Energy policy | Speculation with the green gas quota

Biogas plant in the Palatinate: Freshly harvested corn is rolled to remove oxygen. Photo: IMAGO/U. J. Alexander Who remembers? In February 2023, the first drafts of Habeck's Heating Act were passed. For months there were always new headlines about how expensive heating would be in the future and what threatened fossil gas and oil heating systems. This continues to this day.

Now a new chapter is added. Last week, the Federal Ministry of Economics presented its ideas for the green gas quota that will apply from 2028 - but not as a rudimentary draft law. Instead, the house of Katherina Reiche (CDU) only sent out a thin, two-page key points paper in advance of an association hearing.

That was enough to trigger new knee-jerk headlines filled with worried questions and speculation about future heating prices. There is nothing about this in the key issues paper itself, but rather something fundamental. From 2028, the so-called distributors of heating oil and natural gas - mostly oil companies, municipal utilities and gas suppliers - should add one percent of so-called climate-neutral fuels to their products. This compulsory share is expected to increase to five percent in 2030 and to 100 percent in 2045.

Accordingly, “all renewable and low-carbon fuels” that comply with European requirements such as those of the Renewable Energy Directive RED III are permitted as climate-neutral fuel. In practice, the most suitable “green” fuels are biomethane, “biooil” and hydrogen. According to EU regulations, the latter does not necessarily have to be green.

The key points also determine where the green gas quota should not apply. These are fossil fuels that are used in industry and commerce, in transport and in the generation of electricity and district heating. In the future, the quota will only affect private households. This is also what the “Heating is getting more expensive” headlines refer to. However, the green gas quota does not affect private households directly, but rather prescribes a proportion of climate-neutral fuels in the total amount of fuel supplied to private households.

From today's perspective, it is difficult to reliably predict whether and to what extent fuel costs will rise as a result. According to the key issues paper, the green gas quota should function similarly to the so-called greenhouse gas reduction quota in transport. This rate, in turn, will be around 12 percent in 2026. In other words: The distributors - i.e. the mineral oil companies - must ensure that slightly more than an eighth of the drive energy they supply is not fossil fuels.

The fewer fossil fuels there are on the market, the smaller the amounts of green gases are required for the quota.

To do this, oil companies add biofuels to gasoline or diesel. Or they basically buy the respective CO2 savings from the manufacturers of biofuels and domestic e-car users and credit them against the gasoline or diesel they sell.

There is a brisk trade in the certificates that prove CO2 savings. This drives the price depending on the market situation. According to the Ministry of Economic Affairs, such a quota market should also develop for green gases. In extreme cases, this can lead, for example, to a gas supplier purchasing so many CO2 certificates from biomethane producers that it meets its green gas quota on paper, but continues to supply 100 percent fossil gas to its customers.

From today's perspective, it is largely unclear what green quota gas ultimately costs. Private households currently consume around 260 billion kilowatt hours of natural gas every year. If one percent of this gas is to be green in 2028, that would be 2.6 billion kilowatt hours.

According to the energy agency Dena, a little more than 12 billion kilowatts of biomethane are currently fed in in Germany every year, with a plant utilization rate of 84 percent. Taking possible additional imports into account, it shouldn't be too much of a problem to meet the one percent quota for green gas in 2028.

The bioenergy industry also tends to agree with this assessment. The key points are a good basis for discussion and give hope that a ramp-up for green molecules can really be made possible, emphasizes Sandra Rostek from the capital's bioenergy office. According to Rostek, the industry can also provide bio-oil and bio-methane in sufficient quantities reliably and sustainably. It also points to the untapped potential of residual and waste materials as well as the prospective decline in gas and oil consumption in the heating market.

The fewer fossil fuels there are on the market, the smaller the amounts of green gases are required for the quota, even if their share increases over time. Forecasts are difficult, especially since the so-called organic staircase is added to the green gas quota.

To this end, the new Building Modernization Act stipulates that new gas and oil heating systems that are still in operation must initially obtain 10 percent of their heating energy from climate-friendly sources from 2029 onwards. This will often be the same biomethane that the green gas quota is based on.

The key points paper wants to avoid this obvious double access to biomethane: private households should be able to count the climate-neutral fuels that come to them via the green gas quota towards their bio-staircase. By 2030, for example, the organic staircase should reach a share of 15 percent and the green gas quota should reach a share of 5 percent - a third of their “staircase” will essentially be waived for households. The green gas quota could potentially even have a price-dampening effect.

For its part, the gas and water industry association estimates that one percent more green gases will increase costs for households by one percent. In fact, wholesale prices for natural gas are currently around the same level as biomethane.

In any case, the noticeable increase in heating prices is not the result of the use of green gases. Since the energy crisis triggered by the war in Ukraine, the household price for natural gas has risen by 80 percent. There are no signs of this crisis easing. In the future, as studies show, the closure of gas networks in particular will drive up the price. Fossil natural gas is also burdened by the CO2 price. How the latter will develop in the European context is uncertain. The fact that heating is becoming more expensive is not primarily due to green gas, but depends on many other factors.

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