Europe Needs to Maintain a Long-Term Decarbonization Game Plan

After the Russian invasion of Ukraine in February, the European Union (EU) declared a mission to cut the EU's Russian gas imports by two-thirds in 2022 and to end the use of Russian gas by 2027. This challenge will be massive—the EU27 currently rely on Russia for almost 38% of its imported natural gas and have plans to phase out coal and nuclear generation while increasing electrification. 

Several long-term concerns can be easily lost in the rush to meet geopolitical imperatives: the need for accelerated investment in energy efficient building retrofits to reduce gas demand, investment in clean fuels (e.g., hydrogen, renewable natural gas [RNG]) and higher efficiency gas end-use technology, and increased demand response capacity. The lessons are applicable outside the EU, and vendors, utilities, and policymakers should take note.

The Russian Gas Debate

The EU debate on Russian gas is heavily focused on short-term supplier diversification concerns. The German government for instance, having cancelled the $11 billion Nord Stream 2 project with Russia, aims to invest in more liquefied natural gas (LNG) port terminals to increase shipments from the US and other suppliers. The International Energy Agency (IEA) has articulated a broader strategy for reducing the demand for Russian gas, which relies on demand-side measures as well as supplier diversification.

Figure 1: IEA Strategy for Reducing Demand for Russian Gas

(Source: International Energy Agency)

This analysis doesn’t account for the long-term potential in gas grid decarbonization. Gas utilities are uniquely positioned to develop and invest in a clean-fuels system that can deliver a wider mix of biofuels, RNG, and hydrogen to existing customers. By increasing the portion of cleaner RNG or other fuel in mixed gas supply, the EU can reduce fossil gas import demand. Especially given that the IEA low emission generation largely includes nuclear, this is a key priority that LNG terminal and other fossil supply diversification investment may be displacing. Additionally, there is growing evidence that cold climate heat pump technology may outperform electric heat pumps within certain climate conditions. Increased investment in clean fuels and end-use efficiency within the gas grid should be given greater priority in the push to decrease Russian supply.

The Need to Continue to Focus on Building Energy Efficiency

Residential energy demand accounts for 40% of gas usage in the EU, and they urgently need to do more in the buildings sector to reduce gas demand. According to recent studies, renovating existing buildings could reduce the EU’s total energy consumption by 5%-6%. The EU Green Deal targets a doubling of building stock retrofits from the current average of 1% annually, but this target needs to increase further to reduce gas demand significantly. Added investment needs to go to funding financing mechanisms under the bloc’s Fit for 55 plan and Renovation Wave policy proposals. 

Alongside added funding for EU-wide renovation efforts, end-use trends need to guide added investment in demand reduction. According to EU studies, the EU share of space heating in household energy consumption has decreased, from 69% in 2000 to 65% in 2019, ceding share to water heating (increasing share from 13% to 14%) and electrical appliances (10% in 2000 to 13% in 2019). Addressing these load increases is critical to the overall demand reduction effort, as the related technologies have long sales cycles and lock in demand profiles for a decade or more. Improved financing and other e-commerce methods are available to spur adoption. Guidehouse Insights’ Utility Online Marketplaces report details many better practices in this space.