Decarbonising Gas Markets: EU H2 Regulation and H2 Directive enter into force

On 4 August 2024, the EU legislative hydrogen and gas decarbonisation package came into force, comprising the Regulation (EU) 2024/1789 on the internal markets for renewable gas, natural gas end hydrogen (the “H2 Regulation”) and Directive (EU) 2024/1788 on common rules for the internal markets for renewable gas, natural gas and hydrogen (the “H2 Directive”). The H2 Regulation will apply from 5 February 2025 while Member States have until 5 August 2026 to transpose the new rules of the H2 Directive into national law.

This legislative package updates the European gas market regulation (i.e. the Gas Regulation EC 715/2009 and the Gas Directive 2009/73/EC) which has remained largely unchanged since 2009, and aims to decarbonise the gas markets by making it fit for purpose for a gaseous EU energy mix by 2050 in which renewable and low carbon gases represent two third of the gaseous fuels. 

Hydrogen in particular is considered crucial to decarbonise certain heavy duty transport sectors (maritime transport, aviation, long distance heavy vehicles) and energy intensive industries where electrification is not an option. Given the limited availability of renewable hydrogen (i.e. hydrogen obtained via electrolysis using renewable electricity to split water into hydrogen and oxygen, referred to by the EU as a ‘renewable fuel of non-biological origin’) in the near term, the H2 Directive emphasises that low-carbon hydrogen (derived from non-renewable sources, see further below) will have to play a role in the energy transition in line with the EU’s climate targets in the short and medium term to reduce greenhouse gas emissions rapidly.

This blog post focuses on how the H2 Regulation and H2 Directive seek to achieve each of the objectives as listed in our previous blog post.

Integration of renewable and low-carbon gases into the natural gas system by:

• incentivising the use of more renewable and low-carbon gases by providing non-discriminatory market access and favoured network access. The H2 Directive prescribes that manufacturers’ network connection and access must be provided and maintained while the H2 Regulation provides that network operators must ensure firm network capacity and substantial network tariff discounts (of, by way of example, 75% for low-carbon gas to 100% for renewable gases upon their entry from renewable gas and low-carbon gas production facilities);  
• disincentivising the use of natural gas by prohibiting new long-term supply contracts for unabated natural gas the duration of which would run after 31 December 2049, although no specific details on the phase-out of fossil gases are described. The intention is that this will, result in existing natural gas infrastructure being either repurposed for renewable or low-carbon gases or becoming obsolete; and
• finalising the definition of “low-carbon gas” which may be derived from non-renewable sources such as recycled carbon fuels from waste and low-carbon hydrogen (products), qualifying as low-carbon if such gases meet the greenhouse gas emission reduction of 70% compared to the fossil fuel comparator (of 94 grams of CO2-equivalent per megajoule as established in the RED-Legislation). The methodology for calculating the emission intensity will be provided by 5 August 2025 in the form of a delegated act to the RED-Legislation and that emissions savings like carbon capture and storage will be taken into account for such calculations. 

Focus on hydrogen’s dedicated regulatory framework and infrastructure by: 

• establishing a regulatory framework for a staged development of a competitive dedicated hydrogen infrastructure, including objective and non-discriminatory third-party access on the basis of regulated access tariffs for hydrogen networks and hydrogen storage units (with a transition phase of negotiated access possible until 31 December 2032) and negotiated access for hydrogen terminals and obliging the hydrogen network operators to follow the general balancing rules as of 1 January 2033; 
• separating the operation of hydrogen networks from activities in energy supply and production, including: (i) the unbundling of accounts; (ii) different unbundling obligations applicable to hydrogen distribution and transmission networks operators, with transmission network operators required to comply with the strict rules of ownership unbundling (with potential exceptions to be implemented by Member States to unbundle as an independent hydrogen system network operator or independent transmission network operator if part of a vertically integrated undertaking); and (iii) horizontal unbundling obligations applicable to hydrogen transmission operators and gas transmission operators (with exemption options for the Member States in case of a positive cost-benefit analysis, a geographically confined or small-customer base hydrogen network); and
• providing additional support for the large-scale development of the hydrogen network infrastructure during the transitional phase by allowing network operators to spread network development costs over time. 

Encouraging integrated network planning for power, gas and hydrogen by:

• coordinating and planning the network for power, gas and hydrogen between Member States, regulators and operators on all levels by the creation of an entity for European distribution system operators (with mandatory participation for distribution network operators for natural gas and voluntary participation for hydrogen distribution network operators) and by close cooperation between the networks of transmission system operators for electricity and gas with a network association for hydrogen transmission network operators, the European Network of Network Operators for Hydrogen (ENNOH), to be incorporated by 2027; and
• ENNOH’s tasks include writing relevant hydrogen grid codes and developing EU-wide, non-binding ten-year network development plans for the hydrogen sector. 

Empowering and protecting consumers by: 

• allowing Member States to make public interventions in the pricing of natural gas and hydrogen for vulnerable consumers or those suffering from energy poverty; and
• empowering consumers by prohibiting supplier switching fees for households, granting them access to free comparison tools, facilitating the sale of renewable energy by the use of smart meters for natural gas and hydrogen and by having Member States establish a ‘supplier of last resort’ regime to ensure continuity of supply for household customers. 

Improving the EU’s energy security and supply by: 

• extending the scope of the security of gas supply legislation (already provided for in certain circumstances in the EU Regulation 2017/1938) to renewable and low-carbon gases and introducing additional provisions in relation to cybersecurity and supply disruptions; 
• offering voluntary measures to be taken by Member States such as imposing minimum storage obligations or introducing incentives for gas storage bookings and integrating storage into the transmission system of the network operators; 
• allowing Member States to temporarily restrict and phase out the import of natural gas and hydrogen from Belarus and Russia; and
• facilitating a voluntary scheme for joint procurement by transmission system operators of strategic gas stocks to meet demands and be released in case of emergency. 

What’s next?

As Member States get more familiar with the details provided in the H2 Regulation and H2 Directive, the EU is envisaging increased interest and activity in hydrogen development, including through other EU policy initiatives such as the financing mechanisms under the European Hydrogen Bank. The H2 Regulation and H2 Directive have ambitious and complex objectives which aim to regulate a decarbonised gas sector for the EU, in a geopolitically changing world and within boundaries of cost-effectiveness, technological and resource constraints. The instruments’ flexibility and provision for revision and iteration will allow the EU to keep it up-to-date as the energy sector evolves over the coming years. 

Further details...

For more information on the rest of the energy transition package, have a look at our Fit for 55 microsite.