On 15 November 2023, the European Council (‘the Council’) and the European Parliament (‘the EP’) reached a deal on the final text of the Methane Emissions Regulation¹.  Before entering into force, the text will have to be approved by both institutions.  This is however a formality.  The final text is based on a proposal from the European Commission (‘EC’) from October 2022².  Unlike CO2, methane is currently neither tracked nor tackled in the European Union. 

The new Regulation will require extensive measuring of leaks, their repair, and data reporting. Following intense negotiations, the initial thresholds have now been set at 17 grams of methane per hour for underwater leakage, 5 grams for underground and 1 gram for above-ground.  The EC is empowered to change thresholds one year after the law comes into force.

This measure will have a profound impact well beyond the European Union’s borders. Imports of oil and gas, which make up 80% of EU consumption are covered as well.  Fossil fuel companies whose production is located in Europe must begin reporting data 18 months after the law comes into force.  Four years after the law comes into force, every single source of methane (not including agriculture) in the EU must be reported.

As from 2027, importers must report data at a quality matching the new EU standards.  Operators will be barred from dealing with EU importers or from renewing existing contracts if the new standards are not met. Reporting will be annual, with inspections at least at three-year intervals.

This effectively means that as of January 2027, new import contracts or an extension of existing contracts for oil, gas and coal can only be concluded if the same monitoring, reporting and verification obligations are applied by exporters as for EU operators. 

This client alert summarizes the key elements of the new Regulation as agreed to by the EU institutions on 15 December 2022³, including the political deal reached between the EU legislators on 15 November 2023. 

The new Regulation - scope and targeted sectors 

Oil, gas, and coal operators⁴ will fall under the obligation to measure, report, and verify methane emissions, as well as to put in place mitigation measures to avoid methane emissions, including detecting and repairing methane leaks and limiting venting and flaring. Importantly, the Regulation envisages a series of global monitoring tools to ensure transparency on methane emissions from all future imports of oil, gas, and coal into the EU.

Monitoring and reporting

The new monitoring obligations upon operators and relevant deadlines:

Scope of the report	Deadline5
Quantification of source-level methane emissions	By 18 months from the entry into force of the Regulation
Direct measurements - quantification of source-level methane emissions for operated assets6	By 24 months from the entry into force of the Regulation
Direct-measurements - quantification of source-level methane emissions complemented by site-level measurements	By 36 months from the entry into force of the Regulation and by 31 May every following year
Direct measurements - quantification of source-level methane emissions for non-operated assets7	By 48 months from the entry into force of the Regulation, and by 31 May every following year

In addition, operators must also report venting and flaring events. The new rules impose a ban on venting and flaring methane from drainage stations, which release methane into the atmosphere, by 2025 and from ventilation shafts by 2027 with few exceptions⁸. 

Content of the report

The report shall include the following information:

• Emission source type and location
  
• All methane emissions for operated assets
• Data per detailed emission source type
• Share of ownership and methane emissions from non-operated assets multiplied by the share of ownership
• Detailed information on the quantification methodologies
• A list of entities with operational control of the non-operated assets

Mine operators⁹ will have to submit reports to the competent national authorities containing yearly source-level methane emissions data (within 12 months) for operating mines, as well as monitor plugged and abandoned mines.

Importantly, operators’ reports will have to be verified by certified independent verifiers.

Enforcement: inspections and fines

The competent national authorities must carry out periodic inspections to check operators' compliance with the requirements set out in the Regulation. The first inspection is to be completed no later than 21 months after its date of entry into force. Following the deal between the Council and the EP, the text now provides that the period between inspections must not exceed three years and, if a serious breach of the requirements of the regulation is detected, the subsequent inspection must take place within one year.

The competent authorities will be empowered to sanction non- compliant operators.

Leak detection and repair

Operators will have to submit a leak detection and repair programme to the competent national authorities. This programme shall detail contents of the surveys and activities with the aim to detect methane leaks, including other unintentional methane emissions, and to repair or replace the relevant components.

The Regulation provides for the adoption of a risk-based approach, drawing a distinction between:

• type 1 leak detection and repair surveys, characterized by lower accuracy to find big leaks; and,
• type 2 surveys, characterized by higher accuracy to find small leaks.

Specific limits are then provided by differentiating between (i) above-ground components, (ii) underground components, and (iii) components below sea level and below the seabed.

Operators must repair or replace all components found to be leaking methane above certain levels immediately after a leak has been detected or no later than 5 days after.

Timing

Operators must submit a methane leak detection and repair programme to the relevant national authorities 9 months from the date of entry into force of the Regulation. They carry out a first leak detection and repair survey of existing sites within 12 months.

Imports

The Regulation also covers methane emission occurring outside the European Union and imposes extensive reporting obligations, making this critical for U.S. oil and gas producers who export hydrocarbons, including LNG. 

Following the entry into force of the Regulation, three implementation phases will follow:

• first phase: focus on data collection and the creation of a methane emitters global monitoring tool and a ‘super-emitter’ rapid reaction mechanism;
• second and third phases: equivalent monitoring, reporting and verification measures should be applied by exporters to the EU by 1 January 2027, and maximum methane intensity values will apply by 2030. 

As of 1 January 2027, importers¹⁰ will have to demonstrate equivalent monitoring, reporting and verification requirements at production levels or provide guarantees of origin from countries deemed to have regulatory equivalence.

The competent authorities of each member state will have the power to impose administrative penalties if these provisions are not respected. These will include fine for infringements, including the suspension of the authorisation to place oil, gas and coal on the EU market.

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2. The European Commission (EC) had published its original proposal in late 2021, Proposal for a Regulation of The European Parliament and of the Council on methane emissions reduction in the energy sector and amending Regulation (EU) 2019/942, available at https://eur-lex.europa.eu/resource.html?uri=cellar:06d0c90a-5d91-11ec-9c6c-01aa75ed71a1.0001.02/DOC_1&format=PDF.

3. European Council, Proposal for a Regulation of the European Parliament and of the Council on methane emissions reduction in the energy sector and amending Regulation (EU) 2019/942 - General approach (15 December 2022), available at https://data.consilium.europa.eu/doc/document/ST-16043-2022-INIT/en/pdf.

4. Defined as any natural or legal person who operates or controls an asset or, where provided for in national legislation, to whom decisive economic power over the technical functioning of an asset has been delegated.

5. These deadlines might change slightly in the final version of the Regulation.

6. Defined as a business or operating unit, which can be composed of several facilities or sites, including assets under the operational control of the operator.

7. Defined as assets which are not under the operational control of the operator.

8. The specific circumstances for exemption are detailed in the Regulation.

9. Defined as any natural or legal person who operates or controls a coal mine or, where provided for in national legislation, to whom decisive economic power over the technical functioning of a coal mine has been delegated.

10. Importers are defined as a natural or legal person who, in the course of a commercial activity, places gas, oil or coal from a third country on the Union market including any natural or legal person established in the Union appointed by an importer to carry out acts and formalities required to importers under the Regulation.

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