The European Commission has postponed fines on oil and gas companies for methane emissions until 2030, citing concern over energy supplies and prices. The commission has also reviewed the EU’s Emissions Trading Scheme, reducing the pressure on industry to reduce overall emissions. The context is the US–Israeli war on Iran throttling supplies from the Gulf and its impact on oil prices due to uncertainty around negotiations between Iran and the US.
The EU’s methane legislation was adopted in 2024 as the first effort to regulate methane leaks related to oil, gas and coal. It covers domestic production, transport and processing, as well as imports, with emissions monitoring required from 2027. ‘Trying to mandate measurement, reporting and verification in a foreign country makes this quite complicated,’ says Jonathan Stern at the Oxford Institute for Energy Studies, UK.
Environmental organisations expressed disappointment with the postponement. The International Energy Agency (IEA) estimates that around 30% of the rise in global temperatures since the Industrial Revolution can be attributed to methane, since it is a much more potent greenhouse gas than carbon dioxide, despite its relatively short lifetime in the atmosphere. Fossil fuels accidentally and intentionally emit methane across their supply chains.
Reducing those emissions is viewed as one of the easiest and lowest cost ways to impact global warming before 2050. According to the United Nations, around 75% of emissions from oil and gas and 50% from coal can be eliminated with existing technology. While the threat of fines has now been postponed, producers in Europe and elsewhere have already made important steps toward developing the required measurement, leak detection and repair programmes.
Under the EU regulation, fuel importers will still be required to show evidence of compliance to EU national authorities. Member states had been tasked with deciding their own penalties, but ‘a lot of these bodies took time to be set up and the legal frameworks moved quite slowly,’ says Stern. That has led to uncertainty for industry over the risks of failing to comply. The commission’s recommendation to suspend penalties partly allows time to resolve this uncertainty, and says that eventual penalties must be proportionate and not endanger supply security.
The overall architecture needs to remain strong enough to incentivise low-carbon investment for the vast majority of firms
Already, at the end of 2025, energy ministers meeting in Brussels had expressed concern about energy security when discussing the methane legislation. The US war against Iran exacerbated anxieties. Four of the EU’s largest energy suppliers – the US, Qatar, Nigeria and Algeria – also appealed for more time to adapt to the legislation.
The US is generally opposed to restricting methane emissions. ‘The administration led by Donald Trump doesn’t think emissions are important because it doesn’t think climate change is important,’ says Stern. The US ambassador to the EU, Andrew Puzder, has suggested the methane regulation risks triggering another energy crisis.
It is more challenging to comply with the legislation for sites where methane escapes as a byproduct of oil production, which is the case in Nigeria and US shale-oil basins. This requires implementing additional technology to collect the gas, rather than venting or burning it in a flare. The value of captured gas can offset the cost, however. The picture is particularly complicated in North America. ‘In the US and Canada, you are dealing with basins which contain thousands, potentially millions of wells owned by different companies and each with a different composition,’ says Stern. It should be easier for Qatar to comply with the legislation because the vast majority of its gas is from one large field, he adds.
More headroom in emissions trading cap
Also in July, the commission released a review of the EU Emissions Trading System (ETS) – which makes industry pay for greenhouse gas emissions. This has been applied to power generation and energy-intensive industries since 2005, extending to aviation in 2012 and maritime transport from 2024. Since 2005, emissions from the relevant sectors have declined by more than 50%. The proposed ETS reform gives businesses more time to reduce their carbon emissions.
The ETS has been criticised by the European chemicals industry for putting it at a competitive disadvantage. Industry body Cefic said that the benchmarks up until 2030 ‘are largely excessive, unrealistic and do not reflect the seriousness of the situation our industry is facing’. It estimates that around 10% of European production capacity has been lost since 2022.
The ETS is already costing hundreds of millions per year in carbon taxes. The chemical industry is on the verge of collapse
The recent review was supportive of European industry, said the commission. The annual reduction on the emissions cap was made more gradual: it had been set to reduce by 4.3–4.4% per year up to 2030, but will now decline by 3.7% per year for 2031 to 2035 and 1.7% per year for 2036 to 2040. The EU is also creating an Industrial Decarbonisation Bank, which will reinvest ETS revenues to help energy-intensive industries deploy proven decarbonisation technology more widely. EU countries must direct 50% of their ETS revenues to support decarbonisation in sectors covered by the ETS.
It may not be enough for the chemical industry. ‘They’ve tweaked a system that needs more substantial reform. The ETS is already costing hundreds of millions per year in carbon taxes,’ says Richard Carter, an independent consultant to the chemical industry and former BASF manager. ‘The chemical industry is on the verge of collapse.’ He would have liked to see the emissions cap reduction rate brought down further, to 1–2%.
Others view the proposals from the commission more positively. ‘The overall architecture needs to remain strong enough to incentivise low-carbon investment for the vast majority of firms that are in a wait-and-see situation,’ says Darius Sultani, climate and energy policies researcher at the Potsdam Institute for Climate Impact Research, Germany. However, he notes that reforms to ETS begun in 2021 assumed that decarbonisation technologies would today be more widely available, at lower cost.
The chemicals industry is paying a price. ‘They don’t have conditions ready to make the low-carbon investments, but we are facing an increasing carbon price in the next couple of years,’ says Sultaini. ‘They lost some trust amongst the environmental communities by saying the ETS should be abolished altogether, but they are the ones feeling the pain and they don’t have a way out at the moment.’
The difficulties with European chemicals are exacerbated by China continuing to build more chemical facilities, despite global overcapacities, keeping prices low. Meanwhile Europe endures higher feedstock and energy costs than North America or the Middle East, making it harder to compete. Industry has complained about economic dumping by China, which has resulted in some penalties.
The EU should use more aggressive trade instruments that it created to combat Chinese dumping of chemicals at uncompetitive prices, Carter advocates, though ETS still needs further reform. ‘The EU ETS is a home-grown problem created by the EU and can therefore be solved by the EU. The EU cannot solve Chinese overcapacities,’ says Carter. However, Sultani says that the ETS is working well and that some parts of European chemicals, such as commodity polymers, must inevitably fail due to costs, while other parts should be better shielded by EU trade measures.
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