Cabinet takes crucial step in making energy system sustainable

Cause: Letter to Parliament: Green Growth Package for a resilient energy system and a future-proof industry

With the Green Growth package announced last Friday, the government is seriously addressing a previously neglected component of our energy system: green molecules. The blending requirement for green gas announced in the letter to Parliament will ensure that significantly more green gas is produced in the Netherlands. This is essential, because green electricity alone is not enough. This measure is an important step in making our energy system more sustainable.

Blending obligation necessary for scaling up green gas

We are in a transition period where things that used to be self-evident are no longer so. Take our energy system, for example. It was a fossil-based, centrally organized system with a key role for natural gas, oil, and coal (molecules). We are moving towards a renewable, decentralized system with a key role for electricity. Electricity can fulfill many functions in our energy system, but not all. Molecules remain necessary for certain applications; for example, as raw materials, for high-temperature applications, and to produce transportation fuels for international and heavy-duty transport. These are all applications for which we cannot (yet) fulfill electricity.

Towards many more green molecules

For these applications, we prefer green molecules to fossil ones. Looking at gaseous molecules, we have the choice of green gas or green hydrogen. If we want to replace all natural gas consumption in our country with green molecules, we need almost 30.000 MW (megawatts) of production capacity. In 2024, the Netherlands had 440 MW of production capacity for green gas and 5 MW for green hydrogen. That's nowhere near enough to replace natural gas.

So, more green molecules are needed. Green gas comes from bio-based feedstocks, which are scarce, while green hydrogen requires green electricity, which is also scarce. Both green molecules have their challenges, but here I'll focus on green gas. Since 2008, the production of green gas has been stimulated through the Sustainable Energy Subsidy Scheme (SDE). Thanks to this scheme, green gas production has grown to 440 MW in 2024. By 2030, this should be 2.441 MW, as stipulated in the Climate Agreement. If we continue to grow at the current rate, we'll be nowhere near reaching that target, so acceleration is essential.

Acceleration must come from a different incentive: the blending requirement. This has been in place for transport fuels since 2007, and with the announcement in the letter to Parliament dated April 25th, a blending requirement will also be introduced for the built environment, agriculture, road transport, and other sectors (ETS2). The government imposes this requirement, and energy companies supplying natural gas to this sector must reduce CO2 emissions by blending green gas. This will stimulate demand for green gas, increasing prices and increasing green gas production. Natural gas consumers will pay slightly more, but this will cover a significant portion of the agreed-upon 2.441 MW.

Without a blending requirement, gaps in our energy system will arise that can only be resolved at very high costs, if at all. Paying a little more for natural gas blended with green gas will certainly lead to higher costs, but these are significantly lower than the costs we would incur for an energy system without green gas. With the blending requirement, we are therefore taking a significant step in the right direction.