Using gas certificates to address Scope 1 emissions in Europe

Net Zero
Net Zero

Europe is by far the largest and most liquid market for energy attribute certificates globally, and it is poised for further expansion. For decades, Guarantees of Origin (GOs) have been used to claim the consumption of renewable electricity in Europe. Now, the GO system, which is enshrined in EU law through the Renewable Energy Directive, is being expanded to cover other energy carriers, specifically biomethane (also known as renewable natural gas) and hydrogen. In the coming months and years, companies will see increasingly accessible opportunities to use gas GOs to address their Scope 1 emissions on their journey to net zero. Compared to electricity markets, though, markets for renewable gases in Europe are nascent and exceedingly heterogeneous.

State of the European gas certificate market

The recast Renewable Energy Directive (RED II) requires the use of GOs to claim consumption of renewable energy. While this has become commonplace for renewable electricity claims in Europe, it is still an emerging option for renewable gases and is likely to be less familiar to many companies. This lack of familiarity can be compounded by the fact that the European gas GO market is fragmented, technically complex, and evolving quickly. Because of RED II requirements, EU member states are mandated to be actively implementing gas GO systems — or updating their existing GO systems — to accommodate energy carriers other than electricity. 

Despite momentum at the EU level, there are currently only a handful of countries in Europe that have registries that can accommodate the issuance and trade of gas GOs, including Germany, Austria, France, Denmark, Lithuania, the Netherlands, and the United Kingdom. Although it did exit from the EU, the UK is actually one of the most mature markets for gas GOs in Europe. These countries with active gas GO registries are members of the European Renewable Gas Registry (ERGaR), which is a membership organization dedicated to enabling the cross-border transfer of renewable gas certificates. While the market for gas certificates is moving toward increased cross-border fungibility, such functionality is still fairly limited. ERGaR has designed two gas certification systems: one that strictly utilizes book-and-claim accounting, and one that incorporates mass balancing calculations. It is possible that the mass balancing scheme could be used to comply with RED II transportation decarbonization mandates.

Another layer of complexity arises from the fact that the Association of Issuing Bodies (AIB), a membership organization that includes competent bodies responsible for the issuance of electricity GOs in 28 European countries, is expanding the European Energy Certificate System (EECS) to accommodate the issuance, trade, and cancellation of gas GOs. EECS Rules have been updated to incorporate energy carriers other than electricity, and so far seven AIB members have been appointed as the competent bodies for gas GO issuance. Although the AIB Hub will eventually streamline fungibility between countries, cross-border trading in the near term will be limited to countries with bilateral trade agreements.

Forthcoming European market eevelopments

The gas GO market will evolve significantly over the next year (or years, depending on the ambition of regulators). Companies seeking to use gas GOs to address Scope 1 emissions in Europe should be aware of three main areas of change.

  • Standardized gas GO issuance will spread across the European continent. The current patchwork of GO systems will homogenize, and cross-border fungibility will increase. The roles and relationship between AIB and ERGaR will become apparent. 
  • Rules for issuing, trading, and canceling gas GOs will be finalized as RED II is implemented, and the EN16325 Standard is finalized. Companies should note that adherence to EN16325 is required by RED II and is intended to ensure that GO systems are accurate, reliable, and secure. It should also resolve outstanding questions regarding topics such as gas certificate vintage, expiration, and market boundaries. Standardized rules for how gas certificates will interact with RED II transportation mandates and the EU Emissions Trading System should also emerge, but implementation could vary by country. 
  • In late 2022, the Greenhouse Gas Protocol will publish new guidance on bioenergy accounting and claims; a range of industry stakeholders are participating in this process, including 3Degrees. This will be critically important for companies seeking to use biomethane to reduce their Scope 1 emissions.

Best practices for early movers

Although the structures and rules of gas GO markets are evolving, this should not dissuade companies from becoming early participants in these markets. Sending early demand signals is crucial to kick-starting these markets, which will play a pivotal role in the EU bloc reaching its net zero by 2050 target. While EU-wide market rules are being finalized, and as stakeholders await updated Greenhouse Gas Protocol guidance, they should keep the following best practices in mind:

  • Source certificates that were issued close in time to gas consumption: For electricity GOs, production and consumption are typically matched on a calendar-year basis, but the acceptable vintage window for gas GOs may be longer. 
  • Source certificates from within the same market: The EU gas grid is typically considered a single balancing facility, but other political and regulatory factors have historically influenced market boundaries. 
  • Source from sustainable feedstocks: Gas certificates originate from a range of feedstocks, which can vary considerably in terms of life cycle GHG intensity and price; companies should weigh cost-effectiveness with environmental impact and reputational risk.

Markets for renewable gases are beginning to emerge in other regions of the world as well, most notably in the United States and Canada. If your company is seeking to understand how to best leverage emerging markets for renewable gas certificates to address your Scope 1 emissions, feel free to reach out to us. We are happy to help.