Regulation (EU) 2024/1787 to reduce methane emissions in the energy sector (“Methane Regulation”) entered into force on 4 August 2024. Its goal is to halt the preventable release of methane into the atmosphere from produced and consumed energy. In addition to methane emissions within the EU, the Methane Regulation covers methane emissions outside the EU arising from global supply chains up to the point where fossil energy is supplied (“upstream chain emissions”). One major factor underlying this aspect of the measure is that a large share of the fossil energy consumed in the EU is imported: a good 80% of fossil fuels consumed in the EU comes from imports. In recognition of this fact, the Regulation not only lays down extensive new obligations for oil, gas and coal operators and undertakings but also includes specific rules for importers and producers of crude oil, natural gas and coal placed on the Union market. This broad new regulatory framework is intended to significantly progress climate protection and reduce methane emissions permanently.
Background and aims of the draft
Methane is the second most potent greenhouse gas after carbon dioxide (“CO2”) and is responsible for around a third of global warming. Although methane is a short-lived greenhouse gas compared to CO2, its effect over 20 years is up to 85 or 86 times more harmful than CO2, and it contributes to a build-up in ozone, a significant air pollutant harmful to health. In the light of this, the European Commission (“Commission”) is stressing the need to reduce methane emissions, including energy-related ones, in order to reach both the EU’s energy and climate goals for 2030 as well as the long-term goal of climate neutrality by 2050 (European Commission, Communication of 14 October 2020 on an EU strategy to reduce methane emissions COM (2020) 663 final, p. 1; European Commission, Communication of 11 December 2019 “The European Green Deal”, COM (2019) 640 final.) In October 2020, therefore, in the context of the European Green Deal, the Commission adopted a strategy to cut methane emissions in the energy, agriculture and waste sectors (the “EU Methane Strategy”). The EU Methane Strategy sets out measures to reduce methane emissions in Europe and at global level, including proposals for legislative and non-legislative measures in the various sectors. Production and use of fossil fuels cause between a quarter and a third of worldwide methane emissions resulting from human activity. Implementing the Methane Regulation is therefore a core element in the EU Methane Strategy, as the Regulation sets the first EU-wide rules aimed at controlling methane emissions in the energy sector. The measure is intended to help slow down climate change and improve air quality.
Who is affected?
The Methane Regulation places various obligations on
- operators and undertakings in the oil and gas sector,
- mine operators in the coal sector, and
- importers and producers of crude oil, natural gas and coal placed on the Union market.
Article 2, no. 23 defines “undertaking” as including all stages of the energy chain beginning with upstream exploration and production of oil, fossil gas gathering and processing, through to gas transmission, distribution and underground storage.
Obligations on the oil and gas sector
Measurement and reporting obligations
Undertakings must establish systems to quantify and report methane emissions. This includes preparing and submitting reports on source- and site-level emissions of the gas.
Operators and undertakings are subject to an annual obligation to submit a verified report on the source-level quantification of methane emissions in the preceding calendar year to the competent authorities (“source” means a component or a geological structure that releases methane into the atmosphere whether intentionally or unintentionally, intermittently or persistently). The first deadline for meeting this obligation is 5 February 2026 (or 5 February 2027 for non-operated assets). The following year and annually thereafter, the report must also include measurements of site-level methane emissions and compare them with the source-level quantification of those emissions.
By 5 August 2025, however, operators have to have submitted a report to the competent authorities containing the quantification of source-level methane emissions estimated using at least generic emission factors for all sources.
By means of implementing acts, the Commission will in future stipulate reporting templates and define standards for measurement and quantification. In particular, however, the reports must include the type and location of the emission sources as well as detailed data (stated in tonnes of methane and tonnes of carbon dioxide equivalent). Until the date of application of those standards or technical prescriptions, operators and undertakings must follow state-of-the-art industry practices. Companies should stay abreast of developments in this context at all times.
Authorities must also be provided with reports on the quantification of methane emissions to air and to water from inactive and temporarily plugged wells (Article 18(3) Methane Regulation).
Mitigation obligations
The Methane Regulation also contains direct obligations to reduce methane emissions. Undertakings must identify and take measures to prevent and minimise them (Article 13(1) Methane Regulation). Meeting the due deadlines, they must also ensure implementation of leak detection and repair programmes (LDAR programmes) and compliance with restrictions on flaring (intentional combustion) and venting (intentional release) of crude oil and natural gas:
- Leak detection and repair: Operators are obliged to submit a detailed leak detection and repair programme for existing and new sites to the authorities within the deadline set (“LDAR Programme”) (Article 14(1) Methane Regulation). As regards the inspection of components, the Regulation differentiates between type 1 surveys and type 2 surveys, the latter of which are stricter. Initially, the fuller type 2 surveys must be performed on every component. In the long term, the Regulation provides for type 1 or type 2 cyclical leak detection and repair obligations, depending on the type of component (Article 14(2) Methane Regulation). The Regulation also stipulates standard minimum detection limits and repair deadlines.
- Restrictions on venting and flaring: The Methane Regulation also prohibits routine flaring of crude oil and natural gas. Non-routine flaring and venting are only allowed in specific situations defined in Article 15(2) and (3) such as emergencies or malfunctions. In such cases, however, venting is only allowed if flaring is technically impossible. In addition, flaring is allowed only where either re-injection, utilisation on-site, storage for later use or dispatch of methane to a market are not feasible due to non-economic factors. These obligations are backed up by duties to report venting and flaring events (Article 16 Methane Regulation). Newly installed flare stacks or combustion devices must be fitted with either an auto-igniter or continuous pilot burner and have a destruction and removal efficiency by design level of at least 99%.
- Wells: Where methane emissions are detected in inactive wells, temporarily plugged wells or permanently plugged and abandoned wells, operators must take all the necessary measures available to them for remediating, reclaiming and permanently plugging that well, as applicable, where technically feasible and environmentally sustainable, considering the impact of the necessary works (Article 18(6) and (9) Methane Regulation). By 5 August 2026, therefore, a mitigation plan to remediate, reclaim and permanently plug inactive wells and temporarily plugged wells must be prepared, and this plan must be implemented within 12 months. If the operator, owner or licensee lacks the requisite financial means, or where the party responsible cannot be identified, Member States are responsible for meeting the obligation (Article 18(8) Methane Regulation).
Obligations on the coal sector
Who do they apply to?
The Methane Regulation also places various monitoring, reporting and mitigation obligations on operators in the coal sector. These include the operators of
- active surface coal mines,
- active underground coal mines,
- drainage stations and
- closed underground coal mines.
As regards abandoned underground coal mines, Member States are responsible for compliance with the obligations in all cases. The legal situation only differs from this in cases of alternative use of such coal mines. Here, the permit holder is responsible for compliance with the obligations.
Measurement and reporting obligations
Operators of coal mines and drainage stations must continuously measure and report methane emissions. Undertakings should ensure that they install the necessary measurement equipment and submit the reports by the required deadline (Articles 20 and 25 Methane Regulation):
- Operators of active surface coal mines must use deposit-specific methane emission factors to quantify methane emissions resulting from mining operations. These must be established and updated on a quarterly basis in accordance with appropriate scientific standards (Article 20(3) Methane Regulation).
- Operators of active underground mines must take continuous source-level direct measurements and quantification on all exhaust ventilation shafts (Article 20(1) Methane Regulation).
- Drainage station operators must take continuous source-level direct measurements and quantification of total releases of vented and flared methane (Article 20(2) Methane Regulation).
By 5 August 2025 and by 31 May every year thereafter, mine operators and drainage station operators must submit a report to the competent authorities containing data on these yearly source-level methane emissions. Before the reports are delivered, they must also be assessed by an independent verifier and must include a verification statement (Article 20(6) and Article 25(6) Methane Regulation).
From 5 May 2026, methane emissions must likewise be measured in all closed and abandoned underground coal mines where operations ceased after 3 August 1954. For this purpose, depending on the initial measurement, measurement equipment must be installed on certain elements to allow for a representative estimation of annual methane emissions (Article 25(2) Methane Regulation). The operators must submit their estimates of yearly source-level methane emissions data to the authority by 5 August 2026 and every year thereafter. For flooded coal mines, the Regulation contains special rules or exemptions (Article 25(3) et seq. Methane Regulation).
Mitigation obligations
Different mitigation obligations apply to active underground coal mines, closed coal mines and abandoned coal mines (Articles 22 and 26 Methane Regulation). These include obligations to avoid venting and flaring and in some cases to prepare and implement mitigation plans.
- Active underground coal mines: Venting from drainage systems and flaring by means of a flare stack with efficiency below 99% will be prohibited in general from 1 January 2025. They will only be allowed in specific situations defined in Article 22(1) such as emergencies or malfunctions. However, venting is only allowed if flaring is technically impossible. All venting and flaring events occurring on the basis of an exemption must be reported to the authorities (Article 23(1) Methane Regulation). Venting of methane through ventilation shafts in coal mines or coking coal mines is subject to specific restrictions (Article 22(2) et seq. Methane Regulation).
- Closed and abandoned underground coal mines: Member States are to develop and implement a mitigation plan based on their inventories (Article 26(1) Methane Regulation). Venting and flaring in connection with certain equipment listed in Article 25(2) Methane Regulation will be prohibited from 1 January 2030 (Article 26(2) Methane Regulation).
Alternative use of abandoned coal mines: The applicant must submit a detailed plan of measures to avoid methane emissions. If the alternative use is approved, the applicant is also obliged to meet the monitoring, reporting and mitigation obligations pursuant to Articles 25 and 26 Methane Regulation (Article 26(3) Methane Regulation).
The Regulation does not place any mitigation obligations on surface coal mines.
Obligations on importers and producers
Reporting and information obligations
One key aspect of the Methane Regulation is global supply chain compliance by importers and producers of fossil fuels, who are now obliged to ensure that their supply chains meet the new requirements along their entire length. Importers and producers of fossil fuels must provide comprehensive information on their exporters and producers and also on the conformity of their contracts and the methane intensity of producing the resources. Complying with these provisions will call for a comprehensive supply chain compliance system that ensures transparency and traceability along the entire supply chain. Companies should therefore review their supply chain processes and adapt them as needed to ensure that all parties involved fulfil the Regulation’s requirements.
The Regulation has the following provisions relating to supply chain compliance:
Information obligation on importers: Importers are required to submit the information specified in Annex IX to the competent authority for the first time by 5 May 2025 and thereafter on an annual basis (Article 27(1) Methane Regulation). This includes information on their exporters and producers, for example, whether they carry out source-level measurements and quantification and whether they apply regulatory or voluntary measures to control methane emissions. A comprehensive supply chain compliance system is therefore essential for importers.
Obligations on importers to report and provide evidence relating to contracts: As regards contracts concluded or renewed on or after 4 August 2024 for the supply of crude oil, natural gas or coal produced outside the Union, importers must demonstrate and report that such contracts cover only crude oil, natural gas or coal that is subject to monitoring, reporting and verification measures applied at the level of the producer that are equivalent to those set out in the Regulation.
- Obligation on importers and producers to report methane intensity: By 5 August 2028 and every year thereafter, producers and, in accordance with Article 27(1) Methane Regulation, importers must report to the competent authorities the methane intensity of the crude oil, natural gas and coal placed by them on the Union market. The Commission is to adopt a delegated act setting out the methodology for calculating the methane intensity.
For supply contracts concluded before 4 August 2024, producers and, in accordance with Article 27(1) Methane Regulation, importers are to undertake all reasonable efforts to meet this reporting obligation. The results of such efforts must be reported annually from 5 August 2028.
Obligations to amend contracts
Importers must undertake all reasonable efforts to amend existing supply contracts concluded before 4 August 2024 so as to ensure the fossil fuels supplied under them meet the monitoring, reporting and verification measures under the Regulation (Article 28(2) Methane Regulation). To achieve this, companies should first carry out a systematic stock-check and analysis of their existing supply contracts so as to ascertain how far the requirements of the Regulation are fulfilled. Longer term, continuous monitoring systems must be implemented and, if necessary, contracts must be amended to ensure ongoing compliance with the Regulation. Consideration should also be given to using the recommended model clauses to be issued by the Commission.
The results of the efforts made are to be reported to the competent authority annually and, in the event the efforts have failed, a sound justification must be provided (Article 28(2) Methane Regulation). Under certain conditions, the Commission can grant equivalence to third countries. This then exempts importers from the obligation to amend the supply contracts (Article 28(5) and (6) Methane Regulation).
Methane transparency database
The Commission is to set up a publicly accessible methane transparency database including information on Member States and third countries, undertakings, importers and volumes of crude oil, natural gas and coal placed on the Union market as well as the information submitted to the Commission pursuant to relevant reporting obligations (Article 30 Methane Regulation).
Companies should therefore prepare now for the provision and publication of the required data in the methane transparency database.
Penalties
To ensure compliance, the Regulation establishes a comprehensive minimum penalty regime (Article 33(1) and (4) Methane Regulation). For example, failures to fulfil reporting or mitigation obligations are punishable and periodic penalty payments can be imposed to stop infringements (Article 33(2)(d) Methane Regulation). However, it is up to the Member States to specify the details of the penalties, meaning that it remains to be seen exactly what penalties operators, undertakings and importers must expect. As regards administrative fines, however, a sum approaching or equalling 20% of annual turnover (or 20% of annual income for natural persons) is conceivable.
For extra deterrent effect, Member States are to publish annual information on the infringements that have occurred, the penalties imposed and the parties involved (Article 33(8) Methane Regulation).
It is therefore advisable for companies to closely and continuously monitor developments in the Member States relevant to them.
Outlook and significance for affected companies
Given the current legislative procedures and initiatives at European level, which are increasingly focussed on climate protection and sustainability, companies must prepare themselves for ever stricter regulation of and growing demands on the sustainability of their business models. In this context, the Methane Regulation represents a significant regulatory innovation that will have far-reaching effects on companies in the energy sector. Affected companies must implement comprehensive procedures for monitoring, measuring, reporting and reducing methane emissions. Complying with the Methane Regulation is also critical for supply chain compliance since importers are obliged to provide comprehensive information on their contractual counterparties (exporters and producers) and the methane intensity of the crude oil, natural gas and coal placed by them on the Union market.
Companies that respond to the requirements of the Methane Regulation promptly and effectively will be able to secure competitive advantages. By reducing their methane emissions they will be able not only to avoid regulatory penalties but to improve their environmental and climate protection footprint. This can help create a positive image and greater customer loyalty, especially in a market environment that is increasingly environmentally conscious.
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