Pricing supply chain emissions of natural gas

Abstract

This study by analyses the relevance, regulation, and potential pricing of emissions along the natural gas supply chain within the EU climate policy framework, without making definitive policy recommendations. In addition to combustion emissions, supply-chain emissions of CO₂ and methane can increase the climate footprint of natural gas by up to 35%. While emissions within the EEA are partly regulated through the EU ETS 1 and the EU Methane Regulation, many upstream emissions outside the EEA remain largely unregulated. This can distort competition in favour of natural gas as well as grey and blue hydrogen. Extending the EU ETS 1 to the entire supply chain could provide climate benefits but faces challenges, particularly due to uncertainties in measuring methane emissions.