EUROPEAN COMMISSION Brussels, 15.12.2021 COM(2021) 803 final 2021/0425(COD) Proposal for a DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL on common rules for the internal markets in renewable and natural gases and in hydrogen {SEC(2021) 431 final} - {SWD(2021) 455 final} - {SWD(2021) 456 final} - {SWD(2021) 457 final} - {SWD(2021) 458 final}



EXPLANATORY MEMORANDUM 1.CONTEXT OF THE PROPOSAL •Reasons for and objectives of the proposal 1.1 Introduction The European Union has set an ambitious goal to be the first climate neutral continent by 2050. To achieve this, Member States and the European Parliament have agreed, in the European Climate Law, to reduce greenhouse gas emission by at least 55% by 2030. In order to achieve these targets and, at the same time, contribute to competitiveness, growth and jobs, the energy system needs a systemic change: We have to reduce the use of fossil fuels – including fossil gas – and increase renewable sources. Therefore, we need to design today an ambitious transition of the gas sector towards low-carbon and renewable gases. Fossil gas constitutes around 95% of today’s gaseous fuels consumed in the EU. Gaseous fuels, account for roughly 22% of total EU energy consumption today (including around 20% of EU electricity production, and 39% of heat production). According to the relevant scenarios used by the Climate Target Plan Impact Assessment, the share of gaseous fuels to total EU energy consumption in 2050 would be about 20%.Gaseous fuels will play an important part in the energy mix by 2050, requiring the decarbonisation of the gas sector via a forward-looking design for competitive decarbonised gas markets. Despite their minor contribution to the current EU energy mix, biogas, biomethane, renewable and low carbon hydrogen as well as synthetic methane (all together renewable and low carbon gases) would represent some 2/3 of the gaseous fuels in the 2050 energy mix, with fossil gas with CCS/U (carbon capture, storage and utilisation) representing the remainder. The present initiative is equally part of the Fit-for-55 package. It covers the market design for gases, including hydrogen. It will remove existing regulatory barriers and create the conditions for this to take place in a cost effective manner. This is an important part of moving to integrated energy system that minimises the costs of transition towards climate neutrality, in particular for consumers and open new opportunities for reducing their energy bills and active participation in the market. Hydrogen is expected to be used mainly in the areas where electrification is not an option, including today’s energy-intensive industry (e.g. refineries, fertilisers, steel making) and certain heavy-duty transport sectors (maritime transport, aviation, long distance heavy vehicles). Developing a dedicated hydrogen infrastructure is necessary to release the full potential of this energy carrier is specific end-use applications. The objective of promoting renewable and low-carbon gases is to decarbonise these sectors, increase the flexibility of the electricity system thanks to power-to-X technologies, strengthen security of supply by reducing dependence on natural gas imports and allow to store (and produce) electricity. This allows linking various sectors of the economy, in conjunction with other forms of storage and flexibility, such as batteries and demand response. Likewise, it will support self-production and smart use of distributed energy supply, contribute to greater consumer empowerment. Consumers also need clear and easily accessible information to help change energy consumption patterns and switch to renewable and low-carbon solutions, similarly to what they are able to do in electricity market. While aiming for a maximum of renewable hydrogen from 2030 onwards, in the short and medium term other forms of low-carbon gases in particular low-carbon hydrogen can play a role, primarily to rapidly reduce emissions from existing hydrogen production and support the parallel and future uptake of renewable hydrogen. In line with the EU hydrogen strategy, the production of renewable hydrogen in the EU should reach 1 million tonnes by 2024 and up to 10 million by 2030. From then onwards, renewable hydrogen should be deployed at a large scale and replace low-carbon hydrogen. An efficient and sustainable development of renewable and low-carbon gases as well as the hydrogen market requires to adapt the market framework.This is because the renewable and low-carbon gases today face regulatory barriers for market and grid access that represent a comparative disadvantage versus natural gas. Moreover, for a decarbonised gas market to be set up and contribute to the energy transition, significantly higher shares of renewable energy sources in an integrated energy system with an active participation of consumers in competitive markets are needed. This should allow consumers to benefit from affordable prices, good standards of service, and effective choice of offers mirroring technological developments. The deployment of various renewable and low-carbon types of gases are likely to emerge in parallel and are expected to develop at a different pace across the EU: ·a hydrogen-based infrastructure will progressively complement the network for natural gas; ·a gas infrastructure in which fossil gas will progressively be replaced by other sources of methane. In addition, events on increasing energy prices have reminded us that the resilience of the European energy system is increasingly important as the EU energy system integrates more decentralised renewable energy and fossil fuels are gradually phased out. The security of supply and risk preparedness arrangements of the gas sector must be fit for the clean energy transition. The Commission’s Communication on tackling rising energy prices (A toolbox for action and support), highlights the interplay between security of supply, the optimal use of storage capacities and the volatility of energy prices. 1.2 Objectives of the proposal The present initiative seeks to facilitate the penetration of renewable and low-carbon gases into the energy system, enabling a shift from natural gas and to allow for these new gases to play their needed role towards the goal of EU climate neutrality in 2050. Within this context, it addresses the following areas: Low level of customer engagement and protection in the green gas retail market. For new gases to play a full role in the energy transition, the retail market rules should empower customers to make renewable and low carbon choices. This is not currently the case. Moreover, there is no common EU terminology and certification system for low carbon fuels and gases. In addition, the retail gas markets exhibit market concentration and low levels of new entry and innovation. This prevents customers from benefiting from competition by making low carbon choices. To be able to make sustainable energy choices, customers need sufficient information on their energy consumption and origin, as well efficient tools to participate in the market. Moreover, Member States should take the necessary measures to protect vulnerable and energy poor customers. The decarbonised gas market should not be developed without them being able to fully benefit from it . Hydrogen infrastructure and hydrogen markets. The current regulatory framework for gaseous energy carriers does not address the deployment of hydrogen as an independent energy carrier via dedicated hydrogen networks. There are no rules at EU level on tariff-based investments in networks, or on the ownership and operation of dedicated hydrogen networks. In addition, no harmonized rules on (pure) hydrogen quality exist. Consequently, barriers exist for the development of a cost-effective, cross-border hydrogen infrastructure and competitive hydrogen market, a prerequisite for the uptake of hydrogen production and consumption. The present proposal seeks to address these deficiencies. It includes a proposal for a system of terminology and certification of low carbon hydrogen and low carbon fuels.

Renewable and low-carbon gases in the existing gas infrastructure and markets, and energy security. Today, renewable and low-carbon gases represent a minor share in the EU energy mix. To untap their potential, access to the gas wholesale market, i.e. the virtual trading points, represents a key prerequisite. Abolishing costs for cross-border trade of those gases and facilitating connection of production facilities will also improve the business case. Differences in gas quality parameters and in the volume of hydrogen blended in the natural gas system can affect the design of gas infrastructure, end-user applications and cross-border system interoperability, thus risk fragmenting the internal market. However, current gas quality rules are not fit to deal with future developments. On LNG, addressing the residual barriers regarding access to LNG terminals could open the way to import renewable and low carbon gases from abroad supporting the decarbonisation of the EU gas market. Finally, preserving and strengthening resilience in the transition require appropriate arrangements of security of supply. Network planning. As outlined in the Commission’s Energy System Integration Strategy, coordinated planning and operation of the entire EU energy system, across multiple energy carriers, infrastructures, and consumption sectors is a prerequisite to achieve the 2050 climate objectives. Current network planning schemes and practices are deficient asthere are discrepancies between the EU-wide ten-year network development plan (‘TYNDP’) and national network development plans (‘NDP’) A better linkage between TYNDP and NDP would allow transnational exchange of information on transmission systems usage. Security of supply and storage. In reaction to the significant and EU-wide energy price increases in autumn 2021, the European Council invited the Commission to swiftly consider medium and long-term measures that increase the resilience of the EU’s energy system including measures which enhance security of supply. To contribute to a timely response to this crisis and possible new crisis at Union level, this proposal includes specific measures to improve cooperation and resilience, notably to ensure a more effective and coordinated use storage and operational solidarity arrangements. The measures are targeted to reinforce the resilience of the EU energy system against future shocks in a timely manner. They cover measures in this Regulation and Regulation (EU) 2017/1938 on security of gas supply. In order to ensure a coherent response, the measures on security of supply are part of this legislative proposal and not proposed as a separate legislative proposal. As indicated in the Communication on energy prices of 13 October 2021 entitled ‘Tackling rising energy prices: a toolbox for action and support’, coordination of security of supply across borders is crucial for the resilience against future shocks. The measures proposed require Member States to explicitly make storages part of their security of supply risks assessments, both at national and regional level, including risks linked to the control of storage by entities from third countries. Member States should consider storage measures through regional cooperation in case of unaddressed risks. The proposal defines enabling conditions to deployment of voluntary joint procurement of gas strategic stocks to be used in case of emergency. Measures are also introduced to improve the transparency and access to storages, address cybersecurity risks of gas and facilitates bilateral solidarity arrangements between Member States in case of crisis. The Commission encourages the Member States to proceed with solidarity arrangements without waiting so that even in a severe crisis households receive the gas they need. •Consistency with existing policy provisions in the policy area The proposed initiative is strongly linked and complementary to the legislative proposals brought forward in the context of the Fit-for-55 package to implement the European Green Deal, including: The revised Renewable Energy Directive (‘RED II’), which is the main EU instrument dealing with the promotion of energy from renewable sources. It aims to accelerate the penetration of renewable energy, including renewable gases in the energy system. Its proposed amendment increases the target for renewable sources in the EU’s energy mix to 40% and promotes the uptake of renewable fuels, such as renewable hydrogen in industry and transport, with additional targets. In relation to this initiative, the RED II defines renewable hydrogen as ‘renewable fuels of non-biological origin’ and ‘biomass fuels’ that meet a 70% greenhouse gas emission reduction compared to fossil fuels setting specific sub-targets for the consumption of renewable hydrogen (50% of total hydrogen consumption for energy and feedstock purposes in industry by 2030 and 2.6% of the energy supplied to the transport sector). The Energy Efficiency Directive ('EED') and the related Energy Performance of Buildings Directive ('EPBD') including the proposals for their amendment interact with the present initiative as they affect the level and structure of gas demand. Energy efficiency measures can alleviate energy poverty and reduce consumer vulnerability. As gaseous fuels are currently dominating theEuropean heating and cooling supply and the cogeneration plants, their efficient use stays at the core of the energy efficiency measures. The Gas Directive and the Gas Regulation are coherent with the energy efficiency first principle: an open and competitive EU market with prices that reflect energy carriers’ production costs, carbon costs, and external costs and benefits would efficiently provide clean and safe hydrogen to end users who value it most. The TEN-E Regulation, as proposed by the Commission in December 2020, aims to better support the modernisation of Europe's cross-border energy infrastructure for the European Green Deal. It introduces hydrogen infrastructure as a new infrastructure category for European Network Development. The present initiative is complementary to the proposed TEN-E Regulation as it focuses on alignment of the national plans with the requirements of the European wide Ten Year Network Development plan. As announced in the EU strategy to reduce methane emissions, the Commission will propose legislation to reduce methane emissions in the energy sector. The initiative will seek to improve information for all energy-related methane emissions. The present initiative is complementary as it seeks to facilitate the penetration of renewable and low-carbon gases, enabling a shift from natural gas. •Consistency with other Union policies The Emission Trading Scheme (‘ETS’) increases the price of using fossil fuels relative to renewable and low-carbon gases and, thus, fosters the demand for such gases and investments in related production technology. The Commission has proposed strengthening, including reinforcements in and extensions to the aviation sector, maritime and road transport, and buildings. Under this Scheme all hydrogen production facilities are included, as well as electrolysers with a production capacity exceeding 25 tonnes/day. The Innovation Fund, which was established by the EU Emission Trading System (EU ETS) Directive for the period 2021 to 2030, is one of the funding instruments supporting the transition to a climate neutral Europe by 2050. The Innovation Fund, which was established by the EU ETS Directive for the period 2021 to 2030, is one of the funding instruments supporting the transition to a climate neutral Europe by 2050. The revision of the Energy Taxation Directive strives to align the taxation of energy products with EU energy and climate policies, promote clean technologies and remove outdated exemptions and reduced rates that currently encourage the use of fossil fuels. Under the revised Directive, products covered by the Directive are grouped and ranked according to their environmental performance. According to this, the revision sets a preferential minimum levels of taxation of EUR 0.15/ GJ (compared to EUR 10.75/GJ for fossil fuels) For renewable and low-carbon hydrogen fuels used as motor fuels. For renewable and low-carbon hydrogen fuels used as heating fuels, it sets a preferential minimum levels of taxation of EUR 0.15/ GJ (compared to EUR 0.6/GJ for natural gas). The revised Alternative Fuels Infrastructure Regulation (‘AFIR’), which will repeal Directive 2014/94/EU on deployment of alternative fuels infrastructure (AFID), as proposed by the Commission in July 2021, aims to tackle rising emissions in road transport to support the transition to a nearly zero-emission car fleet by 2050. The Regulation requires Member States to expand their network of recharging and refuelling infrastructure in line with zero emissions car sales, and to install charging and fuelling points at regular intervals on major highways. The revision of the Alternative Fuel Infrastructure Regulation will require one refuelling stations (min. 2 t/day, 700 bar) every 150 km along the TEN-T core network and in every urban node by 2030; this would result in around 700 HRS along transport nodes, and 88 HRS in urban nodes. The Amendment of the Regulation setting CO2 emission standards for cars and vans aims to ensure a clear pathway from 2025 towards zero-emission transport. The regulation notably defines zero-emission vehicles as battery electric vehicles, fuel-cell and other hydrogen powered vehicles, and sets a target of zero average emissions of the new vehicle fleets by 2030. The FuelEU Maritime proposal aims to increase the share in the fuel mix of international maritime transport of sustainable low and zero-carbon alternative fuels including: liquid biofuels, e-liquids, decarbonised gas (including bio-LNG and e-gas), decarbonised hydrogen and decarbonised hydrogen-derived fuels (including methane, and ammonia). The focus on fuels and power technologies should enable significant and rapid emission reductions, using fully the existing technologies and infrastructure alongside incentives provided by other measures to be proposed. It will also facilitate the definition of decarbonisation pathways for the entire maritime cluster. The REFuel EU Aviation proposal which targets to advance the potential of sustainable aviation fuels to reduce aviation’s GHG footprint is yet largely untapped. In order to decrease significantly its emissions, the aviation sector will need to reduce its current reliance on fossil jet fuel and rely increasingly on the use of sustainable aviation fuels (SAF) in the years to come. The proposal sets out a minimum share of 0.7% of ‘synthetic aviation fuels’ in the aviation fuels supplied to aircraft operators where ‘synthetic aviation fuels’ are renewable fuels of non-biological origin, as defined in the renewable energy directive. 2.LEGAL BASIS, SUBSIDIARITY AND PROPORTIONALITY •Legal basis The objectives of this initiative cannot be achieved on a national level. The planned measures of the present initiative seek to advance the four objectives set out in Article 194 of the Treaty of the European Union (TFEU), while at the same time contributing to the decarbonisation of the EU’s economy. The planned measures are to be adopted on the basis of Article 194 (2) TFEU together with Article 114 (1) TFEU. In the field of energy, the EU has a shared competence pursuant to Article 4 (2) (i) TFEU.

The present initiative also builds upon a comprehensive set of legislative acts that have been adopted and updated during the past two decades. With the objective of creating an internal energy market, the EU has adopted four consecutive legislative packages between 1996 and 2019, with the overarching aim of integrating markets and liberalising national electricity and gas markets. These provisions cover a wide range of aspects, from market access to transparency, consumer rights, increase the liquidity of gas markets, and the independence of regulatory authorities. •Subsidiarity (for non-exclusive competence) Currently, there are no rules at EU-level regulating dedicated hydrogen networks or markets and low-carbon hydrogen and low-carbon fuels. In view of the current efforts at EU and national levels to promote the use of renewable hydrogen as a replacement for fossil fuels, Member States would be incentivised to adopt rules on the transport of hydrogen dedicated infrastructure at national level. This creates the risk of a fragmented regulatory landscape across the EU, which could hamper the integration of national hydrogen networks and markets, thereby preventing or deterring cross-border trade in hydrogen. Harmonising rules for hydrogen infrastructure at a later stage (i.e. after national legislation is in place) would lead to increased administrative burdens for Member States and higher regulatory costs and uncertainty for companies, especially where long-term investments in hydrogen production and transport infrastructure are concerned. The creation of a regulatory framework at EU-level for dedicated hydrogen networks and markets would foster the integration and interconnection of national hydrogen markets and networks. EU-level rules on the planning, financing and operation of such dedicated hydrogen networks would create long-term predictability for potential investors in this type of long-term infrastructure, in particular for cross-border interconnections (which might otherwise be subject to different and potentially divergent national laws). When it comes to biomethane, without an initiative at EU level, it is likely that by 2030 a regulatory patchwork would still exist regarding access to wholesale markets, connection obligations and transmission system operator (TSO)- distribution system operator (DSO) coordination measures. Likewise, without some harmonisation at the EU level, renewable and low-carbon gases producers will be facing vastly different connection and injection costs across the EU, resulting in an unequal playing field. Without further legislation at the EU level Member States would continue to apply different gas quality standards and rules on hydrogen blending levels, risking cross-border flow restrictions and market segmentation. Gas quality standards would continue to be mainly defined by the quality parameters of natural gas, limiting the integration of renewable gases in the network All these aspects are likely to lower cross-border trade with renewable and low-carbon gases that might be compensated by higher natural gas imports. The utilisation of the LNG terminals and imports could remain restricted to natural gas, despite that no adaptation of LNG terminals would be necessary in case competitive biomethane or synthetic methane from non-EU sources were available. National network planning will be required to be developed only in Member States where certified Independent Transmission Operators (ITO) and Independent System Operators (ISO) are operating. While most Member States have a single gas national development plan within which gas operators cooperate, there is still limited cross-sector cooperation. EU coordinated emergency preparedness for the current gas sector has proven to be more efficient than action only at national level. •Proportionality The initiative complies with the proportionality principle. It falls within the scope for of Article 194 of the Treaty on the Functioning of the European Union. The policy intervention is proportional to the dimension and nature of the problems defined and the achievement of the set objectives. The proposal does not go beyond what is necessary to achieve the general objective pursued to facilitate the decarbonisation of gaseous fuels in a competitive manner at least economic costs whilst ensuring energy security and placing consumers at the heart of the energy markets. The preferred set of options are considered proportionate and builds to the extent possible on existing approaches. The balance between obligations and consideration of the different capabilities to act among Member States and private entities is considered appropriate given the imperative of achieving climate neutrality by 2050. •Choice of the instrument Building on the overall evaluation of the current regulatory framework for the gas market, the instruments chosen are a Directive, to recast the Directive 2009/73/EC, and a Regulation to recast Regulation No 715/2009. The choice of a recast of these existing legal acts will enhance legal clarity. Recourse to an amending act may have been inadequate to address a wide set of new provisions. The choice of the instruments thus calls for a revision of rules already adopted and implemented, as a natural evolution of current legislation,in view of this changes. Further acts will need to be amended through the Gas Regulation such as: the SoS Regulation (EU) 2017/1938, ACER Regulation (EU) 2019/942 and REMIT Regulation (EU) No 1227/2011. 3.RESULTS OF EX-POST EVALUATIONS, STAKEHOLDER CONSULTATIONS AND IMPACT ASSESSMENTS •Ex-post evaluations/fitness checks of existing legislation The entry into force of the Third Energy package has positively contributed to the competition and performance of the internal energy markets. Nevertheless, the current regulatory framework for gas focuses on fossil-based natural gas and does not fully anticipate the emergence of alternatives for methane gases (including natural gas and biomethane), such as hydrogen. A re-examination of the current gas market regulatory framework is needed and it has already been announced in the European Commission’s communication on a hydrogen strategy for a climate-neutral Europe. Given the different potential in EU Member States for the production of renewable and low carbon hydrogen, a suitable market framework could facilitate hydrogen to play its role as an energy carrier and as an enabler of energy system integration. On this basis, four main drivers have been identified under Problem Area I of the Impact Assessment: (i) decarbonisation will result in the emergence of a European hydrogen value chain reliant on a cross-border hydrogen market; (ii) lack of hydrogen infrastructure investments hinder market development; (iii) hydrogen infrastructure is likely to constitute a natural monopoly, resulting in non-competitive market structures; (iv) diverging hydrogen quality rules may hinder cross-border flows and incur additional costs.

The existing gas rules, focusing on fossil-based natural gas mainly imported from outside the EU, do not address the specific characteristics of decentralized renewable and low-carbon gases production within the EU. In addition, the growing volumes of biomethane, hydrogen but also LNG affect gas quality and thereby the design of gas infrastructure and end-user appliances. In particular, the Impact Assessment recognizes five main drivers related to this Problem Area: (i) constrained market and grid access for local producers of biomethane connected to the distribution grids, divergence of rules regarding obligation to connect and costs of grid connection for renewable and low carbon gases and intra-EU entry/exit tariffs hinder the establishment of a fully integrated, liquid and interoperable EU internal gas market; (ii) differences in gas quality and hydrogen blending levels can negatively impact cross-border flows and end-users, while current gas quality rules are not fit to deal with future developments; (iii) LNG terminals equipped to receive mainly natural gas, limited access for new gases to LNG terminals; (iv) long term supply contracts for unabated natural gas may lock-in natural gas and hinder supply of renewable gases towards 2050; (v) current energy security arrangements only address risks related to the supply of natural gas and not of renewable and low carbon gases. Concerning network planning, cooperation between TSOs and regulators needs to evolve further. The increasing penetration of intermittent energy sources requires the whole energy system to be better integrated and the infrastructure to become more interconnected, based on a more holistic and inclusive approach The Impact Assessment outlines three main drivers regarding this Problem Area: (i) network planning varies between Member States and TSOs, separate planning for electricity and gas; (ii) no transparency on potential of existing infrastructure for repurposing or decommissioning; (iii) DSOs not explicitly included in TSO planning. Furthermore, a more harmonized system development strategy would further increment interlinkages between electricity and gases systems including hydrogen. The evaluation showed that competition needs to improve to ensure that the full benefits of market integration are passed on to EU consumers. Furthermore, consumers are still deprived from the necessary tools to get actively involved in the market. Consumer protection provisions in the analysed legislation prove to only be partially fit for purpose. In particular protection for vulnerable customers is still uneven between Member States and energy poverty continues to be significant across the EU. Concordantly, Problem Area IV identified three problem drivers: (i) untapped competition potential in retail markets; (ii) insufficient customer empowerment in terms of switching, price comparison tools, billing information, energy communities, and access to data; and (iii) inadequate consumer protection in particular for vulnerable and energy poor. •Stakeholder consultations In line with the Better Regulation Guidelines, the Commission carried out a comprehensive and inclusive stakeholder consultation based on a consultation strategy that included a range of methods and tools. This strategy aimed to ensure that all relevant evidence was taken into account, including data about costs, societal impact, and benefits of the initiative. Several consultation tools were employed: a consultation on the inception impact assessment (Roadmap), an online public consultation based on a questionnaire, a presentation by the Commission and feedback from stakeholders, including the Gas Regulatory Forum, discussions with the Member States, with members of the European Parliament and with National Regulatory Authorities, and discussions with stakeholders in a large stakeholder workshop. The Commission received 263 responses to the open public consultation. In general, respondents confirmed that they see a need to revise the Gas Directive and Gas Regulation to help to achieve decarbonisation objectives. Moreover, over 60% of respondents expect that the technological and regulatory changes necessary to decarbonise the gas market have the potential to create new jobs by 2030. Regarding the development of hydrogen infrastructure and markets, a majority of the respondents support the introduction of regulation at an early stage to foster a well-functioning and competitive hydrogen market and infrastructure. Respondents advocated for an EU legislative framework that defines key regulatory principles and takes a step-wise approach. A large majority supports e.g. third party access, rules for access to hydrogen pipelines, import terminals and storage, and advocates for network activities to be unbundled. Most respondents considered it important to define early the role of private parties in developing hydrogen infrastructure. A large majority of respondents also consider that existing and future private networks may be (temporarily) exempted from certain regulatory requirements but that convergence on a single regulatory framework needs to be assured. The vast majority of respondents consider that rights and permitting requirements for new hydrogen infrastructure should be similar to those applicable to methane gas pipelines today. Regarding the promotion of the access of renewable and low carbon gases to the existing gas market and infrastructure, stakeholders agree on a need to revise the current regulatory framework to help achieve decarbonisation objectives. A majority of stakeholders considers it important to ensure full market access and facilitate the injection of RES&LC gases into the gas grid. Many respondents advocate an obligation for network operators to connect RES&LC gases producers and introduce an injection charge reduction. The majority of respondents supports as well the improvement of the transparency framework for LNG terminals. There is also a strong support for the harmonised application of gas quality standards across the EU, for reinforced cross-border coordination and increased transparency. Respondents are divided on hydrogen blending, but the majority agrees that it can provide a cost-efficient and fast first step, despite the high technical costs, to energy system decarbonisation. Few stakeholders support the removal of intra-EU cross-border tariffs. The majority of the respondents consider gas-specific security challenges and cyber-security measures as important. Regarding integrating network planning, the majority of stakeholders support aligning the timing of the Network Development Plan (NDP) with the TYNDP, and a single gas plan irrespective of the unbundling model chosen. A majority of respondents expressed even stronger support for a joint electricity and gas scenario. A substantial number of stakeholders ask for the inclusion of hydrogen projects in the NDP. Most stakeholders agree on the role of DSOs to provide and share information, with several respondents also supporting that DSOs provide their own plan including system optimisation across different sectors. Respondents also preferred a joint gas and electricity plan to joint scenarios with separate plans. Several stakeholders pointed out that a joint methane and hydrogen plan, with a separate electricity plan, would be the preferred option. Regarding customer engagement and protection in the green gas retail market, the majority of the stakeholders called for higher ambitions in the citizen/consumer-related provisions by mirroring those in the electricity market. As well, energy poverty provisions should help ensure consumers are not paying the cost of switching to clean gas-based options. Representatives of the private sector support the plans to phase out regulated prices, while some consumer organisations would opt for keeping them to protect energy poor and vulnerable consumers. Almost half of all respondents want provisions on the comparability of offers and accessibility of data, transparency, smart metering systems, and switching to be reinforced. No respondent has supported the non-regulatory approach. •Collection and use of expertise The proposed initiative and its underpinning Impact Assessment draw on evidence from the stakeholder input to the extensive consultations carried out in this respect, as well as literature review, and modelling. The literature review included the results of a serie of topical studies on key elements such as the role of hydrogen and decarbonised gas infrastructure, market and production, that were conducted for the Impact Assessment or that contributed to its scope, as well as assessments carried out in for other relevant Commission initiatives. Conclusions adopted in the framework of several stakeholder forums, most importantly the one on gas regulation (Madrid Forum), and the one on electricity regulation (Florence Forum) were also considered in the analysis. Discussions with Member States, with members of the European Parliament, with National Regulatory Authorities, ACER and discussions with other stakeholders were equally considered. •Impact Assessment Following the Better Regulation guidelines, the Commission carried out an Impact Assessment of several policy options. This work was supported by a consultation within the Commission via an Inter-Service Steering Group. The Impact Assessment was presented to and discussed with the Regulatory Scrutiny Board (RSB). The Regulatory Scrutiny Board issued a ‘positive opinion with reservation’. Reservations were notably addressed by: (i) integrating the conclusions of the evaluation into the problem description, (ii) spelling out the role of the initiative as part of the enabling framework of the ‘Fit for 55’ package, (iii) clarify the baseline of the impact of the policy options, (iv) distinguish more between different actors, in particular between natural gas and hydrogen producers and consumers, (v) provide an assessment of how the initiative may have different impacts for SMEs compared to other (larger) companies, (vi) better reflect the dissenting and minority views throughout the report, including in the problem definition, the construction of the options, analysis of impacts and the choice of the preferred option, (vii) improve the narrative of the report, and (viii) complete the cost and benefit tables in the appropriate format. Throughout the Impact Assessment work, a range of measures was considered across four Problem Areas to address the identified problems and problem drivers to reach the objectives of the initiative: Following an assessment of their effectiveness, efficiency, coherence and proportionality, a package of preferred options has been found best suited to contribute to the set objectives. Problem Area I: Hydrogen infrastructure and hydrogen markets Problem Area I considers the following policy options: to tender the rights for hydrogen network operation (Option 1); to introduce main regulatory principles inspired by those currently applicable to the natural gas market but adapted to the development stage of hydrogen markets (Option 2); and to establish a fully developed regulatory regime for hydrogen (similar to the one currently applicable to the natural gas sector) without need for a transition to a more mature hydrogen market (Option 3). The preferred option is to introduce key regulatory principles from the start whilst providing clarity on the final (future) regulatory regime. (Option 2b ‘Main regulatory principles with a vision’). The key benefit of this option is that it fosters market integration, provides clarity for investors, avoids the emergence of non-competitive market structures as well as costs of ex-post adjustments of rules once the market is mature, but leaves flexibility to tailor the regulation to the staged ramp-up of the hydrogen sector. Problem Area II: Renewable and low carbon gases in the existing gas infrastructure and markets, and energy security Problem Area II contains options that promote access to renewable and low-carbon (RES&LC) gases to the existing gas market and infrastructure. All options include also a progressive level of intervention for addressing energy security concerns, notably extending existing tools, standards and procedures to RES&LC gases, effective solidarity and addressing risks linked to cybersecurity for the gas sector. Option 3 ‘Allow and promote renewable and low-carbon gases full market access’ is the preferred option for Problem Area II. This option contains measures to support access of renewable and low carbon gases to the wholesale market, LNG terminals, and transmission grid (regardless of the place of connection), including tariff discounts for injection to the grid and cross-border transport. Gas quality would be governed by a harmonised EU approach for cross-border interconnection points while leaving flexibility to the Member States. The allowed cap for hydrogen blends is set at 5% for all cross-border points – a level that is cost-efficient in terms of adaptation and abatement costs.

Allowing and promoting renewable and low-carbon full market: The measures foreseen are consistent with the Union’s efforts to fight climate change and necessary to achieve the objectives of the European Green Deal. The key benefit is that the measures will decrease the production costs for producers of renewable and low carbon gases, increase competition, liquidity and trade for renewable gases, while encouraging a reduction of greenhouse gas emissions. In this way, consumers and taxpayers will benefit as support could be lowered. It will also limit risks for energy security and save time and resources, reduce uncertainties, improve the efficiency of emergency measures, and strengthen security-specific requirements for gas companies. Problem Area III: Network planning Problem Area III considers options regarding integrated network planning. The preferred option for Problem Area III is Option 2 ‘National Planning based on European Scenarios’. The option allows for national planning but requires that it is based on joint scenarios for gas and electricity, aligned with the TYNDP and linked to the relevant National Energy and Climate Plan. It includes all relevant actors (DSOs) and enables the identification of pipelines that can be used for repurposing from methane to H2 on a level of detail that would not be easily achievable on the European level. Establish National Planning based on European Scenarios: The key benefit is that this will eliminate risks that electricity and gas TSOs plan the evolution of their systems based on incompatible assumptions. It enables sector integration and a conceptual system plan while keeping the benefits of more detailed sector-specific network development plans. It ensures a common vision of the different stakeholders implying that network planning takes into account the decarbonisation strategies at the national and EU levels, reducing the risk of potential lock-ins or stranded assets. Problem Area IV: Low level of customer engagement and protection in the green gas retail market Problem Area IV contains options that postulate for a non-regulatory approach in tackling competition and consumers’ engagement or instead require addressing the problem drivers through new legislation, mostly mirroring what was already established in the electricity sector. In light of the analysis, the preferred option is Option 2 ‘Flexible legislation’, which mirrors the electricity market consumer protection and also the empowerment provisions. This option is most likely to be the most effective, efficient, and consistent with other Problem Areas. The key benefit is that it will offer significant savings potential, help new suppliers and service providers to enter the market, develop innovative products, resulting in increased competition, consumer engagement and economic benefit. It would also enable citizens and communities to increase social acceptance, mobilise private capital and facilitate the deployment of renewable and low-carbon gases. Reducing the risk of over-investments will have a positive environmental impact. •Regulatory fitness and simplification The proposals for amending the existing legislation are designed in accordance with the most cost-effective policy options scrutinised in the Impact Assessment. It is expected from some of the preferred options to increase administrative, implementation and enforcement costs for regulatory bodies and market operators. For example, higher administrative exchanges between NRAs and natural gas shippers, increased coordination efforts between DSOs and TSOs, and further regulatory and implementation efforts for Member States and national authorities might stem from the proposed measures. However, lower and more efficient regulatory costs are also expected from the amended framework. Furthermore, the Impact Assessment shows that the proposed measures offer the most cost-effective regulatory options to achieve the overarching objective of the initiative, namely the establishment of rules for the transmission, distribution, supply and storage of methane and hydrogen gases that can support the decarbonisation of the energy system while ensuring secure and affordable energy. The short-term regulatory costs entailed in some of the preferred measures must be assessed against the costs and efforts that a late integration and decarbonisation of the energy system would require in the long term. The benefits that the options are expected to produce in terms of support for renewable sources, energy system integration, consumer protection and energy security will largely outweigh the immediate administrative and implementation costs. The proposal further contributes to simplifying the current regulatory framework by harmonising the provisions on gas infrastructure and market with the new regulatory architecture conceived by the Clean Energy Package for the electricity sector. Higher alignment between sectors is expected to benefit many regulatory areas, notably consumer empowerment and protection, governance and regulatory oversight. Similar contributions are also foreseen in the early introduction of a regulatory framework for hydrogen infrastructures and markets. Whilst these rules will likely increase the immediate administrative costs and regulatory burdens for national authorities and market operators, an early harmonisation of regulatory principles for hydrogen is expected to significantly lower future compliance costs and prevent the risk of major regulatory divergences and implementation costs. •Fundamental rights Safeguarding EU values and citizens’ fundamental rights and security in a developing green, digital energy environment, is of paramount importance. The proposed policy measures on data management were developed with this in mind, aiming at ensuring widespread access and use of digital technologies and data-driven services while at the same time guaranteeing a high level of the right to private life and to the protection of personal data, as enshrined in Articles 7 and 8 of the Charter of Fundamental Rights of the EU, and the General Data Protection Regulation. 4.BUDGETARY IMPLICATIONS The budgetary impact on the EU budget associated to the proposal under this package concerns the human resources of the Agency for the Cooperation of Energy Regulators (ACER) and of the European Commission’s Directorate-General (DG) for Energy which are described in the Legislative Financial Statement accompanying the Commission proposal for a recast of the [Gas Regulation]. Essentially, the new tasks to be carried out by ACER, notably as regards rules facilitating the development of a competitive hydrogen sector, but also the increasing complexity of gas markets due to an increasing share of other gases than natural gas, require a phasing in of 21 additional FTE in ACER from 2023 onwards. For implementing the proposed new rules for a new and growing sector, for integrating new types of gases into the gas market and infrastructure as well as for enforcing the strengthened consumer provisions, also the human resources of DG Energy need to be reinforced by 5 additional FTE. 5.OTHER ELEMENTS •Implementation plans and monitoring, evaluation and reporting arrangements Progress monitoring will consist of a two-tier approach of annual reporting by ACER and an evaluation by the Commission. ACER's mandate of annual monitoring and reporting of market performance in its annual market monitoring report (obligation in Regulation (EC) No. 715/2009) will be retained, with its scope extended to hydrogen. Within one year of the adoption of the proposals, the Commission will invite ACER to review and update its current monitoring indicators (with the involvement of affected stakeholders) to ensure their continuing relevance for monitoring progress towards the objectives underlying the present proposals. ACER will continue relying on the already established data sources used for the preparation of the market monitoring report, extended with relevant data on hydrogen.

ACER's annual reporting will replace the Commission's reporting obligations that are currently still existing under the Gas Directive. The detailed proposals will ensure that ACER’s monitoring is complementary to other monitoring exercises (especially monitoring under the Governance of the Energy Union and Climate Action) avoiding any overlaps. The Commission will carry out a fully-fledged evaluation of the impact of the proposed initiatives, including the effectiveness, efficiency, continuing coherence and relevance of the proposals, within a given timeline after the entry into force of the adopted measures (indicatively, five years). By 31 December 2030, the Commission shall review this Directive and shall submit a report to the European Parliament and to the Council. •Explanatory documents (for directives) Following the ruling of the European Court of Justice in Commission vs Belgium (case C-543/17), Member States must accompany their notifications of national transposition measures with sufficiently clear and precise information, indicating which provisions of national law transpose which provisions of a directive. This must be provided for each obligation, not only at ‘article level’. If Member States comply with this obligation, they would not need, in principle, to send explanatory documents on the transposition to the Commission. The Regulation will be directly and uniformly implemented in the Member States, and hence not requiring an Explanatory Document. •Detailed explanation of the specific provisions of the proposal The proposed revised directive consists of ten chapters comprising 90 articles. Chapter 1 – Subject matter, scope and definitions This chapter sets out the subject matter and scope of the rules for the transmission, distribution, supply, and storage of gases using the natural gas system as well as the rules for the transport, supply and storage of hydrogen using the hydrogen system. It also defines the main terms used in the proposed directive. Chapter 2 – General rules for the organisation of the markets This chapter lays down the rules to ensure competitive, consumer-centred, flexible and non-discriminatory markets for gas. It contains provisions on market access such as the free choice of supplier, market-based supply prices, public service obligations, sustainability, certification of renewable and low-carbon gases, promotion of regional cooperation, and technical rules. Chapter 3 – Consumer empowerment and protection and retail markets This chapter provides in particular a set of rights for the consumer: It elaborates on basic contractual rights, switching rights and fees, and rules on comparison tools, active customers, and citizen energy communities. It also contains provisions on billing, smart and conventional metering, and data management. It also contains provisions on single points of contact, right to out-of-court dispute settlement, vulnerable customers, and retail markets. Chapter 4 – Third party access to infrastructure This chapter is divided into 3 sections to cover the following: access to natural gas infrastructure, access to hydrogen infrastructure, and refusal of access and connection. Chapter 5 – Rules applicable to transmission, storage and system operators of natural gas This chapter elaborates on tasks of transmission, storage and LNG system operators, confidentiality and decision-making powers. Chapter 6 – Distribution system operators of natural gas This chapter sets the designation of distribution system operators, their tasks, the decision-making powers regarding the connection of the new production facilities for renewable and low-carbon gases to the distribution system, the unbundling of distribution system operators, the confidentiality obligations of distribution system operators, provisions on closed distribution systems, and combined operator.

Chapter 7 – Rules applicable to the dedicated hydrogen networks This chapter provides in particular tasks of hydrogen network, storage and terminal operators, provision on existing hydrogen networks, geographically confined hydrogen networks, interconnectors with third countries, and confidentiality for operators. Chapter 8 – Integrated network planning This chapter elaborates on network development and powers to make investment decisions, on hydrogen network development reporting, as well as on financing cross-border hydrogen infrastructure. Chapter 9 – Unbundling of transmission system operators This chapter is divided into six sections to cover the following: ownership unbundling, independent system operators, independent transmission operators, the unbundling of dedicated hydrogen network operators and the designation, the certification of natural gas and hydrogen system operators, and unbundling and transparency of accounts. Chapter 10 – Regulatory authorities This chapter focuses on the designation and independence of regulatory authorities, on general objectives of the regulatory authority, on their duties and powers, on the regulatory regime for cross-border issues, on compliance with the network codes and guidelines, and on record keeping. Chapter 11 – Final provisions The last chapter focuses on final provisions and includes articles notably on safeguard measures, level playing field, technical agreements, derogations, empowerment procedure, the exercise of delegation, committee procedure, reporting, repeal, transposition, entry into force, Addressees. Annex 1 is about the minimum requirements for billing and billing information. Annex 2 deals with smart metering in natural gas. Annex 3 contains a correlation table. The proposed revised regulation consists of five chapters comprising 69 articles. Chapter 1 – Subject matter, scope and definitions This chapter sets out the subject matter and scope of the rules regarding the objectives of the Energy Union, climate and energy framework as well as consumers. It also defines the main terms used in the proposed regulation. Chapter 2 – General rules for the organisation of the markets and infrastructure access This chapter lays down the general principles as well as the separation of regulated asset bases, third party access services, market assessment for renewable and low carbon gases, principles of capacity-allocation mechanisms and congestion-management procedure, trading of capacity rights, balancing rules and imbalance charges, certification, and cooperation of transmission system operators. Chapter 3 – Network access This chapter elaborates on tariffs for access to networks, and discounts.

Chapter 4 – Transmission, storage, LNG, and hydrogen terminal system operation This chapter sets out provisions on firm capacity for renewable and low-carbon gases, cross border coordination on gas quality, hydrogen blends, the European network of transmission system operators for gas, monitoring by ACER, regulatory authorities, consultations, costs, regional cooperation, TYNDP, transparency requirements, and record-keeping. Chapter 5 – Distribution system operation This chapter lays down the rules on firm capacity for renewable and low carbon gases, cooperation between DSOs and TSOs, transparency requirement, the European entity for distribution system operators. It includes procedures and tasks. Chapter 6 – Access to dedicated hydrogen networks This chapter focuses on cross-border coordination on hydrogen quality, the European Network of Network Operators for Hydrogen, its tasks, TYNDP for hydrogen, costs, and consultation, the monitoring by ACER, regional cooperation, and transparency requirements. Chapter 7 – Network codes and guidelines This chapter sets out provisions for the adoption of network codes and guidelines, the establishment of network codes, amendments of network codes and guidelines, the right of Member States to provide for more detailed measures, provision of information and confidentiality, and penalties. All three rules are adapted to hydrogen. Chapter 8 – Final provisions This chapter focuses on final provisions and includes articles notably on new natural gas and hydrogen infrastructure, committee procedure, exemptions, derogations, the exercise of delegation, amendments to regulations, amendment to extend the Regulation on security of gas supply to RES&LC gases and to include measures on cybersecurity, solidarity and storage, repeal, and entry into force. Annex 1 contains guidelines. Annex 2 contains a correlation table. 🡻 2009/73/EC (adapted) 2021/0425 (COD) Proposal for a DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL concerning ⌦ on ⌫ common rules for the internal markets in ⌦renewable and⌫ natural gases ⌦and in hydrogen ⌫ and repealing Directive 2003/55/EC THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty establishing the European Community ⌦ on the Functioning of the European Union ⌫ , and in particular Article 47(2) and Articles 55 and 95 ⌦ Article 194(2) ⌫ thereof, Having regard to the proposal from the ⌦ European ⌫ Commission, ⌦ After transmission of the draft legislative act to the national parliaments, ⌫ Having regard to the opinion of the European Economic and Social Committee, Having regard to the opinion of the Committee of the Regions, Acting in accordance with the procedure laid down in Article 251 of the Treaty ⌦ the ordinary legislative procedure ⌫ , Whereas: ⇩ new (1)Directive 2009/73/EC of the European Parliament and of the Council has been substantially amended several times. Since further amendments are to be made, that Directive should be recast in the interests of clarity. 🡻 2009/72/EC Recital 1 (adapted) (2)The internal market in natural gas, which has been progressively implemented throughout the Community ⌦ Union ⌫ since 1999, aims to deliver real choice for all consumers of the European Union, be they citizens or businesses, new business opportunities and more cross-border trade, so as to achieve efficiency gains, competitive prices, and higher standards of service, and to contribute to security of supply and sustainability. 🡻 2009/73/EC Recital 2 (adapted) ⇨ new (3)Directive 2003/55/EC of the European Parliament and of the Council of 26 June 2003 concerning common rules for the internal market in natural gas ⌦ and Directive 2009/73/EC of the European Parliament and of the Council ⌫ havehas made a significant contribution towards the creation of such an internal market in natural gas. ⇩ new (4)As part of the Package “Clean Energy for all Europeans” proposed by the Commission on 30 November 2016, Regulation (EU) 2019/943 and Directive (EU) 2019/944 brought about a further step in the development of the internal market for electricity with citizens at its core and contributing to the Union’s objectives of transition to a clean energy system and reducing greenhouse gas emissions. The internal market in natural gas should be built on those same principles and, in particular, ensure an equal level of consumer protection.

(5)The Union has aims to cut greenhouse gas emissions. It has therefore adopted a set of initiatives to reach that goal, including the energy system integration strategy and the hydrogen strategy published by the Commission in July 2020, which set out how to update the energy markets, including the decarbonisation of gas markets as well as Regulation (EU) 2018/1999 and Regulation (EU) 2021/1119. This Directive should contribute to achieving these goals, ensuring security of supply and a well-functioning internal market for gases, including for hydrogen. (6)This Directive aims to facilitate the penetration of renewable and low-carbon gases into the energy system enabling a shift from fossil gas and to allow these new gases to play an important role towards achieving the EU’s 2030 climate objectives and climate neutrality in 2050. The Directive aims also to set up a regulatory framework which enables and incentivises all market participants to take the transitional role of fossil gas into account while planning their activities to avoid lock-in effects and ensure gradual and timely phase-out of fossil gas notably in all relevant industrial sectors and for heating purposes. (7)The EU hydrogen strategy recognises that, as EU Member States have different potential for the production of renewable hydrogen, an open and competitive EU market with unhindered cross-border trade has important benefits for competition, affordability, and security of supply. Moreover, it stresses that moving towards a liquid market with commodity-based hydrogen trading would facilitate entry of new producers and be beneficial for deeper integration with other energy carriers. It would create viable price signals for investments and operational decisions. The rules laid down in this Directive should thus be conducive for hydrogen markets, commodity-based hydrogen trading and liquid trading hubs to emerge and any undue barriers in this regard should be eliminated by Member States. Whilst recognising the inherent differences, existing rules that enabled efficient commercial operations developed for the electricity and gas markets and trading should be rendered applicable to Union hydrogen markets to the extent appropriate and within a suitable time frame. (8)In line with the EU Hydrogen Strategy, renewable hydrogen is expected to be deployed on a large-scale from 2030 onwards for the purpose of decarbonising certain sectors, ranging from aviation and shipping to hard-to-decarbonise industrial sectors. All final customers connected to hydrogen systems will benefit from basic consumer rights applicable to final customers connected to the natural gas system such as the right to switch supplier and accurate billing information. In those instances where customers are connected to the hydrogen network, e.g. industrial customers, they will benefit from the same consumer protection rights applicable to natural gas customers. However, consumer provisions designed to encourage household participation on the market such as price comparison tools, active customers and citizen energy communities do not apply to the hydrogen system. (9)In line with the EU Hydrogen Strategy, the priority for the EU is to develop renewable hydrogen produced using mainly wind and solar energy. Renewable hydrogen is the most compatible option with the EU’s climate neutrality and zero pollution goal in the long term and the most coherent with an integrated energy system. However, low-carbon fuels (LCFs) such as low-carbon hydrogen (LCH) may play a role in the energy transition, particularly in the short and medium term to rapidly reduce emissions of existing fuels, and support the uptake of renewable fuels such as renewable hydrogen. In order to support the transition, it is necessary to establish a threshold for greenhouse gas emission reductions for low-carbon hydrogen and synthetic gaseous fuels. Such threshold should become more stringent for hydrogen produced in installations starting operations from 1 January 2031 to take into account technological developments and better stimulate the dynamic progress towards the reduction of greenhouse gas emissions from hydrogen production. The EU Energy System Integration strategy highlighted the need to deploy an EU–wide certification system to also cover low-carbon fuels with the aim to enable Member States to compare them with other decarbonisation options and consider them in their energy mix as a viable solution. In order to ensure that LCF have the same decarbonisation impact as compared to other renewable alternatives it is important that they are certified by applying a similar methodological approach based on a life cycle assessment of their total greenhouse gas (‘GHG’) emissions. This would allow deploying a comprehensive EU-wide certification system, covering the whole Union energy mix. Taking into consideration that LCF and LCH are not renewable fuels, their terminology and certification could not be included in the proposal for the revision of Directive (EU) 2018/2001 of the European Parliament and of the Council. Therefore, their inclusion in this Directive fills in this gap. 🡻 2009/73/EC Recital 3 (10)The freedoms which the Treaty guarantees the citizens of the Union — inter alia, the free movement of goods, the freedom of establishment and the freedom to provide services — are achievable only in a fully open market, which enables all consumers freely to choose their suppliers and all suppliers freely to deliver to their customers. 🡻 2009/73/EC Recital 4 (4)However, at present, there are obstacles to the sale of gas on equal terms and without discrimination or disadvantages in the Community. In particular, non-discriminatory network access and an equally effective level of regulatory supervision in each Member State do not yet exist. 🡻 2009/73/EC Recital 5 (5)The Communication of the Commission of 10 January 2007 entitled ‘An Energy Policy for Europe’ highlighted the importance of completing the internal market in natural gas and of creating a level playing field for all natural gas undertakings established in the Community. The Communications of the Commission of 10 January 2007 entitled ‘Prospects for the internal gas and electricity market’ and ‘Inquiry pursuant to Article 17 of Regulation (EC) No 1/2003 into the European gas and electricity sectors (Final Report)’ showed that the present rules and measures do not provide the necessary framework for achieving the objective of a well-functioning internal market. 🡻 2009/73/EC recital 48 (adapted) ⇨ new (11)Consumer interests should be at the heart of this Directive and quality of service should be a central responsibility of natural gas undertakings. Existing rights of consumers ⇨ and rights for access to essential services, including energy, and safeguarding against energy poverty, as stated in the European Pillar of Social Rights communication ⇦ need to be strengthened and guaranteed, and should include greater transparency. Consumer protection should ensure that all consumers in the wider remit of the Community ⌦ Union ⌫ benefit from a competitive ⌦ gas ⌫ market. Consumer rights should be enforced by Member States or, where a Member State has so provided, the regulatory authorities. ⇩ new

(12)The European Pillar of Social Rights places energy among the essential services everyone shall have access to and calls for support measures for those in need (principle 20). UN Sustainable Development Goal number 7 (SDG7) also calls for ensuring access to affordable, reliable, sustainable and modern energy for all. 🡻 2009/73/EC recital 47 (adapted) (13)The Ppublic service requirements and the common minimum standards that follow from them need to be further strengthened to make sure that all consumers, especially vulnerable ones, can benefit from competition and fair prices. The public service requirements should be defined at national level, taking into account national circumstances; Community ⌦ Union ⌫ law should, however, be respected by the Member States. The citizens of the Union and, where Member States deem it to be appropriate, small enterprises, should be able to enjoy public service obligations, in particular with regard to security of supply and reasonable tariffs. ⇩ new (14)Member States should have a wide discretion to impose public service obligations on gas undertakings in pursuing objectives of general economic interest. However, public service obligations in the form of price setting for the supply of natural gas constitute a fundamentally distortive measure that often leads to the accumulation of tariff deficits, the limitation of consumer choice, poorer incentives for energy saving and energy efficiency investments, lower standards of service, lower levels of consumer engagement and satisfaction, and the restriction of competition, as well as to there being fewer innovative products and services on the market. Consequently, Member States should apply other policy tools, in particular targeted social policy measures, to safeguard the affordability of natural gas supply to their citizens. Public interventions in price setting for the supply of natural gas should be carried out only as public service obligations and should be subject to specific conditions. A fully liberalised, well-functioning retail natural gas market would stimulate price and non-price competition among existing suppliers and provide incentives to new market entrants, thereby improving consumer choice and satisfaction. (15)Public service obligations in the form of price setting for the supply of natural gas should be used without overriding the principle of open markets in clearly defined circumstances and beneficiaries and should be limited in duration. In order to mitigate the distortive effects of public service obligations in price setting for the supply of natural gas, Member States applying such interventions should put in place additional measures, including measures to prevent distortions of price setting in the wholesale market. Member States should ensure that all beneficiaries of regulated prices are able to benefit fully from the offers available on the competitive market when they choose to do so. To that end, they should be directly and regularly informed of the offers and savings available on the competitive market, and should be provided with assistance to respond to and benefit from market-based offers. (16)Public interventions in price setting for the supply of natural gas should not lead to direct cross-subsidisation between different categories of customer. According to that principle, price systems must not explicitly make certain categories of customer bear the cost of price interventions that affect other categories of customer. 🡻 2009/73/EC recital 49 (adapted) ⇨ new (17)Clear and comprehensible information should be made available to consumers concerning their rights in relation to the energy sector. The Commission should establish ⌦ has established ⌫ , after consulting relevant stakeholders including Member States, national regulatory authorities, consumer organisations and natural gas undertakings, an accessible, user-friendly energy consumer checklist providing consumers with practical information about their rights. That energy consumer checklist should be ⇨ maintained to date, ⇦ provided to all consumers and should be made publicly available. ⇩ new (18)Member States should take into account the fact that the successful transition requires enhanced investment in education and skills for workers in the gas industry, including in relation to infrastructure development. Such mention would be in line with the proposal for a revision of EED (2021/0203 (COD). (19)Market rules should protect and empower customers to make low carbon choices, in order for new renewable and low carbon gases to be fully embedded in the energy transition. (20)Natural gas still plays a key role in energy supply, as household energy consumption from natural gas is still higher than from electricity. Although electrification is a key element of the green transition, in the future there will still be household natural gas consumption including increasing volumes of renewable gas. (21)As the natural gas sector, including the natural gas retail market was not part of the Clean Energy for all Europeans Package, the related provisions on consumer engagement and protection have not been adapted to the needs of the energy transition, which corresponds instead to the situation of over a decade ago when the Third Energy Package was adopted. (22)The natural gas market witnesses poor customer satisfaction and engagement as well as slow uptake of new renewable and low-carbon gases, which all reflect limited competition in many Member States. Unlike falling prices in wholesale markets, natural gas prices for household customers rose in the last decade resulting in household consumers paying two or three times more for their natural gas consumption than industrial customers.

(23)As in the electricity sector, market flexibilities and an adequate Union consumer rights’ legal framework in the natural gas sector are essential to ensure that consumers can participate in the energy transition and benefit from affordable prices, good standards of service, and effective choice of offers mirroring technological developments. (24)The switch from fossil gas to renewable alternatives will concretise if energy from renewable sources becomes an attractive, non-discriminatory choice for consumers based on truly transparent information where the transition costs are fairly distributed among different groups of consumers and market players. (25)To address the current gaps in the retail gas market, it is necessary to tackle the existing competition and technical barriers to the emergence of new services, better levels of service, and lower consumer prices, whilst ensuring the protection of energy poor and vulnerable consumers. (26)In order to ensure a high level of consumer protection and empowerment consistently across energy sectors, the legislative framework in the decarbonised gas market legislation should reflect the electricity market customer protection and where relevant its empowerment provisions. (27)To be coherent and effective, this mirroring approach should be encompass all consumer protection and empowerment provisions, whenever feasible and adaptable to the gas market. This should go from basic contractual rights to rules for billing information, switching energy provider, having at disposal reliable comparison tools, protecting vulnerable and energy poor consumers, ensuring adequate data protection for smart meters and data management, and efficient alternative dispute resolution rules. (28)In pursuing the consistency of provisions across sectors, burdens for national administrations and businesses should be limited and proportionate by also building on the experience with the Clean Energy for All Europeans Package. (29)The modernisation of the gas sector is expected to lead to substantial economic benefits in terms of both improved retail competition and its social and distributional benefits and customer empowerment, including strengthened contractual rights and better available information on consumption and energy sources leading to greener choices. Energy communities-of-interest should contribute to the uptake of renewable gas. (30)Switching is an important indicator of consumer engagement as well as in important tool to boost competition on the natural gas market. Switching rates remain inconsistent among Member States and consumers are discouraged from switching by exit and termination fees. Although removing such fees might limit consumer choice by eliminating products based on rewarding consumer loyalty, restricting their use further should improve consumer welfare, consumer engagement and competition in the market. (31)Shorter switching times are likely to encourage customers to search for better energy deals and switch supplier. With the increased deployment of information technology, by the year 2026, the technical switching process of registering a new supplier in a metering point at the market operator should typically be possible to complete within 24 hours on any working day. Ensuring that it is possible by that date for the technical process of switching to take place within 24 hours would minimise switching times, helping to increase consumer engagement and retail competition. (32)Several factors impede consumers from accessing, understanding and acting upon the various sources of market information available to them. It follows that the comparability of offers should be improved and barriers to switching should be minimised to the greatest practicable extent without unduly limiting consumer choice. (33)Independent comparison tools, including websites, are an effective means for smaller customers to assess the merits of the different energy offers that are available on the market. They should aim to include the broadest possible range of available offers, and to cover the market as completely as is feasible so as to give the customer a representative overview. It is crucial that smaller customers have access to at least one comparison tool and that the information given on such tools be trustworthy, impartial and transparent. To that end, Member States could provide for a comparison tool that is operated by a national authority or a private company. (34)Final customers should also be able to consume, to store and to sell self-generated renewable gas and participate in all natural gas markets by providing ancillary services to the system, for instance through energy storage. Member States should be able to have different provisions in their national law with respect to taxes and levies for individual and jointly-acting active customers. (35)Recognising the role they can play in decarbonizing the energy system, certain categories of citizen energy initiatives should be recognised in the natural gas market at the Union level as ‘citizen energy communities’. These communities should facilitate the use of renewable gas in the natural gas system. In order to provide them with an enabling framework, fair treatment, a level playing field and a well-defined catalogue of rights and obligations should be laid down which generally reflects the membership structure, governance requirements and purpose of citizen energy communities in Directive (EU) 2019/944. (36)The provisions on citizen energy communities do not preclude the existence of other citizen initiatives such as Renewable Energy Communities in Directive (EU) 2018/2001 or those stemming from private law agreements. Membership of citizen energy communities should be open to all categories of entities. However, the decision-making powers within a citizen energy community should be limited to those members or shareholders that are not engaged in large-scale commercial activity and for which the energy sector does not constitute a primary area of economic activity. This means that citizen energy communities and individual members or shareholders need to be financially and economically independent from entities engaged in such activities, notwithstanding the possibility for citizen energy communities to delegate the management of the installations required for their activities, including installation, operation, data handling and maintenance. (37)Bills and billing information are an important means to inform and empower final customers. Energy bills remain the most common consumer concern and source of consumer complaints, a factor that contributes to the persistently low levels of consumer satisfaction and engagement in the gas sector. Provisions for billing information in the gas sector also lag behind rights granted to consumers in the electricity sector. It is therefore necessary to align them and to set minimum requirements for bills and billing information in the gas sector, so that consumers have access to transparent, easy to understand information. Bills should convey information to the final consumers on their consumption and costs, thus facilitating comparison between offers and switching supplier, as well as information on their consumer rights (such as on alternative dispute resolution). In addition, bills should be a tool to actively engage consumers in the market, so that consumers can manage their consumption patterns and make greener choices. (38)The regular provision of accurate billing information based on actual gas consumption, facilitated by smart metering, is important to help customers to control their gas consumption and costs. Nevertheless, customers, in particular household customers, should have access to flexible arrangements for the actual payment of their bills. 🡻 2009/73/EC recital 47 (adapted) ⇨ new (39)A key aspect in supplying customers is access to objective and transparent consumption data. Thus, consumers should have access to their consumption data and associated prices and services costs so that they can invite competitors to make an offer based on those data ⌦ that information ⌫ . Consumers should also have the right to be properly informed about their energy consumption. Prepayments should ⇨ not place a disproportionate disadvantage on their users, while ⇦ reflect the likely consumption of natural gas and different payment systems should be non-discriminatory. Information on energy costs provided to consumers frequently enough will ⌦ should ⌫ create incentives for energy savings because it will give customers direct feedback on the effects of investment in energy efficiency and change of behaviour.

🡻 2009/73/EC recital 52 (adapted) ⇨ new (40)⇨ When deciding at national level on the deployment of natural gas smart metering systems, ⇦ Iit should be possible to base ⌦ such decision ⌫ the introduction of intelligent metering systems on an economic assessment. ⇨ That economic assessment should take into account the long-term benefits of the deployment of smart metering systems to consumers and the whole value chain. ⇦ Should that assessment conclude that the introduction of such metering systems is economically reasonable and cost-effective only for consumers with a certain amount of ⇨ natural ⇦ gas consumption, Member States should be able to take this into account when implementing intelligent metering systems ⌦ proceeding with deployment ⌫. ⇨ However, such assessments should be reviewed regularly in response to significant changes in the underlying assumptions, or at least every four years, given the fast pace of technological developments. ⇦ ⇩ new (41)In order to assist final customers’ active participation in the market, the smart metering systems to be deployed should have due regard to the use of relevant available standards, including those enabling interoperability on the level of the data model and the application layer, to best practices and the importance of the development of data exchange, to future and innovative energy services. Moreover, the smart metering systems that are deployed should not represent a barrier to switching supplier in the case of natural gas consumers, and should be equipped with fit-for-purpose functionalities that allow final customers to have timely access to their consumption data, to modulate their energy behaviour, be rewarded for it, and obtain savings in their bills. (42)Member States that do not systematically deploy smart metering in the natural gas system should allow consumers to benefit from the installation of a smart meter, upon request and under fair and reasonable conditions, and should provide them with all the relevant information. (43)Currently, different models for the management of data have been developed or are under development in Member States following deployment of smart metering systems. Independently of the data management model it is important that Member States put in place transparent rules that data can be accessed under non-discriminatory conditions and ensure the highest level of cybersecurity and data protection as well as the impartiality of the entities which process data. 🡻 2009/73/EC recital 51 (adapted) (44)Greater consumer protection is guaranteed by the availability of effective means of dispute settlement for all consumers. Member States should introduce ⌦ provide for ⌫ speedy and effective complaint handling procedures. 🡻 2009/73/EC recital 50 (adapted) (50)Energy poverty is a growing problem in the Community. Member States which are affected and which have not yet done so should, therefore, develop national action plans or other appropriate frameworks to tackle energy poverty, aiming at decreasing the number of people suffering such situation. In any event, Member States should ensure the necessary energy supply for vulnerable customers. In doing so, an integrated approach, such as in the framework of social policy, could be used and measures could include social policies or energy efficiency improvements for housing. At the very least, this Directive should allow national policies in favour of vulnerable customers. ⇩ new (45)Member States should take appropriate measures, such as providing benefits by means of their social security systems, to ensure the necessary supply to vulnerable customers, or providing for support for energy efficiency improvements, to address energy poverty where identified pursuant to Article 3(3), point (d) of Regulation (EU) 2018/1999 of the European Parliament and of the Council, including in the broader context of poverty. Such measures could differ according to the particular circumstances in the Member States in question and could include social or energy policy measures relating to the payment of gas bills, to investment in the energy efficiency of residential buildings, or to consumer protection such as disconnection safeguards. (46)Pursuant to Regulation (EU) 2018/1999 and Directive (EU) 2019/944 of the European Parliament and of the Council, the Commission provided indicative guidance on appropriate indicators for measuring energy poverty and defining a ‘significant number of households in energy poverty’. (47)The simplification and streamlining of administrative permit granting processes and clear time limits for decisions to be taken by the authorities competent for issuing an authorisation should ensure that the deployment of hydrogen production facilities and hydrogen system infrastructure can occur at an adequate pace. Member States should be requested to report on progress made. Grandfathering of authorisations (such as licences, permissions, concessions or approvals), granted under national law for the construction and operation of existing natural gas pipelines and other network assets, is needed once the transported gaseous energy carrier in a gas pipeline changes from natural gas to (pure) hydrogen. This should prevent undue delay in repurposing existing natural gas pipelines and other networks assets for hydrogen transport. It should be avoided that conditions for granting authorisations for hydrogen system infrastructure are materially different unless sufficiently justified. Technical safety considerations might justify a differentiated approach in grandfathering existing or issuing new authorisations. The provisions on authorisation procedures should apply without prejudice to international and Union law, including provisions to protect the environment and human health. Where duly justified on the grounds of extraordinary circumstances, it should be possible to extend the time limits for authorisation procedures by up to one year.

(48)Providing guidance to applicants throughout their administrative permit application and granting processes by means of an administrative contact point is intended to reduce complexity for project developers and increase efficiency and transparency. The availability for applicants to submit relevant documents in digital form and the availability of a manual of procedures for applicants could contribute to efficiency. Member States should ensure that the authorities implementing authorisation procedures are actively involved in the tackling of remaining barriers, including non-financial ones such as insufficient knowledge, digital and human resources that hinder their processing of a growing number of authorisation procedures. 🡻 2009/73/EC Recital 6 (49)Without effective separation of networks from activities of production and supply (effective unbundling), there is a risk of discrimination not only in the operation of the network but also in the incentives for vertically integrated undertakings to invest adequately in their networks. 🡻 2009/73/EC Recital 7 (50)The rules on legal and functional unbundling as provided for in Directive 2003/55/EC have not, however, led to effective unbundling of the transmission system operators. At its meeting on 8 and 9 March 2007, the European Council therefore invited the Commission to develop legislative proposals for the ‘effective separation of supply and production activities from network operations’. 🡻 2009/73/EC Recital 8 (adapted) (51)Only the removal of the incentive for vertically integrated undertakings to discriminate against competitors as regards network access and investment can ensure effective unbundling. Ownership unbundling, which implies the appointment of the network owner as the system operator and its independence from any supply and production interests, is clearly an effective and stable way to solve the inherent conflict of interests and to ensure security of supply. For that reason, the European Parliament, in its resolution of 10 July 2007 on prospects for the internal gas and electricity market referred to ownership unbundling at transmission level as the most effective tool by which to promote investments in infrastructure in a non-discriminatory way, fair access to the network for new entrants and transparency in the market. Under ownership unbundling, Member States should therefore be required to ensure that the same person or persons are not entitled to exercise control over a production or supply undertaking and, at the same time, exercise control or any right over a transmission system operator or transmission system. Conversely, control over a transmission system or transmission system operator should preclude the possibility of exercising control or any right over a production or supply undertaking. Within those limits, a production or supply undertaking should be able to have a minority shareholding in a transmission system operator or transmission system. 🡻 2009/73/EC Recital 9 (52)Any system for unbundling should be effective in removing any conflict of interests between producers, suppliers and transmission system operators, in order to create incentives for the necessary investments and guarantee the access of new market entrants under a transparent and efficient regulatory regime and should not create an overly onerous regulatory regime for national regulatory authorities. 🡻 2009/73/EC Recital 10 (53)The definition of the term ‘control’ is taken from Council Regulation (EC) No 139/2004 of 20 January 2004 on the control of concentrations between undertakings (the EC Merger Regulation). 🡻 2009/73/EC Recital 11 (54)Since ownership unbundling requires, in some instances, the restructuring of undertakings, Member States that decide to implement ownership unbundling should be granted additional time to apply the relevant provisions. In view of the vertical links between the electricity and gas sectors, the unbundling provisions should apply across the two sectors.

⇩ new (55)In contrast, with regard to the hydrogen sector, the emergence of vertically integrated undertakings could be avoided in the first place by setting clear up-front rules. This is preferable over costly ex-post unbundling requirements that would take time to implement. 🡻 2009/73/EC Recital 12 (56)Under ownership unbundling, to ensure full independence of network operation from supply and production interests and to prevent exchanges of any confidential information, the same person should not be a member of the managing boards of both a transmission system operator or a transmission system and an undertaking performing any of the functions of production or supply. For the same reason, the same person should not be entitled to appoint members of the managing boards of a transmission system operator or a transmission system and to exercise control or any right over a production or supply undertaking. 🡻 2009/73/EC Recital 13 (57)The setting up of a system operator or a transmission operator that is independent from supply and production interests should enable a vertically integrated undertaking to maintain its ownership of network assets whilst ensuring an effective separation of interests, provided that such independent system operator or such independent transmission operator performs all the functions of a system operator and detailed regulation and extensive regulatory control mechanisms are put in place. 🡻 2009/73/EC Recital 14 (adapted) (58)Where, on 3 September 2009, an undertaking owning a transmission system is ⌦ was ⌫ part of a vertically integrated undertaking, Member States should therefore be given a choice between ownership unbundling and setting up a system operator or transmission operator which is independent from supply and production interests. 🡻 2009/73/EC Recital 15 (adapted) (59)To ⌦ fully ⌫ preserve fully the interests of the shareholders of vertically integrated undertakings, Member States should have the choice of implementing ownership unbundling either by direct divestiture or by splitting the shares of the integrated undertaking into shares of the network undertaking and shares of the remaining supply and production undertaking, provided that the requirements resulting from ownership unbundling are complied with. 🡻 2009/73/EC Recital 16 (adapted) (60)The full effectiveness of the independent system operator or independent transmission operator solutions should be ensured by way of specific additional rules. The rules on the independent transmission operator provide an appropriate regulatory framework to guarantee fair competition, sufficient investment, access for new market entrants and the integration of gas markets. Effective unbundling through the independent transmission operator provisions should be based on a pillar of organisational measures and measures relating to the governance of transmission system operators and on a pillar of measures relating to investment, connecting new production capacities to the network and market integration through regional cooperation. The independence of the transmission operator should also, inter alia, be ensured through certain ‘cooling-off’ periods during which no management or other relevant activity giving access to the same information as could have been obtained in a managerial position is exercised in the vertically integrated undertaking. The independent transmission operator model of effective unbundling is in line with the requirements laid down by the European Council at its meeting on 8 and 9 March 2007. 🡻 2009/73/EC Recital 17 ⇨ new

(61)In order to develop competition in the internal market in gas, large non-household customers ⇨ , engaged in large-scale commercial activities, ⇦ should be able to choose their suppliers and enter into contracts with several suppliers to secure their gas requirements. Such customers should be protected against exclusivity clauses, the effect of which is to exclude competing or complementary offers. 🡻 2009/73/EC recital 18 (adapted) (62)A Member State ⌦ should have ⌫ has the right to opt for full ownership unbundling in its territory. Where a Member State has exercised that right, an undertaking ⌦ should ⌫ not have the right to set up an independent system operator or an independent transmission operator. Furthermore, an undertaking performing any of the functions of production or supply cannot ⌦ should not ⌫ directly or indirectly exercise control or any right over a transmission system operator from a Member State that has opted for full ownership unbundling. 🡻 2009/73/EC recital 19 (adapted) (63)Under this Directive dDifferent types of market organisation will exist in the internal market in natural gas. The measures that Member States could take in order to ensure a level playing field should be based on overriding requirements of general interest. The Commission should be consulted on the compatibility of the measures with the Treaty ⌦ TFEU ⌫ and Community ⌦ Union ⌫ law. 🡻 2009/73/EC recital 20 (64)The implementation of effective unbundling should respect the principle of non-discrimination between the public and private sectors. To that end, the same person should not be able to exercise control or any right, in violation of the rules of ownership unbundling or the independent system operator option, solely or jointly, over the composition, voting or decision of the bodies of both the transmission system operators or the transmission systems and the production or supply undertakings. With regard to ownership unbundling and the independent system operator solution, provided that the Member State in question is able to demonstrate that the requirement is complied with, two separate public bodies should be able to control production and supply activities on the one hand and transmission activities on the other. 🡻 2009/73/EC recital 21(adapted) (adapted) (65)Fully effective separation of network activities from supply and production activities should apply throughout the Community ⌦ Union ⌫ to both Community ⌦ Union ⌫ and non-Community ⌦ non-Union ⌫ undertakings. To ensure that network activities and supply and production activities throughout the Community ⌦ Union ⌫ remain independent from each other, regulatory authorities should be empowered to refuse certification to transmission system operators that do not comply with the unbundling rules. To ensure the consistent application of those rules across the Community ⌦ Union ⌫, the regulatory authorities should take utmost account of the Commission’s opinion when the former take decisions on certification. To ensure, in addition, respect for the international obligations of the Community ⌦ Union ⌫ and solidarity and energy security within the Community ⌦ Union ⌫, the Commission should have the right to give an opinion on certification in relation to a transmission system owner or a transmission system operator which is controlled by a person or persons from a third country or third countries. ⇩ new (66)Pipeline networks for hydrogen should constitute an important means of efficient and sustainable transport for hydrogen, both onshore and offshore. As a result of the high capital expenditure required for their construction, hydrogen pipeline networks could constitute natural monopolies. Experience with the regulation of natural gas markets has shown the importance of ensuring open and non-discriminatory access to pipeline networks with a view to safeguarding competition on commodity markets. Therefore, well-established principles of network operation, such as third-party access, should be applicable to onshore and offshore hydrogen networks in the Union. (67)The operation of hydrogen networks should be separated from activities of energy production and supply in order to avoid the risk of conflicts of interest on behalf of the network operators. The structural separation of ownership of hydrogen networks and participations in energy production and supply guarantees the absence of such conflicts of interest. Member States should be able to rely on the alternative unbundling model of “integrated hydrogen network operator” until 2030 to provide a transitional period for existing vertically integrated hydrogen networks. Member States should also be able to allow the use of the “independent hydrogen network operator” model to allow vertically integrated owners of hydrogen networks to retain ownership of their networks while ensuring the non-discriminatory operation of such networks after 2030. (68)Whereas the joint operation of hydrogen networks and gas or electricity grids can create synergies and should thus be allowed, activities of hydrogen network operation should be organised in a separate legal entity in order to ensure transparency regarding financing and the use of access tariffs. (69)The operation of hydrogen networks should be separated from the activities of energy production and supply in order to avoid the risk of conflicts of interest on behalf of the network operators. The structural separation of ownership of hydrogen networks and participation in energy production and supplies should guarantee the absence of such conflicts of interest. Member States should be able to rely on the alternative unbundling model of integrated hydrogen network operator until 2030 to provide a transitional period for existing vertically integrated hydrogen networks. Member States should also be able to offer the use of an independent hydroge