens största importörer av naturgas.

Syftet med denna forskningsavhandling är att undersöka befintliga hinder och restriktioner i EU: s politiska ramverk som medför konsekvenser avkolningen av naturgas, samt att undersöka de utjämnande kostnaderna för väteproduktion (LCOH) som kan användas för att avkolna naturgassektorn. Därmed utförs en omfattande studie baserad på befintlig akademisk och vetenskaplig litteratur, EU: s politiska ramverk och stadgar som är relevanta för naturgasindustrin. Dessutom genomförs en teknisk-ekonomisk analys av eventuella ersättningar av naturgas med väte. Valet av väte som forskningsobjekt motiveras olika forskningsstudier som indikerar vikten och förmågan att ersätta till naturgas. Till sist berör studien Portugal. som tillhandahåller en lämplig miljö för billig och grön vätgasproduktion. Av denna anledning är Portugal utvalt som den viktigaste utvärderingsregionen.

Studien utvärderar det nuvarande ramverket baserat på en SWOT-analys ((Strength, Weakness, and Opportunities & Weakness), som inkluderar en PESTEL (Political, Economical, Social, Technological, Environmental och Legal) makroekonomisk faktoranalys och elicitering. Den utjömnade vätekostnaden beräknades i blått (SMR - Ångmetanreformering med naturgas som råvara) och grönt väte (elektrolyser med el från elnät, sol och vindkällor). Kostnaderna var specifika för de portugisiska förhållandena under åren 2020, 2030 och 2050 baserat på tillgänglighet av data samt anpassningen till den nationella energi- och klimatplanen (NECP) och klimatåtgärdsramen 2050. Storleken på elektrolyserar baseras på den nuvarande marknadskapaciteten medan SMR är begränsad till 300 MW. Avhandlingen tar endast hänsyn till produktionen av vätgas. Transmission, distribution och lagring av väte ligger utanför analysens räckvidd.

Resultaten visar att hindren är främst relaterade till kostnadskonkurrens, förändringar i stadgar och bestämmelser, incitament och begränsningar i formerandet av efterfrågan på koldioxidsnåla gaser på marknaden. Att säkerställa energiförsörjning och tillgång på ett ekonomiskt hållbart sätt kräver omedelbara ändringar av reglerna och politiken, såsom att stimulera utbudet, att skapa en efterfrågan på koldioxidsnåla gaser och genom att beskatta kol.

När det gäller LCOH dominerar blåväte beträffande produktionskostnaderna (1,33 € per kg H2) jämfört med grönt väte (4,27 respektive 3,68 € per kg H2) från elnät respektive solenergi. Osäkerhetsanalysen visar vikten av investeringskostnader och effektiviteten vid elektrolysörer och koldioxidskatten för SMR. Med förbättringar av elektrolys-tekniken och ökad koldioxidskatt skulle upptagningen av grön vätgas vara enklare och säkerställa en rättvis men konkurrenskraftig gasmarknad.

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Preface

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Acknowledgements

शुक्लाम्बरधरं विष्ुं शवशिर्णं चतुर्ुुजम् । प्रसन्निदनं ध्यायेत् सिुविघ्नोपशान्तये ॥१।।

I would like to begin by thanking the almighty, my family and friends for all the amazing support during all my studies, particularly during the last few months. I would especially like to thank my parents and my sister, Mrinalini for always pushing me to strive for more and giving me all the help I needed to succeed. Their perpetual love and guidance has made me the person I am today and without them, nothing would have been possible.

I express my sincere gratitude to Bruno Henrique Santos, my supervisor for the opportunity to do my thesis with REN Portgas. I could not have hoped for a more caring and attentive guide during the whole period. Thank you for all the suggestions, wisdom and expertise that were pivotal in shaping the outcome of the thesis and making my stay in Porto memorable. Thank you to my supervisor and examiner at KTH, Asst. Professor Dilip Khatiwada for the valuable insights during this thesis study. A special thanks to all the experts for their inputs and contribution to this study. Thank you for your time and indispensable contributions. To Dinesh, Raghav, Srinath and Padmaja, cheers for always being there for me during this time, including the period of difficulties. You all have always helped me to move forward and push me to give my best. Being away from home was not easy and the pandemic made it worse but your help made it possible to successfully complete the thesis.

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List of Figures

Figure 1 EU demand for gaseous fuels, in 2015 14

Figure 2 Pathways to decarbonize current gas demand 15

Figure 3 Total energy supply (TES) by source, Portugal 1990-2019 16 Figure 4 CO2 emissions from the combustion of natural gas 21 Figure 5 World natural gas production (volume) by region from 1973 until 2019 22 Figure 6 Natural Gas: National Consumption in 2019 (Bcm) 22 Figure 7 Correlation between GHG emission reduction and expected gas demand until 2050 24 Figure 8 Correlation between GHG emission reduction until 2050 and type of gas 25 Figure 9 Climate Change mitigation performances of fossil and renewables based gas production

segregation of gas types 26

Figure 10 Hydrogen generation capacity by technology 29

Figure 11 Potential pathways for producing hydrogen and by products 30 Figure 12 Hydrogen generation and infrastructure in Portugal by 2030 (Predicted) 31

Figure 13 Portuguese National Hydrogen Strategy 32

Figure 14 EU policy timeline 34

Figure 15 Hydrogen production via SMR with CO2 capture (CCS) 39

Figure 16 Working of an Electrolyzer 41

Figure 17 Boundaries of the Thesis 43

Figure 18 SWOT Analysis 44

Figure 19 PESTLE Analysis 45

Figure 20 Systematic methodology of the survey 46

Figure 21 Schematic overview of production methods 47

Figure 22 Hydrogen Production Costs – Methodology 48

Figure 23 Political Barriers 58

Figure 24 Economic Barriers 60

Figure 25 Social Barriers 62

Figure 26 Technological, Technical & Operational Barriers 64

Figure 27 SWOT ANALYSIS 65

Figure 28 SWOT ANALYSIS SUMMARY 66

Figure 29 Uncertainty: Social Barriers 68

Figure 30 Uncertainty: Social Barriers 69

Figure 31 Uncertainty: Technological & Technical Barriers 69

Figure 32 LCOH: SMR: Split up of costs 71

Figure 33 LCOH: SMR: Comparison with and without Carbon taxes 72

Figure 34 LCOH: PEM: Split up of costs in 2020 73

Figure 35 LCOH: PEM: Price range 74

Figure 36 Sensitivity Analysis:SMR, PEM-GRID, PEM-WIND & PEM-SOLAR 75 Figure 37 CO2 Emissions from Hydrogen Production (kg CO2/kg H2) 76 Figure 38 Levelized Cost of Hydrogen from Clean Hydrogen Report 80

Figure 39 GHG emissions of Hydrogen production 81

Figure 40 Summary of estimates from the literature of LCOE and CO2 emissions of Hydrogen

Production methods 82

Figure 41 Areas of Action 83

Figure 42 LCOH: ALK: Split up of costs 98

Figure 43 LCOH: ALK: Price Range 99

Figure 44 LCOH: SOEC: Split up of costs 100

Figure 45 LCOH: SOEC: Price Range 101

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List of Tables

Table 1 Alternatives to Natural Gas 26

Table 2 Investment Costs and Efficiency of Hydrogen Production Technologies [37] 51

Table 3 Fuel and Water price 52

Table 4 Electrolyzer Lifetime [37] 53

Table 5 Parameters and formula used 54

Table 6 Steam Methane Reforming: Calculated Costs 55

Table 7 Expert´s opinion: Political and Regulatory Barriers 59

Table 8 Expert´s opinion: Economic Barriers 61

Table 9 Expert´s opinion: Social Barriers 62

Table 10 Expert´s opinion: Technological & Technical Barriers 64

Table 11 Statistical Treatment of the Survey replies 67

Table 12 LCOH SMR: Split up of Costs 70

Table 13 CO2 Emitted and Captured per year [64] 71

Table 14 LCOH: SMR: Comparison with and without Carbon taxes 72

Table 15 LCOH: PEM: Split up of costs 73

Table 16 LCOH: PEM: 2020 vs 2030 74

Table 17 Summary of LCOH from Electrolyzers 79

Table 18 Statistical Treatment of the Survey replies: 1.Economic Barriers 2.Social &

3.Technological and Technical Barriers 96

Table 19 LCOH: ALK: Split up of costs 98

Table 20 LCOH: ALK: 2020 vs 2030 vs 2050 98

Table 21 LCOH: SOEC: Split up of costs 100

Table 22 LCOH: SOEC: 2020 vs 2030 vs 2050 100

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List of Abbreviations

ALK: Alkaline Water Electrolyzer

CCS/CCUS: Carbon Capture & Storage/ Carbon Capture Utilization & Storage EU: European Union

FCH JU: Fuel Cells and Hydrogen Joint Undertaking GHG: Green House Gases

LCOH: Levelized Cost of Hydrogen MDEA: Methyldiethanolamine MEA: Methylenedianiline

NECP: National Energy and Climate Plans

PEM: Polymer Electrolyte Membrane Electrolyzer

PESTEL: Political, Economic, Social, Technological, Environmental & Legal REN: Rede Electrica Nacional

SMR: Steam Methane Reforming SOEC: Solid Oxide Electrolyzer Cell

SWOT: Strengths, Weakness, Opportunities and Threats YOY: Year on Year

List of Units

EUR Euro

gCO2 gram Carbon dioxide GW Giga Watt

GWh Gigawatt-hour

kJ kilo Joule

ktoe kiloton of oil equivalent kWh kilowatt-hour

m3 _{meter cube}

mol moles

Mt Megaton/ Billion kilograms

MW Mega Watt

Nm3_{Nominal cubic meters}

Tcm Trillion cubic meters tCO2 ton carbon dioxide

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1. Introduction

1.1 Background

Decarbonizing the natural gas industry

The European commission’s long-term objective of achieving carbon neutrality by the year 2050 [1] and its synergy with Paris Agreement [2] calls for decarbonization of its energy markets. The commitment beckons for an equivocal response to ensure a sustainable mix in the energy sector. The international scenario points to a growing trend towards electrification of the economy, and energy matrix resulting from a blend of renewable sources (solar, wind, water and biofuels). Therefore, the objectives and the profound decarbonization trends looks to guarantee carbon neutrality of national emissions, ensuring the safety of supply and the financial sustainability of the energy system.

Natural gas is a fossil fuel, considered as the cleanest burning fossil fuel with the highest hydrogen to carbon ratio [3]. It is seen as a quick fix for the road to neutrality as it ensures flexibility and security needed in the energy sector, replacing coal and thus lowering emissions. This is considering the energy demand and the electricity production from renewables that depends on the seasonal variations and peak loads [3]. Natural gas provides an alternative to the expensive 100% electrification pathway, thereby enabling ease of decarbonization by fulfilling the energy demands that are not covered completely by electricity.

Natural gas represented a quarter of energy supply (close to 16000 thousand Terajoules) and 22% of final energy use in the EU (including the United Kingdom) in 2018 [3]. With 2.2 million kilometers of gas pipelines, the current gas infrastructure in Europe helps in a wide scale deployment and storage of hydrogen and other decarbonized renewable gas [4]. A steady increase in the installed natural gas capacity thanks to the lower capital costs, flexibility and higher efficiencies, the interrelations between molecules (gas) and electrons (electricity) is also on the rise. Enabling the substantial investment made in energy transport and distribution infrastructures provides the quality of service to the consumers in this gradually complex market.

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Figure 1 EU demand for gaseous fuels, in 2015, forecast for 2030, baseline for 2050 and different decarbonization scenarios for 2050 developed for the EU 2050 strategy, [5]

Hydrogen is considered as the pivotal facilitator of quick and viable decarbonization alternative to replace natural gas. The hydrogen pathway can be predominantly used in the heat, transport and the power sectors while the benefits also include reduction in nuclear power for electricity and heavy investments in the electricity grid [7]. Being versatile, it could be produced from a range of fuels including natural gas via Steam Methane Reforming (known as blue hydrogen) and renewable electricity via Electrolyzers (known as green hydrogen). It can be transported in the existing gas pipelines or even as liquid [8]. Although hydrogen has different chemical properties when compared to natural gas, addition of compressors and refurbishing pipelines, hydrogen can be distributed through the prevalent natural gas network. The current hydrogen infrastructure and grid connectivity is detailed in Chapter 2.

The uses of hydrogen are multifold across many sectors and can be used in a versatile manner as an energy vector to store renewable electricity or for space heating. The supply of hydrogen is a topic under research that looks at a variety of issues including the injection, safety, end user acceptance and the costs [9]. The conversion of hydrogen and its various other uses are further discussed in Chapter 2.

It is often dubbed as the fight of the decarbonization pathways where hydrogen was the preferred option for the gas system while electricity generation from renewables were the desired option for the electricity sector. However, in order to enable a fast yet cost effective decarbonization, Electricity and hydrogen interlinking in an effort to use green molecules (H2) and green electrons (e- from renewables) to achieve the desired targets of the 2030

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Figure 2 Pathways to decarbonize current gas demand [6] NOTE: Size of bars are just for the sake of visualization

The major roadblock for hydrogen and other low carbon gases such as synthetic methane and bio methane would obviously be the economic aspect, as the competitiveness, supply and demand from them are yet to reach that of natural gas [6]. In addition, there are also the compatibility issues such as injection of gases in the grid and blending hydrogen into existing gas network.

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Development of a case study in Portugal: Future principle green Hydrogen producer in EU

Portugal, the westernmost nation state of Europe is a world leader in promoting and implementing integrated renewable electricity production from wind and solar power as clearly seen in Figure 3. It has a solid renewable energy target of 80% by 2030 and plans for carbon neutrality by 2050 [10]. The energy transition in Portugal, like the majority of European countries, will undoubtedly go through the electricity and power sector, based on reliable electrification and decarbonization of the economy. Portugal has enormous potential for the development of a heavily decarbonized electric power sector, either through the availability of renewable endogenous resources such as water, wind, sun, biomass and geothermal energy, or because it has a reliable and safe electrical system capable of handling the variability [11].

Figure 3 Total energy supply (TES) by source, Portugal 1990-2019, [11]

The program of the Roadmap for Carbon Neutrality 2050 [12] and the National Energy and Climate Plan (NECP) 2030 [13] designed by the Portuguese government, are in response to the Paris Agreement signed by the Government. An initiative of the Ministry of the Environment and Climate Action, they represent the national goal of achieving sharp reductions of harmful emissions and guarantee energy sustainability of future generations. The main goal is to enable the rational use of resources and technologies that allow the transition to a low carbon economy, enhancing endogenous resources in a cost-effective logic of the national energy system, in its different vectors, where hydrogen can play a significant role, up to 50% according to FCH JU [14].

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compatibility of transport and distribution assets, as well as the synchronization of consumer equipment. In this context, hydrogen appears as a renewable energy source capable of guaranteeing not only the transformation of the PNGS but also the integration with the PNES, ensuring the conversion of excess electrical energy into storable energy in the networks. The use of existing grid and the pathways are discussed in detail in Chapter 2. Portugal aspires to be the supplier of the cheapest green hydrogen in Europe backed by the NECP, which states the country’s commitment towards creating a market for renewable gases. Backed by its abundant and cheap renewable energy in the form of solar energy, the NECP also desires to develop policies that enables Portugal to be in a favorable position. An incentivized pathway is to bring greater dependency on Hydrogen and Portugal expects to have 7% of the renewable fuels of transport sector to be green hydrogen. This is nearly 756 GWh by 2030 [15].

Policies and regulatory measures in the industry will guarantee a solid market for renewable hydrogen, not just as a replacement of natural gas but also in the fertilizer and ammonia industries and transport sector. Chapter 2 has a dedicated section that describes Portugal’s hydrogen usage plans.

A well-devised framework for the hydrogen pathway should address the value chain in entirety, encompassing generation, transmission, distribution and storage as well as the end users. REN is public service Company that controls the transportation and storage value chain of natural gas in Portugal. REN Portgas is a subsidiary of REN, and is involved with the distribution of natural gas. Portgas in particular is the only Portuguese company to be admitted to join the second round of the European Clean Hydrogen Alliance [16]. Thus, it plays an important role in the implementation and the realization of the country’s NECPs using its existing infrastructure and strategies to decarbonize gas and digitize its assets using smart metering. The thesis therefore is performed at REN Portgas and provides the perfect environment for research and development.

1.2 Objective & Scope of Study

The current state may not enable a full realization of the potential of decarbonizing the gas sector and requires swift developments and policy frameworks that accelerate the transition. It is questionable as to why there are no obligations on the industry itself to facilitate the shift. This raises the important question:

1. What are barriers that the current policies and regulations pose to decarbonization of natural gas?

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this thesis only considers the production costs of hydrogen production. In this context, to fulfil the hydrogen injection, there are financial, operational, technological and regulatory challenges that gives rise to the following questions, which the market has to gradually answer and address.

2. What are the costs involved in hydrogen production using renewable energy sources given Portugal’s ambitious plans (Refer chapter 2)?

The costs associated are calculated for the scenarios of electrolyzers connected to the grid, solar electricity and wind electricity. Specifically the years 2020, 2030 and 2050 are taken into account due to its alignments with policies such as the NECP 2030 and the Road to neutrality 2050. The production costs does not necessarily take the role of carbon taxation into consideration and thus

3. How does implementing a carbon tax affect the LOCH of blue hydrogen, the hydrogen obtained from methane reforming?

The predictions of possible pathways in Portugal do not cover the questions mentioned but the solutions may have profound impact on the policy and regulatory framework of Portugal in the near future.

While a plethora of discussion exists elaborating the need to ditch fossil fuel dependency, there is a dearth of debates on the barriers of existing reforms and cost associated with desired pathways in Portugal. Thus, the thesis includes an examination of regulations and policies, a techno economic assessment of hydrogen production in Portugal and a sensitivity analysis. The objectives are:

 To perform a qualitative study on the barriers to decarbonization of gas sector based on the prevailing policies and regulations using SWOT-PESTEL approach.  To perform a techno-economic analysis of hydrogen production from different

technologies, viz. Steam Methane Reforming, SMR (with and without Carbon Capture Utilization and Storage, CCUS) and electrolysis (grid vs renewables) in Portugal.

 To help formulate strategies and recommendations for Portuguese policymakers and natural gas industry stakeholders for better future policies and regulatory reforms.

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1.3 Structure of the report

This introductory chapter provides a background of the study and thesis objective.

Chapter 2 talks about natural gas and its world outlook. It addresses the need for decarbonization and introduces different methods of decarbonizing the system. Then the importance of hydrogen in a long-term decarbonization strategy is introduced. It covers the current hydrogen outlook in EU and its member states, which also introduces the case study in Portugal and its hydrogen plans. This chapter will further provide methods in use for hydrogen production, and narrowing the research of the cost evaluation for hydrogen production in Portugal to two methods: Steam Methane Reforming with/without Carbon Capture and Storage (SMR+ CCS) and Electrolysis.

Chapter 3 covers the literatures reviewed pertaining to decarbonization and hydrogen production technologies. The chapter further provides an analysis of the various existing policies & regulations on natural gas and its markets in EU. Chapter 4 defines the methodology used in the study. Here the boundaries and limitations are reasoned. The methods are defined and the steps, assumptions and calculation of the LCOH are discussed. Chapter 5 is results, and it provides the findings of the research, namely, constraints to decarbonization, the SWOT-PESTEL analysis and finally the results of economic and sensitivity analysis of hydrogen production costs. The chapter presents the results of the emissions from the production. The subsequent chapter 6 is dedicated for discussions, compares the research questions, the methodology, and presented results to the literatures and reports related to this topic.

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2. Natural gas: World Data, Decarbonization Pathway

and Hydrogen in Portugal

In this chapter, natural gas is discussed in depth with insights into the current world outlook, the supply demand and imports in Europe and the need for decarbonization. The pathways to decarbonization are also discussed to emphasize the importance of hydrogen production and the motive for the case study in Portugal.

2.1 World vs Europe Outlook

Natural gas is one of the leading fossil fuels, globally growing in demand every year and currently accounting for 23% of primary energy demand and one fourth of the electricity generation across the world[17]. It is regarded as the cleanest fossil fuel when burnt and is superior to other fossil fuels in terms of the environmental benefits that encompasses GHG emissions and air quality due to a more complete burning of the fuel.

It is also reckoned as an optimal agent to enhance the security of electricity supply procured by renewable production due to its flexibility and storability [17]. Responsive to the seasonal outages and the ever-growing short-term demand and fluctuations, the natural gas sector is pivotal to enable any transition in the near future. It is a potential supplement to electricity from renewable energy, in the sense that it covers for the intermittency associated with wind and solar energy. The major role natural gas would play is to be the provider of a low cost, low carbon (in comparison to coal) electricity as a backup instead of being the round-the-clock main supplier. This makes natural gas as a great facilitator of energy transition. A globalized market powered by the rising supplies of Liquefied natural gas (LNG) and the availability of shale gas has visibly increased the gas trade all over the world, thus creating novel dimensions of interconnected gas markets, supply security of natural gas and the interdependency across regions [17].

Natural gas is mainly composed of the smallest hydrocarbon component (CH4) consisting of

one carbon atom and four hydrogen atoms. It, like other fossil-based fuels, is an energy source buried deep down the earth’s crust, predominately trapped between overlaying rock layers [17]. Natural gas found in large creaks, known as Conventional Natural Gas while

the gas occurring in smaller pores of shale and sedimentary rocks, commonly known as Shale Gas or Unconventional Natural Gas. The gas that is found along with oil wells are known

as associated natural gas while the type found along with coal beds is referred to as Coalbed Methane [17].

Naturally occurring gas contains amounts of other gases like CO2, H2S, Nitrogen or helium

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Figure 4 CO2 emissions from the combustion of natural gas [18]

Natural gas had a 4.6% increase in consumption in the year 2018, which amounted to nearly 50% of the increase in energy demand [17]. The growth of natural gas has been prominent and majorly converged in just three areas as following. The Middle East, where gas is a blessing in disguise to diversify the heavy economic dependence on oil; The United States, backed by the abundant shale reserves and China, where exigent measures where needed to curb the coal reliant power industry to improve the poor air quality. Surge in investments in the new Liquefied Natural Gas (LNG) pipelines and supply and low import prices promote LNG as the torchbearer for a broad-based growth in future. Natural gas continues to outperform coal or oil in scenarios developed by the IEA but the gas industry as a whole, confronts many challenges including environmental ones [17].

2.1.1 Natural gas WORLD data: Production, Imports & Demand

a. Natural Gas Production

The global production of natural gas has been progressively rising since the 2007-08 financial crisis, with a 2.7% growth rate Y.O.Y. But 2019 saw the highest increase in the production, crossing the 4 Tcm, a total of 4088 Billion cubic meters (Bcm) and a rise of 3.3%, 0.6% more than the previous average as seen in figure 5. Geographically, the increase in production was propelled by North America, with an increase of 78.4 Bcm, more than 50% of 131.5 Bcm. The OECD Asia Oceania also played a significant role, with 25 Bcm increase [17].

0 500 1000 1500 2000 2500 3000 3500 4000 4500 5000 5500 6000 6500 7000 7500 M il li o n to n n es o f CO 2 Year

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Figure 5 World natural gas production (volume) by region from 1973 until 2019 [19]

b. Natural Gas Imports

Like the production, the imports also saw an increase, hitting 1.2 Tcm in 2019. This also saw an augmentation to the ratio of gas imported/ traded to that of produced to 30.2%, previously at 29.8% as of 2018. The trend is majorly due to the amplified LNG trade and imports amounting to 65.6 Bcm in the world. LNG volumes accounted for more than 38% in 2019, a 4% increase in comparison to 2018 levels of 34.3%. Like its neighbors, China cemented it place as a pivotal player in the dynamics of the LNG market in the world. With an increase of 11.8 Bcm compared to 2018, China saw the largest increase in imports of LNG for the second consecutive year. UK closely followed China with 11.3 Bcm in 2019 [17].

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c. Natural Gas Demand

From Figure 6, in 2019, the natural gas, just like the production and import, saw a rise in the demand end of business. 57.9 Bcm (1.5%) was added to the 2018 levels, pushing the total to 3.98 Tcm. OECD countries in Europe and America were predominantly responsible for the increase with contributions of 13.9 Bcm and 22.3 Bcm respectively. Although Korea (-3.0 Bcm), Japan (-5.6 Bcm) and Turkey (-4.7 Bcm) experienced a fall in the demand, USA with 22.3 Bcm, Germany and Australia reset the offset of demand decrease. The Middle East represented by Iran, Iraq Bahrain and Kuwait contributed to +11.7 Bcm from the Non-OECD countries in the region. China, however was the major driver of the demand from Non-OECD countries and overall, contributing to 24.1 Bcm [17]. The demand is mainly for the industrial use (37%), followed by residential heating at 30%. Natural gas has also uses in the transport and the commercial and public services sectors.

2.1.2 Natural gas EUROPE data: Production, Imports & Demand

The EU Economy is dependent on Natural gas, amounting to 24% (525 Bcm) of the energy supply and 22% of final energy use in EU and the United Kingdom in 2018. Power generation has also seen a gradual increase in the share of natural gas, 22% in 2019, successfully and gradually supplanting coal. Sector wise, natural gas accounts for 31% of commercial energy needs, 36% for residential, 32% for industrial use, 23% of the final energy consumption and an additional non- energy use of 15% [21]. The average stated above varies drastically among the different countries and reasonably so. For example, the Netherlands leads EU in terms of the largest natural gas share by volume in the primary energy supply with 42%, and natural gas represents 71% of the residential heating and 44% of commercial space heating. With over 115 million customers, the European natural gas sector needs a decarbonization strategy backed with strong regulations [22].

The natural gas demand in the EU however is principally met by imports, close to 400 billion cubic meters (83%) of imported natural gas by volume [23]. An extensive and integrated trans-European transmission and distribution pipeline network caters to over 115 million consumers, industries, commercial entities and residential customers alike. The transmission lines of about 200,000 kms, owned by 47 TSOs across the EU, carries high-pressure natural gas connecting the various industries, power plants, storage facilities and the distribution networks. The DSOs and their strong 2 million km distribution lines supply low and medium pressure gas [22].

The market structure is a bit complicated and is quite diverse across the member states. While energy content based trading of gas is common, the quality is varied between countries and in some cases within parts of a country. The network operators oversee the differences in gas qualities and the regulators set the national level gas quality.

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2.2 Need for Decarbonization?

Decarbonization of the natural gas sector is inevitable and there is an exigent need to address the growing carbon-intensive sector. Existing decarbonization policies and regulations like that of RED II [24] and the EU ETS [25] continue to monitor and guide the sector to reduce the carbon footprint. Setting carbon prices, national targets and support for the uptake of renewable gases (hydrogen, primarily green, bio methane etc.) ensures a smooth transition. A regulated market further guarantees positive competition and a levelized field for all players. However, the present frameworks cannot render the gas sector decarbonization by 2050 as forecasted by many including Alex Barnes in their Energy Insight 71 for The Oxford Institute for Energy Studies [26].

The EU plans to completely overhaul its economy to be carbon neutral by 2050. The European Green deal, released in the end of 2019, details a large-scale plan in order to accelerate the pathway towards decarbonized economy. This calls for a step-up in investments in greener alternatives. Low carbon intensive energy vectors and carrier, renewable energy should take over while simultaneously phasing out fossil fuels. It will also depend largely on sector integration, mainly electricity and gas. A decarbonized Europe relies heavily on a low cost interplay between renewable electricity production and pan sector supply. To this end, conversion of green electrons to molecules takes precedence. On a contradictory note, the same climate policies that have ensured a spike in greener electricity production has failed to cater to the gas sector.

Figure 7 Correlation between GHG emission reduction and expected gas demand until 2050 [27]

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present in gas extraction stage and transportation stage of the value chain pose a threat to decarbonization. The increase in investments, combined with the need to achieve Carbon neutrality, leaves the sector bound to a substantial number of stranded assets. What follows is a reiteration among different stakeholders placing blame on the other unless there is a defined strategy by the EU that addresses the issues at hand.

The figure 7 shows the predicted trend lines of natural gas demand for different scenarios of CO2 emission reduction. In order to reduce the CO2 emissions up to 80%, 43% of the gas

demand should be constant while having a 29% moderate decrease. Clearly, a decrease in the natural gas demand would reduce the amount of CO2 emissions. Figure 8 on the other hand

predicts the type of gases in the mix by 2050. It is evident that hydrogen (40% of total volume), synthetic methane and biomethane are key to reduce the emissions to below 95%.

Figure 8 Correlation between GHG emission reduction until 2050 and type of gas [27]

In the subsequent section, the means to achieve carbon neutrality in the natural gas sector are examined. Additionally, hydrogen pathway is inspected.

2.3 Means to Decarbonize Natural Gas

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High GHG Low GHG GHG Neutral

Fossil gas

Natural gas from conventional and unconventional sources

Hydrogen from Natural gas coupled with CCS

Hydrogen from natural gas with 100% carbon capture

Fossil gas from coal or petroleum coke gasification

Synthetic methane from grid connected electricity

Synthetic Methane from grid electricity coupled with CO2 capture

Renewable gas Biomethane from crops

Hydrogen or synthetic methane from low GHG electricity production

Hydrogen or synthetic methane from renewable electricity

Biomethane from crops

with low methane leak Biomethane from wastes and avoided methane

Figure 9 Climate Change mitigation performances of fossil and renewables based gas production segregation of gas types [28]

Various studies have indicated the means to decarbonize gas. The following are the most quoted and suggested ways:

 Hydrogen

Hydrogen is produced from water electrolysis or using methane reforming. It could ideally be used as a substitute for natural gas. Various studies in Europe have explored the pathway with hydrogen as an energy carrier and its potential to replace natural gas. EU commission’s report on the impact of hydrogen and bio methane on the infrastructure [29]. Poyry, now AFRY, explored hydrogen use in their reports on “Fully decarbonizing Europe’s energy system by 2050” and “Hydrogen from natural gas – the key to deep decarbonization” [30] [7]. Navigant, a consultancy, and Gas for climate also evaluated hydrogen as the successor of natural gas [31] [32].

 Bio methane and Synthetic methane

Bio methane and synthetic methane, when blended with natural gas have shown to reduce CO2 emissions by up to 95% [33]. These gases are low carbon gases and have very little

carbon footprint. Biogas, produced from the gasification of organic wastes [28], can be easily injected into the existing grid. Power to gas to produce synthetic methane from excess renewable power is also a viable option [33]. As of 2018, biogas installations was at 18202, producing 63511 GWh of biogas in Europe [34].

Table 1 Alternatives to Natural Gas

Method Pros Cons

Hydrogen:

Water Electrolysis

 Renewable electricity usage  Excess renewable output

can be stored in Hydrogen as a form of Energy Vector

 Highly dependent on electricity

 Policy and investment barriers

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 Can utilize existing grid as well as newly planned RE projects

 Cost of production and competitively vs Natural gas

Steam Methane Reforming

 Production from SMR can be easily achieved with CCUS

 Natural gas is utilized as the feedstock

 Nascent technology in terms of carbon capture and storage

 Highly reliant on CCUS to be deemed as blue hydrogen

Bio methane and synthetic methane

 Produced from wastes and byproducts can be used as fertilizers

 Small scale implementation is already in place

 Easier process

 Efficiency

 Potential and scalability will depend on

agricultural wastes  CO2 is a byproduct

 Impurities will bear additional costs

From table 1, it is clear that Hydrogen pathway is easily compatible with the electricity sector, acting as an energy vector, storing excess renewable electricity as hydrogen and converting H2 into electricity during higher demands. It can also be produced without any emissions

(green hydrogen). Using these as the main advantages of the selected pathway, the thesis proceeds to analyze the current state of hydrogen in Europe and the reason for a study specific to Portugal in the following sub chapters.

2.4 Hydrogen in EU

The European Commission took to its hydrogen strategy for a climate-neutral Europe. The Strategy lays out a detailed plan to enable scaling up of Hydrogen to satisfy the demand for a climate neutral ecosystem. Covering the whole hydrogen value chain, the strategy looks to put together the different players in the industrial, infrastructure and market aspects coupled with research, development and innovation globally. The strategy also highlights clean hydrogen and its value chain as one of the essential areas to unlock investment to foster sustainable growth and jobs. Objectively, the strategy aims to have at least 6 GW of renewable hydrogen electrolyzers by 2024 and at least 40 GW of renewable hydrogen electrolyzers by 2030 [35].

The Vice President of European Green Deal, Mr. Frans Timmermans said

“Driving hydrogen development past the tipping point needs critical mass in

investment, an enabling regulatory framework, new lead markets, sustained research and innovation into breakthrough technologies and for bringing new solutions to the market, a large-scale infrastructure network that only the EU and the single market can offer, and cooperation with our third country partners”

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The role of hydrogen in the EU’s energy and greenhouse gas (GHG) emission reduction efforts will rapidly increase. Currently at 339 TWh of hydrogen per year (2019), the expectation is a significant increase in the use of hydrogen – between 667 – 4000 TWh in 2050. In order to have a positive impact in the transition, hydrogen must be sustainable across the value chain and other factors like costs, and the impact it has on jobs etc. [35].

2.4.1 Hydrogen Production

Production by Type

In total, 457 hydrogen production sites are said to be in operation in Europe at the end of 2018. Facilities are further divided into three main types: captive production (64%), merchant production (15%) and by-product of other processes (21%). The total production capacity was close to 11.5 million tonnes per year as of 2018. Pure hydrogen production capacity is 9.9 Mt per year of which the majority is produced on site, amounting to at least 2/3 of the total capacity. The utilization was 84% in the year 2019. The other major producer are the merchant plants, estimated to be 184 in number across Europe. Merchant Hydrogen plants often provide to either a single large consumer or small/ medium plants that caters to retail customers. While the first type can be comparable in scale to the largest captive hydrogen production facilities, the installations intended with the hydrogen market in mind are an order of magnitude smaller in terms of their maximum capacity [35].

Hydrogen from other processes, usually as a by-product is produced at 133 different plants. Total by-product hydrogen production capacity has been estimated at 2.36 Mt per year (around 20% of total production capacity) of which the coke oven gas (COG) represents the highest share. Though the purity is not 100% (~60%), COG produces about 1.6Mt per year.

Production by Technology

Steam Methane Reforming (SMR) or Auto thermal reforming (ATR) is by far the most common method used for hydrogen production. SMR and ATR are broadly utilized for all applications, be it oil refining, smelling salts amalgamation or some other mass hydrogen creation. Albeit natural gas is the most well-known feed for hydrogen production, SMR can also be utilized with different feeds, including fluid hydrocarbons like Naphtha or Liquefied Petroleum Gas (LPG) [35].

As of now, 95% of EU hydrogen production is done via steam methane reforming (SMR) and to a lower extent auto thermal reforming (ATR), both highly carbon-intensive processes and thus commonly called the blue hydrogen [37]. The production capacity by technology can be seen in figure 10. However, both the reforming methods can be coupled with CCUS to capture the CO2 for later use, and thus reducing its footprint. The hydrogen thus produced

is name the blue hydrogen. 228 hydrogen production plants were using a fossil-based feedstock and thus unsustainable. Five percent is produced through chlor-alkali process, which falls under the category of Chemical industry by product [35].

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technology have been given precedence whenever the volumetric demand for hydrogen is sufficient to commission a separate onsite unit instead of relying on outside supply [35].

Figure 10 Hydrogen generation capacity by technology [35]

2.4.2 Hydrogen Demand

Total demand for hydrogen in the EU in the year 2018 was 327 TWh. Refineries and the ammonia industries were the main consumers and amounted to 4/5 of the total demand, equivalent to 6.5 Mt of 8.3Mt in total (45% and 34% respectively). Methanol production contributed to 12% of the demand. The current supply and demand is based on years of using Hydrogen as a feedstock for ammonia (34%), methanol (5%) and other refineries (40%) rather than as an energy carrier or for energy use (1%) [35]. Thus, most of the production is dedicated to the refinery and ammonia production industry and do not necessarily produce hydrogen from low carbon fuels.

2.5 Hydrogen Production Technologies

Hydrogen is predominantly produced from fossil fuels (Natural Gas, Coal), biomass, or from water and sometimes a combination of either [8]. The potential pathways to produce are described in the figure 11. This figure also shows the ammonia production from hydrogen, which constituted to 35% of hydrogen demand in the EU. As seen before, the largest share of current production is by methane and hydrocarbon reforming (90%). The current state of clean hydrogen production, i.e. low carbon or renewable hydrogen (Green hydrogen) is less than 1% in terms of production capacity [35]. The downsides include upcoming end uses of hydrogen that include zero “Well to Wheel” emission mobility.

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Since Hydrogen production in EU is dominated by SMR [8], the thesis chooses to underline its focus on the LCOH from SMR. It is often labelled as blue hydrogen and can be coupled with Carbon Capture and Storage to reduce its CO2 emissions. In order to take into account

Green Hydrogen production, electrolyzers are taken into consideration. The next chapter will detail about the working of the selected production technologies along with its types.

Figure 11 Potential pathways for producing hydrogen and by products [8]

Although the production is mainly attributed to Germany (2.5Mt) and Netherlands (1.5Mt) in terms of production capacity [35], the hydrogen production strategy in Portugal has the potential to enable cheap yet green hydrogen [13]. This could be seen as an interesting area of deliberation as to how the production cost could vary based on the electricity, natural gas and carbon prices in Portugal for the years 2020, 2030 and 2050. Thus, a case study in Portugal is used to evaluate the production costs of hydrogen in the Member State.

2.6 Hydrogen Strategy in Portugal

Portugal in its NECP (PNES in Portuguese) has defined a definite strategy for hydrogen in its economy [13]. It is deemed as an important factor in its decarbonization strategy. In addition to the ongoing projects in the transport and production of Hydrogen, It also has various projects that are set to decarbonize its heat and electricity sectors [38]. Albeit having low percentage of hydrogen and low carbon gases in its current mix, the country endeavors to maximize use of Hydrogen, especially green hydrogen. The EU, as part of the EU Hydrogen Strategy has already allocated 40 million Euros to the projects in Portugal [15]. The following are the sectors forecasted to use green hydrogen under its strategy:

a. Power to Gas (P2G): H2 to be injected in to the existing natural gas grid

b. Power to Mobility (P2M): As a fuel in the transport sector

c. Power to power (P2P): Surplus Renewable Electricity stored as Hydrogen d. Power to Industry (P2I): Replacement of Natural Gas as Industrial fuel

e. Power to Synfuel (P2Fuel): Synthetic Gas from Hydrogen and captured

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Figure 12 Hydrogen generation and infrastructure in Portugal by 2030 (Predicted) [15]

The renewable hydrogen generation and the required infrastructure includes an electrolysis range of 0.3 to 2.3 GW and a renewable electricity generation from solar PV of the range of 0.8-19.8 TWh per year as seen in figure 12 [15] . Portugal intends to set up an anchor production plant in Sines, scaling up to 1GW Electrolyzer (not clear about the electrolyzer technology) capacity by 2030 [15]. The plant would be powered primarily by Solar but also considers Wind power. This is the reason why the production costs analysed in this thesis considers electricity from grid as well as Solar and Wind powered electricity.

With expected consumption in 2030 in the range of 756 GWh, Portugal has also planned to invest heavily in R&D. The barriers however will be addressed by introducing specifications and regulations that mandate uptake of hydrogen.

The NECP has the following goals for 2020 (figure 13): i. 15% of H2 in thenatural gas grid

ii. Ample fueling station for H2 Powered vehicles

iii. Limiting import of Natural Gas

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3. Review of policies/plans and literature on Natural

Gas decarbonization and Hydrogen in the EU

This chapter consists of the literature that were reviewed during the thesis. The chapter also links the current data, trends and decarbonization pathways to the methodology opted that discussed in the subsequent chapter. It also includes a brief description of the EU policies and regulations relating to natural gas and decarbonization.

3.1 Existing Literature: Natural Gas Decarbonization

Jacquelyn Pless [40] studied the pathways to decarbonization using Natural Gas and Renewable Energy while Consonni [41] had talked about the co-production of de-carbonized hydrogen and electricity from natural gas. Abánades, in his paper discusses how gas decarbonization would serve as a tool to control the CO2 emissions in the EU [42]. Jack et

al, [43] talks about the roadmap toward a rapid decarbonization. Horschig [44] went on further and carried out a dynamic market simulation for bio methane in the Natural Gas pipeline. Gil et al, compared Electricity and Natural Gas Interdependency using two methods by while the use of renewable methane was technologically evaluated by Billig et al., in the European perspective [45].

Erdgas, in their report, insisted on the importance of hydrogen from natural gas and that it holds the key to deepen decarbonization. Jose Hernandez researched on the policy and regulatory challenges in natural gas infrastructure and supply in the energy transition in Sweden [46] while Martin Lambert studied the narrative of the hydrogen and decarbonization of gas being a boon [47].

Alex Barnes explored whether the current EU regulatory framework would enable the gas industry decarbonization [26]. Foreest, on the other hand, discussed the need for a strategy to have a low carbon natural gas in the UK and The Netherlands [48]. Stern argues that the stakeholder in the European gas industry ought to demonstrate that they are pivotal in achieving the targets set by the EU. Stern also asserts the need for a decline in the gas demand in Europe in the 30s to meet the COP21 targets [49]. In a report by the Energy and Environmental Economics, Inc., they understand the need to improve combustion process efficiency while developing decarbonized alternatives to existing natural gas. They also assert that existing policies still cater to complete electrification than decarbonizing gas.

Eurogas report on the role of gas in ensuring a carbon neutral EU also calls for the necessity to ramp up relevant policies and changes to the regulations [50]. Several individual organizations such as Climate Action Tracker researched and developed reports on the continued dependence on gas and the risks it possesses [51]

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P2G can effectively contribute to minimizing the expansion and thus the costs of the electricity grid. Germany is forefront in empowering P2G pilot plants that produce H2 to be

used as an energy vector [52]. However, the dearth of mass produced Hydrogen due to the costs as mentioned by Gotz, various plants remain stagnant and thus become heavily reliant on system configuration and existing infrastructure [53].

While the existing literatures provide information about the need for decarbonization and to some extent conclude about the barriers to gas sector decarbonization, they have not dwelled into dividing the internal and external factors. Moreover, the macroeconomic aspects are not reviewed as well. Thus, this thesis will mainly focus on categorizing the barriers and perform a SWOT analysis based on macroeconomic factors. The following section describes the policies relating to Natural gas in the EU. Giving a brief description, it can been seen that most policies align with Europe’s commitment towards a carbon neutral future.

3.2 Current EU policies & Regulatory Framework

The EU Commission followed their A Clean Planet for All [54] that laid out pathways by which the EU could reduce emissions, with the European Green deal proposal [55]. The present policies are consistent with the EU´s long-standing objective of reducing greenhouse gases emissions (GHG). Added to the existing policies the new deal brings to the table a bigger confrontation because of the challenges of decarbonising certain sectors of the economy. The EU has a wide range of policies and regulations that address the GHG emissions and the impacts of Hydrogen and low carbon gases like bio methane. While Third Gas Directive governs Natural gas in the EU, regulations in EU do not explicitly addresses the role of infrastructure in the treatment of gas. Moreover, a hydrogen exclusive regulatory framework does not exist. The following sections below briefs about the current EU decarbonization plans that cater to Hydrogen and Low carbon gases.

3.2.1 Policies

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The following section covers in detail about the policies and regulations that has references to natural gas and low carbon gases in the EU. The timeline of these polices is as shown in figure 14.

a.

2030 Climate and Energy Framework

The latest of the various plans ahead for the EU, this proposition has further increased the GHG emission targets for 2030. It also addresses the actions needed among the sectors and will further the process of detailing pertinent legislations. It also includes Pan EU targets and objectives of policies in the period (2021-2030) [56]

Relevance to Gas sector:

1. Minimum 40% (1990 levels) decrease in GHG emissions by 2030 2. Share of renewable energy - >=32%

b. Renewable Energy Directive (RED II)

The revised version of the original RED came into force in 2018. The updated version sets out modified targets for energy production from renewable energy and covers green Hydrogen production. The most prominent feature is that the Member States can work in collaboration with other MSs and third party countries as a part of joint ventures. [57]

1. Renewable Energy usage increase in the heating and cooling sectors: EU-wide target of 1.3% YoY from 2020 to 2030

2. Recycled carbon gases and non-bio fuel included in the 14% EU-wide target for renewable energy in the transport sector by 2030

3. A well operating gas network that has provisions for gases from renewable sources 4. Hydrogen and all renewable gases will have guarantees of origin

5. Transport fuels will have a share of biofuels and biogas (3.5%) in 2030 6. Sustainability and greenhouse gas emissions savings criteria

7. Bio methane is included in the definition of biogas as ‘gaseous fuels produced from biomass’

c.

European Climate Law

The law wants to achieve net zero GHGs for all the EU countries as a singular unit, ensuring that all the further EU policies will inevitably promote this goal and is inclusive to all the citizens and the sectors. The talking points include protection of environment, green technology investments and reduced emissions [58].

1. New EU target for 2030 of reducing greenhouse gas emissions by at least 55% compared to levels in 1990

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d.

European Green Deal

With goals of becoming the first continent to be climate neutral, The Union came up with the European Green Deal. The deal lays out an action plan for boosted efficiency, cleaner fuels, implementing circular economy, cutting out pollution and restoring the serene biodiversity. The European climate Law is a part of the green deal and is an instrument to a commitment to a legal obligation. [55]

1. Phasing out coal and decarbonizing gas to facilitate renewable power generation 2. Gas sector Decarbonization by means of support mechanisms, development of low

carbon gases.

3. Competitive gas market for hydrogen and decarbonized gases 4. Reduction in methane emissions related to energy.

5. Energy security and affordability: Neutrality in technology across EU

6. EU Industrial strategy: Energy intensive industries to go through a “green transformation”

e.

2050 long-term strategy: Clean Planet for all

The main vision of the EU commission with the 2050 strategy was to cover the important sectors and investigating different transition pathways. The national strategies include development of GHG emission strategies for 2050. [54]

1. Strategy to maximize energy efficiency

2. Deployment of renewables, clean electricity to decarbonize Europe’s energy supply 3. Hydrogen and Power to X (P2X)

4. Mobility: Hydrogen based and LNG with higher blends of Bio methane

5. Circular Economy: Carbon Capture and Storage converted as raw material for other industries

6. Trans European Smart energy network

7. Bio economy and Carbon sinks: Uptake for biomass and biogas

f.

Energy Taxation Directive: Revised

A steady increase in renewable energy production lead to a revision of the Energy Directive and Regulation (2009) and included a cap on the subsidies for power plants producing from fossil fuels. This was in place previously as a capacity mechanism to cope up with the intermittency of renewable electricity generation and ensure enough capacity to meet the demands [59].

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2. Tax reductions and exemption: rationalized and an updated tax rate aligning with EU 2030 targets

3.2.2 Regulations

The regulations in the EU control natural gas. The Third Gas Directive largely governs natural gas while Energy Union overlooks the overall policy pertaining to it. A competitive market and decades of liberalisation has helped in nurturing natural gas in the EU. With a successful single market and an ensured security of supply, there is a definite stability among investments and regulations. Scattered third party access and unbundling ease a flexible market.

Third Energy Directive: Third Gas Directive

Entering into action in 2009, the package works towards resolving the existing infrastructural problems and better functioning of the energy market in EU. The following are the main aspects with respect to Gas.

a. Independent regulators & the Gas Regulation

The vital role of independent regulators include instilling the rules and promoting a healthy and competitive energy market. Important requirements for national regulators are:

 The government or the industry will not have any say over the regulators. They will function as an independent entity with the government supporting with resources alone.

 Companies are obliged to follow rules imposed by the regulators and will face penalization failing to do so.

 Network operators should report directly to the regulators

 Cooperation among national regulators to improve cross border interactions

b. Regulation on Market Integrity and Transparency (REMIT)

The REMIT defines an outline to identify manipulation of market and punishing offenders. The participants are mandated to report their trading to ACER [60].

c. Agency for Cooperation of Energy Regulators (ACER)

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d. Unbundling

Unbundling means no one can have control over the entire value chain. This implies that companies involved in production can have no say over the TSOs or DSOs and vice versa applies. The reason behind unbundling is to prevent unfair advantage to a single entity, which may prevent competitor’s access to network. Unbundling imposes itself in one of three ways depending upon the Member country:

 Independent System Operators: Formally owned by producers, the system now will act independently on all fronts- Operation, Maintenance, Grid Investments etc.

 Ownership Unbundling: No producers can hold major shares in TSOs

 Independent TSOs: Ownership may be under energy company but must be through a subsidiary and decisions should be independent of the parent company

e. Projects of Common Interest (PCIs) & Third Party Access

Projects of Common Interests are major cross border infrastructure projects that connect gas and electricity systems in EU. National TSOs ensures safe and secure supply of energy through pipelines across Member states. In order to guarantee ideal management, the operators, controlled by European Network for Transmission System Operators for Gas (ENTSO-G), across borders come together. The ENTSO-G are responsible for developing codes and rules for the flow of gas. They are also in charge of the investments and the monitoring developments.

Third Party Access is applicable to TSOs and storage operators. The third directive Article 13 states, “All transmission, storage and LNG system operators must “operate, maintain and develop under economic conditions secure, reliable and efficient” facilities; and “refrain from discriminating between system users or classes of system users, particularly in favour of its related undertakings”.

The TEN-E Regulation

The TEN-E Regulation enabled cross-border energy flow and planning of infrastructure. Through PCIs, stakeholders and Member States came together to strengthen energy networks and connect isolated regions. It also aids in reinforcing prevalent interconnections and promote integration renewable energy. The Commission has however looked to revise the TEN E regulation to be able to fit in the European Green Deal. Under the revised version, PCI status is to be voided for natural gas and oil pipelines to promote low carbon gases and decrease dependence on fossil fuels. [62]

SWOT-PESTEL Study of Constraints to Decarbonization of the Natural Gas System in the EU: