The EU's New Methane Regulation: How will energy traders be impacted?

The European Union (EU) just approved a groundbreaking law to curb methane emissions, and it’s set to shake up the oil and gas sector. If you're a commodity trader or energy producer or involved in commodity trade finance, here's what you need to know and why the regulation could have far-reaching effects on your global supply chains.

First, some background:

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Why is the EU implementing a Methane Regulation?

Methane’s role in climate change

Methane is a potent greenhouse gas (GHG), with up to 80 times the warming potential of CO₂. It’s highly impactful on climate change in the short term – meaning a horizon of up to roughly 20 years. Methane significantly contributes to climate change, and the energy sector is a major source of these emissions. 

Because methane degrades away with time through chemical reactions in the atmosphere, its impact is often underrepresented when companies calculate their product emissions, because these assessments tend to look at the relative environmental impact of greenhouse gases on a 100 year time horizon. 

Methane and the energy sector 

Methane release occurs at all stages of the energy (oil, gas, coal, bio-energy) supply chain, from drilling and production, to processing, through to transport and distribution – i.e. the upstream supply chain. The industry accounts for over a third of methane emissions from human activity. 

Broadly, there are two causes:

• Intentional methane venting and flaring under standard operating procedures;
• Unintentional methane release due to leaks and emission events due to emergencies.

Under the Greenhouse Gas Protocol (the international standard for measuring and reporting GHG emissions), both of these sources of methane emissions should be measured and reported.

The EU Methane Regulation at a Glance

So far, energy products have avoided the EU’s Carbon Border Adjustment Mechanism (CBAM), meaning oil, gas and coal products have been at risk of carbon leakage: where emissions-capping schemes (like the EU Emissions Trading Scheme) inadvertently encourage companies to move polluting activities, or source from, outside the jurisdiction area. More broadly, energy policy has largely focussed on demand (typically mass electrification) with the expectation that this will drive the low-carbon transition by causing producers to match their supply accordingly.

That could all change with the EU’s new methane regulation, under which oil, gas and coal companies inside and outside the EU will have to measure, monitor, report and verify their methane emissions, and act to reduce them:

• From 2025: Importers of crude oil, natural gas and coal into the EU will have to report on annual methane emissions data;
• From 2027: New import contracts for oil, gas, and coal must adhere to EU-equivalent methane emissions reporting standards;
• From 2030: The EU will implement maximum methane intensity values for fossil fuels sold within its market.

Major gas producers, including those in the U.S., Algeria, and Russia, will face pressure from importers to comply, and could risk losing access to the EU market. This regulation levels the playing field, ensuring that imported energy products meet the same rigorous standards as those produced within the EU.

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How will the EU Methane Regulation impact the energy sector’s emissions transparency?

The energy sector’s progress on methane commitments

With methane accounting for 30% of global temperature rise since the industrial revolution, rapid and sustainable methane emissions cuts is one of the most credible and achievable steps for the global energy sector in its net-zero journey. 

The COP28 Global Stocktake was a rallying moment for energy leaders to take seriously the responsibility to reduce methane emissions at scale. The Oil and Gas Decarbonisation Charter (ODGC) was established, new countries joined the Global Methane Pledge (launched two years prior at COP26), and new financing was mobilized to support the reduction of methane and other non-CO₂ GHGs. 

A total of 52 companies have joined the ODGC, aiming to achieve net-zero Scope 1 and 2 greenhouse gas emissions from their operations by 2050 at the latest, to end routine flaring by 2030, and to achieve near-zero upstream methane emissions by 2030.

These pledges from upstream producers remain voluntary – and are therefore limited to those who are committed to sustainability. Producers who have not chosen to commit to long-term resilience to the effects of climate change are making trade-offs for potential cost-competitiveness today that could be harmful to business and stakeholder interests tomorrow.
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The global energy transition strategy requires active engagement from legislation, consumers, and producers. In the image above we see the producers who are willing to engage in commitment-based initiatives. Recent advances in mandatory corporate reporting standards (for example, EU CSRD, ISSB, US SEC) are improving transparency for consumers about the relative intensity of the companies they purchase from. 

A new level of transparency

The EU’s Methane Regulation accelerates this shift to transparency, making it compulsory for upstream oil, gas and coal producers to undertake asset-level monitoring, reporting, and verification (MRV) through a centralized database. Global non-EU upstream suppliers will be exposed to the rule, and under the spotlight from 2027. Moreover, a ‘rapid alert system for super-emitting events’ will be set up, and the EU plans to make the emissions data publicly available – thereby radically increasing transparency on methane emissions from fossil fuels on international markets. 

Each EU Member State will appoint a competent authority (much like the EU CBAM), as well as accredited data verifiers, with the burden of reporting falling on operators. 

Akin to the EU CBAM’s impact on the metals sector, we can expect a complex implementation process fraught with challenges and learnings for producers, importers, and consumers. 

At CarbonChain, we look forward to helping our energy trade customers navigate this regulation so they can fulfil reporting requirements of their GHG climate impacts and make data-led decisions to decarbonize. The complexities and uncertainties in global supply chains can make methane emissions tracking extremely challenging – our platform tackles this head-on with supply chain mapping and detailed insights into the full lifecycle of energy products. 
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How energy traders can prepare for the EU Methane Regulation

1. Identify the relative methane emission hotspots in your supply chain and where the impacts of this regulation will reach;
2. Engage your suppliers to ensure they are aware of the MRV requirements you will need them to implement to be compliant;
3. Engage with methane hotspots in your supply chain to understand their plan to reduce methane emissions within the EU maximum threshold – as well as further climate transition plans.

Do you know the methane intensity of your supply chain?

Get your energy supply chain ready as regulation closes in. Join the commodity traders tracking and reporting their emissions on the CarbonChain platform with speed, accuracy and ease.