The European Union’s newly proposed Green Deal raises “significant questions” for the oil and gas industry, analysts said, but the plan was broadly welcomed by companies across the energy sector.
On Wednesday the European Commission presented a sweeping 50-point plan centered around achieving net zero status in Europe by 2050. The proposals include a new climate law to be drafted within 100 days and stronger carbon taxes including the creation of "carbon borders." These would levy carbon taxes on imports to prevent the offshoring of emissions by firms that shift activities overseas.
The border tax, in particular, will be closely watched by the oil and gas sector, said Valentina Kretzschmar, director of corporate research at Wood Mackenzie.
“Oil and gas exporters to Europe, including Russian gas and U.S. [liquefied natural gas], will be eager to understand the potential impact of the EU’s momentous announcement — both in terms of the diminishing demand outlook and impact on their revenue through carbon taxes."
In a statement emailed to GTM, a spokesperson for Shell said the company "welcomes the EU’s new Green Deal and supports the vision to achieve net-zero emissions by 2050 in Europe.”
The Green Deal will stimulate huge volumes of low-carbon generation. Understandably, then, companies currently charged with the task of generating Europe’s electricity welcomed the proposals with open arms.
EDF’s group chairman and CEO Jean-Bernard Lévy called it a “great opportunity” to decarbonize Europe in a competitive fashion, adding that the company would mobilize all its resources to enable the “historic transition.”
Offshore wind is the only specific generation technology to get a mention in the roadmap, with nuclear power conspicuous in its absence. The longer official communication says the power sector should be based “largely on renewables,” with coal phased out and gas decarbonized.
A specific offshore wind plan will be developed next year, with the European Commission having previously discussed a target of 450 gigawatts by 2050.
The Green Deal's push to electrify heat, transport and industry would also be expected to spark demand for hydrogen and carbon capture and storage.
In a joint statement, the CEOs of Statkraft, Vattenfall and Fortum, the major power companies of Norway, Sweden and Finland, respectively, pointed out that the Nordic countries have already decoupled GDP growth and emissions without the dire economic consequences opponents to drastic climate action have forecast.
“The European electricity industry is committed to carbon-neutrality well before 2050 and to a significant increase in the electrification of sectors with high CO2 emissions (industry, transport, heating and cooling)," the CEOs said in the statement. "This will be enabled and enhanced through stronger interconnectors between regions, large development of increasingly competitive low-CO2 power generation as well as sufficient flexibility in the system through hydropower and other storage solutions."
At the same time, they called for a “more global” approach to carbon pricing to discourage carbon leakage.
The environmental consultancy E3G said that the carbon borders plan is more likely a tool for engaging with other nations on climate via trade, rather than a direct tool for decarbonization.
“It is a powerful tool to engage other countries in the climate ambition discussion throughout 2020,” wrote Quentin Genard, head of E3G’s Brussels office.
“The European Commission should also lead on outreach by building partnerships on climate resilience and the clean economy and replacing existing relationships when needed. Algeria, for instance, is exporting a lot of gas to Europe. The European Commission needs to engage now to build a new — clean — partnership to replace the existing fossil fuel-based one.”
The money question
Questions remain as to how the Green Deal will be funded. The development of a dedicated financing plan is scheduled for fall 2020 under the Green Deal’s roadmap.
The Institutional Investors Group on Climate Change, which represents investors with €6 trillion ($6.7 trillion) of assets, welcomed the long-term certainty that the deal could deliver.
“There is no time to lose in strengthening the 2030 greenhouse gas emissions reduction target as the next step in this process, so that the EU can ideally resubmit new 2030 targets to the U.N. climate process during 2020,” said Stephanie Pfeifer, the group’s CEO.
“This will provide investors with confidence that the EU is serious on delivering on the commitments it has made as well as sending a strong signal to the rest of the world during a key moment in the international climate negotiations," Pfeifer said.
The European Commission has set out along the road to achieving a climate-neutral economy by 2050. But where do the opportunities lie, and which technologies are poised to benefit?
Wood Mackenzie has launched a European Green Deal guide to help businesses understand how the European Green Deal will shape the future energy market and evaluate the potential new opportunities. Click here to find out more.