How to end Europe's gas demand crisis

Press briefing on gas prices and energy efficiency

Today I gave a statement as part of a press briefing on gas prices, energy efficiency and European policy.

Gas prices have always fluctuated and will always fluctuate. That is not unusual. But the magnitude of gas price rises experienced recently is unprecedented. The price of fossil gas is now six times higher than last year and about four times higher than in the spring. Gas has never been more expensive.

And this is problematic for several reasons. The EU imports 80% of its total gas needs. Domestic production has halved in the last 10 years. This means the EU is exposed to fluctuations in international gas markets and reliant on expensive imports.

The EU-27 plus UK retail gas bill is about 200 billion per year but this is based on previous years so this figure will be much higher for 2021. And much of this is paid for by people trying to keep warm in their homes.

A lot of the coverage of high gas prices was on the impact on electricity prices. But most of the gas is used for heating buildings. The residential sector alone consumes 40% of all EU gas imports and is the largest gas-consuming sector more than industry and power generation.

Rising gas prices are usually portrayed as a gas supply crisis. But this is indeed a gas demand crisis. About a third of all energy used by households is fossil gas. For decades we have built gas infrastructure and installed heating systems expecting to be able to have access to cheap fossil gas. Not only is this problematic because of the harmful greenhouse gases resulting from this but the sharply rising prices have severe social implications and many households this winter needs to decide between heating and eating. This is unacceptable and governments already started to provide direct financial support.

But whilst much needed, offering financial support to households is not a long-term solution. It helps with the symptoms but does not address the root cause. It is akin to filling a bath without the plug in.

So how can Europe end its addiction to fossil gas for heating? The key is to reduce the demand for gas by doing two things:

First, we need to improve energy efficiency by insulating buildings. At the moment we do not insulate enough buildings and the buildings we insulate are not insulated to the levels required. This is because for years energy efficiency has been seen as uninteresting and less important than energy supply.

Second, we need to switch from fossil gas to renewables. Heat pumps and district heating can provide low carbon heating and have been used for decades. In Norway more than half of all households have a heat pump. And district heating systems increasingly use innovative ways of heat generation that do not rely on burning fossil fuels.

Let me now comment on the proposals the European Commission is putting forward. A key element in the forthcoming revision of the Energy Performance of Buildings Directive is Minimum Energy Performance Standards. These standards require all buildings to be upgraded over time to a higher energy performance. At the same time Member States will be required by the Energy Efficiency Directive to accelerate the roll-out of energy efficiency programmes to support households and businesses to make the required investments to comply with the standards.

The EU Emissions Trading System is also under review and might be expanded to the buildings sector. This means that Member States will have more carbon revenues and those revenues can and should be used to support energy efficiency measures in homes and be directed towards the poorest in society who need this help the most.

As I said, we need to speed up the replacement of fossil gas heating systems with renewable heating systems such as heat pumps and district heating systems using low carbon heat. The International Energy Agency has calculated in their Net Zero 2050 report published in August that we need to stop installing new gas boilers by 2025. At the moment it is still possible to buy a new gas boiler that has an energy efficiency rating of A. A first step is to give a clear signal to consumers that a gas boiler is not the most efficient option. Several countries in Europe have also started to ban the installation of fossil heating systems, most recently the incoming German government. Such an approach can be supported by the European Union as part of the Ecodesign Directive and the standards it sets.

A final point on hydrogen: If we were to replace fossil gas used for heating with large quantities of blue hydrogen this might potentially increase our dependency on fossil gas imports and this is not what the forthcoming Hydrogen and Gas Markets Package should support.

For more analysis on gas prices see our RAP paper here.