EUCERS/KAS Energy Talks 2017

EUCERS/KAS Energy Talks 2017

The role of natural gas in the EU energy mix in the context of the Paris Agreement

It is expected that the Paris Agreement will trigger changes in the global energy mix that will become increasingly reliant on climate friendly fossil fuels and renewable energy (International Energy Agency 2016[1]; Energy Information Administration 2015[2]). An important role in the transition process to a greener energy system will be played by natural gas. The data released by the Energy Information Administration (EIA) shows that starting with 2005 the presence of natural gas in the energy mix prevented over a billion metric tons of CO2 from being released by power plants in the US (Energy Information Administration 2015).Gas is the only fossil fuel whose consumption will increase in the future (International Energy Agency 2016).According to the Agency, gas can help gradually decarbonise the energy system by replacing more carbon-intensive fuels and by supporting the integration of renewables in the energy mix.

Europe played an important role in the architecture and negotiation of the Paris Agreement. We would expect the EU to act as a role model when it comes to implementing the Agreement. While gas can help the EU to decarbonize its economy and reach climate commitments taken under Paris, it also renders the European Union’shighdependency on gas imports.Gas constituted 21% of overall EU gross inland energy consumption in 2014 (European Commission, DG Energy 2016[3], p.22). The EU’s gas imports will most likely increase in the foreseeable future as domestic gas production is declining and there are little prospects for a European shale gas revolution to replicate the revolution taking place in the US in the last few years.Will a greater reliance on natural gas render the European Union more dependent on external energy sources and, implicitly, more energetically insecure? What contribution should natural gas make to the future energy mix of the European Union, while responding to security of supply and climate considerations? What regulatory and financial incentives can support that contribution?

The talk will discuss the role that natural gas can play not only in the EU, but also in the national energy mixes. The case of Germany is particularly interesting to examine as Germany plans to phase out its nuclear power plants by 2022 opening a window of opportunity for other energy resources. In Germany, gas-fired power generation accounted for 5% of the total generation in the fourth quarter of 2014, 10% in the fourth quarter of 2015 and its share increased to almost 12% in the first quarter of 2016 (European Commission 2016[4], p.7). This was a result of the increased competitiveness of gas in Germany in this particular sector.Nevertheless, price-wise gas continues to face a lot of competition from coal. It will be interesting to hear from both the German government and industry on the challenges faced by the gas sector in Germany and the potential measures that can be taken to overcome those challenges. At the same time, the event will discuss the prospects of natural gas in the UK, a country that underwent a ‘dash for gas’starting with the early 1990s and is currently in the process of leaving the EU. There is a need to evaluate the degree to which Brexit might directly or indirectly impact on the European and British commitments taken under the Paris Agreement and the degree to which such changes might impact on the future of natural gas in the UK.

The talk also aims to cover the main financial and regulatory incentives that can support a greater role for natural gas in the European energy mix.The Paris Agreement is already triggering changes in national and EU regulatory and investment frameworks applicable to the fields of energy and climate. One of the main goals of the agreement as set in Article 2 is: ‘Making finance flows consistent with a pathway towards low greenhouse gas emissions and climate-resilient development’ (Parties to the Agreement 2015, Article 2[5]). Signs of change in energy financing were already visible at the moment when the Agreement was signed. For instance, in the framework of the programme Mission Innovation twenty leading economies promised to double (from $10 billion to $20 billion/ year) their clean research and development (R&D) spending in the next five years. It is unclear what financial resources can be mobilized by governments to cover this spending. As it is unlikely that tax revenues can cover the bill, carbon pricing can constitute an additional source of funding for technological development in the energy sector (Grubb 2015[6]). The industry itself will most likely need to invest more in R&D in the future and to change its business model.In the context of the Paris Summit, world’s top investors such as Bill Gates and Mark Zuckerberg took the commitment to finance new energy technologies without expecting immediate returns by forming the ‘clean energy investment coalition’ (Milman 2015[7]).

The talk will also address the role that energy companies will play in the EU energy governance system developed after Paris.An important goal that the EU sets for the next years is to develop a new energy governance system that will ‘ensure stronger investor certainty, greater transparency, enhanced policy coherence and improved coordination across the EU’ (European Commission 2017[8]).Windows of opportunity to participate in energy governance will open in particular for industry that can show it can help fight climate change (this is the case with the gas and renewable industry). In addition to their financial contribution, companies are in a good position to provide advice on the most economical, efficient and technologically feasible ways of ensuring the transition to an energy system low in carbon.

The second EUCERS/KAS Energy Talk of 2017 builds on the more general, framing debate provided by the first EUCERS/KAS Energy Talk on ‘Energy and Climate Policy between the Trump Presidency and the Paris Agreement’. Our experts from different sectors (government, academia, consultancy, industry, etc.) will attempt to assess the degree to which the Paris Agreement can impact on the role of natural gas in the EU energy mix, while addressing the questions raised in the paragraphs above. The second part of the event will provide the audience with an opportunity to engage the panel in a conversation by raising additional questions and by commenting on the interventions made by the panel. The event aims to foster debate and generate policy recommendations. Join us for a very promising discussion!