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As the European Union braces to be the next target of US tariffs, President Donald Trump has offered an easy way out: Buy more American fossil fuels.
“The one thing they can do quickly is buy our oil and gas,” Trump said shortly after his inauguration. But that plan faces an obstacle that energy companies and officials on both sides of the Atlantic are now scrambling to navigate: An impending EU policy that requires gas exporters to lower their methane emissions, or face fees. The methane rule is designed to force global gas producers who want access to the lucrative EU market to crack down on a potent greenhouse gas — a policy at odds with the Trump administration’s planned roll back of domestic emissions regulations.
The EU rules could keep the pressure on US gas companies. But some industry analysts also worry the rules are at risk of being watered down.
Loosening the methane standards “could be something that [the EU] can offer as a negotiation point on these tariff threats,” said Anne-Sophie Corbeau, a gas market scholar at Columbia University’s Center on Global Energy Policy.
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Tim’s view
Trump is used to leveraging liquified natural gas exports as a cudgel in foreign policy and trade negotiations: Ukraine, India, Japan, and Taiwan are among the countries committing to buy more US LNG in the hope of staying on Trump’s good side. In Europe, where gas prices are the highest they’ve been in years and Russian pipelines seem unlikely to reopen anytime soon, greater imports from the US are likely no matter what Trump does. The question is what emissions standard those imports will be held to — and how European leaders will balance the trade-offs between placating Trump, keeping energy affordable, and fighting climate change.
Starting in May, EU gas importers will need to report on their products’ methane intensity, meaning they’ll need to collect emissions data from their trading partners overseas. By 2027, imports that don’t meet a tight methane standard will face additional fees. EU officials have said there are no plans to exempt US gas from the methane rules (or, for that matter, from a set of broader carbon import tariffs that kick in next year).
But a high-stakes debate is now underway about how exactly the methane rules will be applied. EU officials, in consultation with European gas companies, are hashing out a new methane emissions trading market that would allow high-methane gas to be labeled low-methane by buying a certificate from low-emissions producers somewhere else in the producing country, effectively separating the physical gas molecules from their emissions profile. This would ensure that sufficient US gas is able to reach European consumers at a reasonable price, and direct some cash back to US gas companies that have already invested in methane reduction measures.
“The less volumes we have that are able to meet the [methane] requirements, the higher the premium [for low-methane gas] will be, so there’s a clear link to affordability, and that’s front and center these days in Europe,” said Gunnar Steck, executive advisor to the trade group Eurogas.
The problem, some industry experts say, is that this so-called “book and claim” system only targets the lowest-hanging fruit of methane emissions, rewarding the cheapest and easiest cuts that probably would have happened no matter what, and letting everyone else off the hook.
“An unrestricted book-and-claim system fundamentally undermines the intent of the regulation, effectively nullifying what is currently the most robust and only international methane regulation in existence,” said Carlos Garcia, strategic business development manager at the environmental commodities trading firm STX Group. Garcia, in collaboration with the US research and advocacy group Clean Air Task Force (CATF), is advocating instead for a system in which emissions trading is still allowed, but only between producers within the same region or that are physically connected by pipelines. That would ensure the methane rules still have an effect on driving down overall emissions, but without causing prices to spike.
The final design of Europe’s methane market is still under discussion — so there’s plenty of opportunity for it to be a bargaining chip in tariff negotiations.
Room for Disagreement
Even if the US and EU both weaken their respective methane regulations, US gas producers will still be under pressure to clean up, said Brandon Locke, CATF’s Europe policy manager. Japan, South Korea, and other countries that are important markets for US LNG are also developing their own methane rules. For US producers, the risk of being lackadaisical about methane is that rival exporters like Qatar and Australia forge ahead on relatively cheap emissions improvements and eat their lunch. Wall Street, too, is increasingly focused on methane, Locke said.
“There will be significant political pressure on the EU around this, but the reality is that globally traded gas will increasingly need to demonstrate its environmental impact,” he said. “Investors are demanding concrete emissions data, and for companies looking to borrow money, it significantly impacts their cost of capital.”
Notable
- Apart from methane, Europe’s green agenda overall is at risk from the rising power of right-wing politicians who see climate policy as a major target. Friedrich Merz, the leading candidate to be Germany’s next chancellor, is “framing all things green through the now-familiar ‘woke’ and ‘anti-growth’ lens,” Politico reports.