Investors are urging European policymakers not to revise the EU’s Methane Regulation as part of the bloc’s simplification agenda after the legislation came under fire from US politicians and right-wing groups in the European Parliament.
The regulation, which targets methane emissions reduction in the energy sector through reporting and mitigation measures, came into force in August 2024 and is due to be phased in over the next five years.
It has been heavily criticised by US politicians and trade associations. This month, US energy secretary Chris Wright told Euractiv that the rules – along with the Corporate Sustainability Due Diligence Directive (CSDDD) – would prevent Europe from importing liquified natural gas (LNG) from the US, as agreed in a July trade deal.
Wright added that after conversations with EU energy commissioner Dan Jørgensen, he was “reassured” that the methane law would be changed.
The suggestion was rejected by Jørgensen, who said the EU “will not withdraw” legislation at the behest of the US. “The methane rules in Europe are rules that don’t serve to annoy or even prevent us from importing the energy we want.”
Nevertheless, investors have expressed concerns that the regulation could be reopened or revised. Eric Pedersen, head of responsible investment at Nordea Asset Management, said the investor is engaging policymakers to ensure it is not watered down.
“Maintaining the integrity of the methane regulation is crucial for the EU’s net-zero commitments, given the fact that fugitive methane has 80 times the warming effect of CO2, and that LNG transported over long distances is especially prone to leaks and venting of pure methane, which of course is what natural gas is,” he said.
Omnibus outreach
Pedersen said Nordea’s outreach was in response to concerns that the methane regulation could get caught up in the EU’s trade negotiations with the US and the upcoming environmental Omnibus.
While the parameters of the package have yet to be determined, the methane regulation has come up in broader Omnibus discussions.
In June, the Polish presidency of the Council of the EU cited it as an example of energy-related regulation that “may be in need of simplification, including under the Omnibus programme… to decrease the administrative burden on member states, industry and citizens”.
The following month, MEPs from the right-wing European Conservatives and Reformists Group urged the European Commission to consider simplifying the methane regulation, saying its obligations “are difficult to implement and ignore operational realities and its requirements are too complex for importers”.
The European branch of the International Association of Oil and Gas Producers (IOGP) also called on the Commission to utilise all available means “including any potential energy omnibus” to simplify the Methane Regulation and “ease its implementation”.
Catherine Ogden, investment stewardship director at L&G, said the UK group is also engaging policymakers over concerns that the Methane Regulation could be reopened as part of the EU’s Omnibus simplification process.
“We have written [to] various members of the EU, including the president, to express our support for maintaining high expectations and standards,” she said. “It is such an important issue, and we wouldn’t want to see it rolled back or got rid of.”
Christina Cedillo Torres, an engagement specialist at Robeco, said the Dutch asset manager also has concerns about reopening the regulation under the Omnibus package, noting that it “generates regulatory uncertainty”.
“We are supportive of this regulation because it creates a level playing field for companies to mitigate, measure and report on methane emissions,” she said.
Meanwhile Matt Crossman, stewardship director at Rathbones Group, said the UK investor is supporting efforts “to resist watering down the EU methane emissions regulation under pressure from the US”.
“Trends in clean energy remain positive overall, but the potential impact of methane is huge, and can undermine climate action,” he said, but declined to provide further details on the work being undertaken.
A spokesperson for the Commission told Responsible Investor that they are confident the regulation will not pose any barriers to trade.
“We are in close contact with all our suppliers as we move towards the implementation of the regulation,” they said. “We are working on solutions with our partners to ensure that the implementation of the regulation is not becoming a problem.”