E3G: How the EU can ensure a smooth transition from gas

At a glance

Gas Transition: What’s next? A framework for a managed EU gas transition, by Raphael Hanoteaux, Rheanna Johnston and Simon Skillings. E3G, Sept. 12, 2024.

This report from E3G, an independent climate change think tank, outlines a framework for managing the EU’s transition away from natural gas (which the report refers to as “fossil gas”) as part of its broader climate goals, as well as the need to reduce reliance on Russia. It highlights the urgent need for effective planning and governance to ensure a smooth transition towards electrification and renewable energy, stressing the importance of energy security, household affordability, and industrial competitiveness. Without proper management, the cost of maintaining gas infrastructure could rise dramatically, creating economic and social challenges. These findings provide a roadmap for the global energy transition at a time of worldwide upheaval and underscore the importance of a well-planned, just transition to clean energy.

Key findings

• Gas use plummeting: EU natural gas use is declining significantly, expected to drop 71 to 74 per cent by 2050 compared to 2019 due to the energy crisis, electrification and growth of renewables.
• Incomplete policies: Current EU policies are inadequate for a smooth gas transition; more effective planning and governance are needed.
• Rising gas bills: Poor transition management could lead to up to tenfold gas bill increases in some EU countries by 2050.
• Renewables focus: Energy security focus should shift from fossil fuels to renewable electricity storage and flexible use.
• Job transition: Gas industry job losses require strategies for a smooth transition to clean energy employment.
• Tailored approach: Regional differences in gas demand and fiscal capacity necessitate targeted clean economy approaches.

Bigger picture

Europe was already planning to transition away from natural gas, as outlined in the European Green Deal introduced in 2019 that aims to have the EU reach net-zero emissions by 2050, as well as the Fit for 55 package that would reduce the 27-nation bloc’s net greenhouse gas emissions by 55 per cent by 2030. Then Russia launched its full-scale invasion of Ukraine in February 2022, triggering an energy crisis that included a reduced flow of pipeline gas from Russia to Europe. Energy security became a top priority for the EU, which brought in more ambitious measures, REPowerEU, to reduce reliance on Russian imports.

The report notes Europe has seen success on this front, but argues that without careful planning, maintaining gas infrastructure could sharply increase costs, particularly for low-income households. Gas-dependent regions such as Germany and Italy must invest in electrification and renewable energy systems to avoid stranded assets and economic burdens.

The report calls for co-ordination between industries, households, and policymakers to deploy clean energy alternatives at scale. The focus on supporting households and industries through the transition is relevant to rapidly industrializing and urbanizing countries such as China and India, where energy demand is growing rapidly, as well as to the United States and Canada, where the economy, especially in rural areas, is so tied to oil and gas. Its strategies for managing socio-economic impacts also apply to coal-dependent economies such as Australia and South Africa, offering insights on mitigating the effects of shifting away from fossil fuels.

Challenges and opportunities

Key barriers to a smooth transition away from gas in the EU:

• Insufficient whole-system planning: Current energy system planning processes are outdated and do not effectively manage the interactions between various energy sectors, hindering a co-ordinated transition.
• Regulatory and market limitations: Existing regulations and market structures fail to support the high levels of renewable electricity generation and storage required for a successful transition away from gas.
• Economic disconnect: There is a significant gap between short-term commercial incentives and the long-term benefits of decarbonization, particularly impacting industrial sectors reliant on natural gas.
• Technological gaps: Insufficient deployment of clean energy alternatives, such as heat pumps, and limited progress in scaling energy storage and smart grids to replace gas systems.
• Social equity concerns: Uneven distribution of the costs and benefits of the energy transition, with vulnerable populations facing higher energy prices and limited access to clean energy solutions.
• Regional disparities: Variations in gas demand exposure and fiscal capacity across EU regions complicate efforts to implement a cohesive transition strategy.

To address these challenges, the report recommends:

• Integrated planning processes: Policymakers should develop comprehensive planning frameworks that integrate planning for renewable energy, electrification, and gas infrastructure decommissioning, ensuring transparency and independence in decision-making.
• Investment for households: Increased public and private investment in renewable technologies, especially heat pumps, energy storage, and grid modernization, to replace gas-based systems for households.
• Industry transformation: Support for industries to electrify operations through access to affordable renewable energy and upfront financial assistance for clean technology investments.
• Innovation in energy systems: Advancement in smart grid technologies, demand-side management, and long-duration storage solutions to enable a more flexible, renewable energy-based system.
• Social protection strategies: Programs to protect vulnerable households from rising energy costs, with subsidies for energy-efficient home retrofits and targeted financial assistance for those transitioning off gas.
• Regional cooperation and tailored approaches: Leveraging regional strengths while addressing disparities in resource availability can foster a competitive clean economy across the EU.
• Citizen engagement initiatives: Establishing citizen-focused strategies that address the social impacts of the transition will help maintain public support and ensure equitable access to alternatives.

In their own words

The EU energy system’s transition away from fossil gas was set in motion by the European Green Deal’s climate targets. The energy crisis of the last two years has firmly shifted the outlook on fossil gas: a clear downwards trajectory in the medium to long term.

Gas Transition: What’s next? A framework for a managed EU gas transition, E3G, Sept. 12, 2024.

Final thoughts

The EU’s management of the transition away from natural gas is crucial given the current energy crisis, worsening climate change and escalating geopolitical tensions, particularly in the Middle East. The strategies in the report, while intended for Europe, could also serve as a blueprint for other countries and even influence international climate negotiations. The report could have further explored the role of emerging technologies such as green hydrogen and energy storage, and included more global comparisons. It could have also considered the ripple effects of the EU’s gas transition on international energy markets and supply chains.

Download the full report originally published by E3G on Sep. 12, 2024.