A wolf in sheep’s clothing: why labelling gas ‘green’ is a dangerous move

Europe is trying to kill two birds with one stone by giving gas a green label. But it isn’t likely to do the continent’s green transition – or  long-term energy security – any favours.

On the very last day of 2021, the European Commission included a surprise addition to its new European Green Taxonomy – natural gas.

The original idea was to drive Europe’s green growth by classifying which business activities and projects would be eligible for green financing. This would allow banks and asset managers to raise the green share of their loans and investment portfolios to support the transition. 

But the recent inclusion of natural gas undermines that aim. Not only are other low-carbon, cost-effective alternative energy sources available, but it works against attracting cheaper financing for genuine renewables to reach scale.

Other so-called ‘critical’ activities for supporting the green transition are also eligible for the green label if certain criteria are met, even if they’re far from CO2-free. In steel manufacturing, for instance, the taxonomy specifies a maximum CO2 threshold per tonne of steel, justifying this as “green financing under conditions”. 

Gas does indeed produce far less CO2 than other fossil fuels (475g of CO2e per kWh of electricity produced), but much more than other non-renewable sources such as nuclear (below 100g) and especially renewables (mostly below 50g). In other words, gas can hardly be called green.

Europe’s leaders can run, but they can’t hide

Why, then, are Brussels technocrats so keen to include gas in their green taxonomy? Quite simply, to meet an undeniable strategic objective. Ministers are desperate to find a way to funnel investments to secure Europe’s energy supply, which still requires the use of fossil fuels. By labelling natural gas green, they’re attempting to hide a gigantic energy policy failure in plain sight – one that still hopelessly relies on Russian gas imports to supply nearly half of its energy needs.

In actual fact, growing renewables will actually increase Europe’s long-term energy security by reducing its reliance on Russian gas (see charts below). And despite having the lowest economic growth of all five continents since 2011, the EU has still managed to decouple its growth from CO2 emissions by investing in renewables (Source: IMF, BP). But in the near term, European energy is looking a lot more vulnerable.

Source: BP’s statistical review of the world, Clim8 calculations 

Energy anxiety in Europe is on the rise – and with good reason

Europe’s energy security is being compromised by poor planning and geopolitical developments, Ukraine being the most recent and devastating example. 

Nuclear power is in disarray: French reactors are experiencing operational issues, while Germany is consolidating its nuclear shutdown, fuelled by anxiety following the 2011 Fukushima disaster and more recently the rapidly evolving situation in Ukraine. And low commodity prices have driven slowdowns in oil and gas production, with Europe particularly affected due to a lack of forward planning and naivety about Russia’s true motives in exploiting the continent’s energy transition plans. 

Europe doesn’t have much leverage over its gas imports either. Russia is the continent’s largest gas supplier, providing more than 50% of total imports and around two thirds of pipe-supplied gas. Russia’s buildup of troops and subsequent invasion of Ukraine have therefore provided a rightly deserved shock to Europe and massively increased the risk premium on gas supply. 

With these threats to nuclear and gas, renewable energy and still-immature storage systems are not enough to keep European lights on in the short term. This has highlighted Europe’s strategic need to keep gas flowing and hence explains its integration of the fuel into the green taxonomy. 

The reality behind the jargon

Gas has been called a ‘transition fuel’ and a ‘bridge fuel’, but a ‘green fuel’ is a stretch too far. In actual fact, it’s a strategic fuel. We undoubtedly need gas in the next two decades at least, as we push ahead with the renewable energy transition. But it certainly doesn’t need to be included in the green taxonomy for this to happen.

Europe is on the right path for energy security in the next ten years, and its investment in renewables (while perhaps naive in the short term) is in the long term going to allow it to securely and smoothly transition away from natural gas and its reliance on Russian supply. 

There is more work to be done, but the picture for a greener, and energy independent Europe, is clear: to add more renewables, develop utility-scale battery and hydrogen storage to deal with renewable intermittency and substitute methane with green gases like green hydrogen or biogas for industrial and heat applications. 

Financing these technologies at scale is essential for European energy independence and sustainable economic growth. This is where green financing should go – and what the green taxonomy is designed to achieve. 

The issue of European energy security clearly needs to be addressed. But let’s treat it as the strategic issue it is, rather than letting gas anxiety corrupt an important tool for Europe’s decarbonisation journey.