Conference Agenda

Methane mitigation is increasingly recognized as a critical lever for achieving near-term climate goals. In August 2024, the European Union adopted the Methane Regulation (EUMR), the first comprehensive framework addressing methane emissions from both domestic fossil fuel operations and imports. A cornerstone of the regulation is the introduction of a methane intensity standard for fossil fuels (crude oil, natural gas and coal) which take effect on August 5, 2030, but only for contracts concluded or renewed after that date.

This paper examines the implications of implementing the EU methane intensity standard for natural gas using a partial equilibrium economic model. Our analysis finds that the intensity standard would reduce upstream methane emissions embedded in EU gas production and imports by approximately 40%. This corresponds to a 1.4% reduction in global methane emissions from natural gas production when accounting for trade diversion and associated emission leakage of approximately 10%. At the same time, the intensity standard would have negligible effects on EU gas prices and gas import volumes. Eliminating the exemption for pre-existing long-term supply contracts could nearly double this impact.

These results underscore the potential of methane intensity standards as a cost-effective policy instrument for global methane mitigation, offering significant climate benefits without imposing substantial economic trade-offs.

Investments in sustainable bioenergy infrastructure, such as biomethane plants, often require cooperative arrangements to pool resources, but they expose participants to both strategic uncertainty arising from collective action and market price uncertainty. To better understand how these sources of uncertainty influence investment decisions, we examine this question through a lab-in-the-field experiment with coffee farmers in Costa Rica, a context characterized by strong cooperative institutions and growing interest in biomethane as a sustainability and diversification strategy. We study the interaction between strategic and market-price uncertainty using a variation of the stag hunt coordination game, implemented in a 2×2 between-subjects experiment that varies market-price volatility and social interdependence, where the individual condition mirrors the cooperative outcome to isolate market-price uncertainty without strategic uncertainty. Our results show that market-price uncertainty alone does not significantly reduce investment when decisions are made individually, despite substantial payoff risk. However, cooperation declines in social interactions when payoff volatility is high, which indicates that strategic uncertainty and market price uncertainty interact to discourage collective investment. These findings suggest that pessimistic beliefs about others’ behavior under risk may amplify coordination failures. From a policy perspective, the results indicate that price-stabilization mechanisms, such as feed-in tariffs, may increase participation in collective bioeconomy projects when combined with institutional arrangements that mitigate strategic uncertainty.

The 2022/2023 inflationary episode highlighted the importance of natural gas shocks as a driver of inflation. Some countries, notably the UK, experienced even more severe bouts of inflation, due to their heavy reliance on natural gas, and the pivotal role of natural gas in setting electricity prices. The latter is driven by the use of the 'merit order' electricity pricing system, where gas is typically the marginal generator, setting prices. We embed a stylized merit order electricity pricing system into a canonical New Keynesian framework to show the amplification of gas shocks and how monetary policy responses need to be more contractionary under this electricity pricing system. The substantial rise in renewables production has increased the disconnect between the price setting power of gas, relative to its smaller role in producing electricity. We show that during the transition to a greener electricity system, the merit order could substantially amplify renewable intermittency and increase the impact of electricity price shocks. However, in the long term, a green electricity system should deliver greater price stability.