In 2024, the European Union passed its methane regulation (EUMR) with the goal of reducing methane emissions from the energy sector. Beginning January 1, 2027, firms selling gas, oil, and coal into the European market must demonstrate compliance with strict methane emissions monitoring, reporting, and verification (MRV) standards or face steep penalties. Both domestic and imported fuels will be subject to an emissions intensity cap in 2030. Like the EU’s Carbon Border Adjustment Mechanism (CBAM), the program’s climate goals are being undermined by a lack of basic regulatory guidance and rushed implementation. These implementation challenges may inadvertently disrupt energy access, shift imports toward more emissions-intensive sources, or increase coal use and greenhouse gas emissions.
The MRV equivalency requirement
A central challenge of the EUMR is demonstrating that imported fossil fuels face MRV standards at least as stringent as those that apply in the EU. The EUMR provides two pathways to demonstrate MRV “equivalency”: third-party verification of individual producers, or a determination by the European Commission that the country where the fossil fuel was produced has equivalent standards.
The fossil fuel industry in the United States and elsewhere has expressed concerns that it will not be able to demonstrate equivalency by the January deadline because the EU has neither certified firms to verify the producer-level equivalency nor released the implementing act specifying the procedures and standards for establishing national equivalency. Analysis released earlier this year estimated that approximately 43% of natural gas and 87% of crude oil imports could be excluded from the EU market in 2027 because of compliance issues.
Concerns over the deadline
American energy producers are in a unique bind. The Trump administration has proposed repealing significant portions of the U.S. MRV system, most notably the Greenhouse Gas Reporting Program. As a result, the U.S. will not be eligible for national equivalency and producers will have to secure third-party verification. Private verification is a time-consuming process, and no firms have yet been certified to offer EUMR verifications. American energy exporters, many of which are working toward the most stringent MRV standards on a voluntary basis, warn that they are unlikely to meet the January 2027 deadline. Their European customers face a stark choice: terminate fuel purchase contracts with American suppliers and risk energy shortages or extend those contracts and risk fines of up to 20% of annual gross revenues for violations of the EUMR.
Firms are already preparing contingency plans to avoid noncompliant fuel deliveries in 2027. The oil and gas industry, a majority of EU Member States, and the governments of major exporting countries have called for amendments to the EUMR, including a “stop-the-clock” mechanism that would delay implementation of the import rules.
The EU’s response
In July, the European Commission (EC) released a nonbinding recommendation that identified the penalties as “a major risk factor preventing the signing or renewal of contracts for [energy] supply.” It encouraged EU Member States, which are responsible for enforcement, to delay any implementation of penalties until 2030.
The recommendation has not satisfied critics. It does not bind member states, which may impose penalties in any case, and it leaves the underlying regulations in place. Importers may not face penalties, but continued operations will force them to knowingly violate the EUMR. They will pass this pressure on to their suppliers with EC-recommended contract language requiring them to “undertake to demonstrate and report” equivalency starting on January 1. A legislative fix would require initiating the EU’s arduous legislative process with no guarantee of timely resolution. And the European Commission appears skeptical of industry warnings, with one official quoted as saying “people will come to their senses . . . and will comply rather than lose their sales.”
Anticipating unintended consequences
The best-case scenario for the EU is that importers absorb the legal and financial risk of noncompliance and continue importing fuels. If importers choose to insulate themselves amidst rushed implementation, the EU risks more expensive, less reliable, and more emissions-intensive energy supplies. Terminated or delayed purchase contracts will create supply shortfalls and price spikes. Producers willing to ship noncompliant energy resources may demand higher contract prices to take on the risk of selling into the EU under contract terms they cannot satisfy. And amid uncertain supply and high prices, EU energy providers may increase coal use simply to keep the lights on in mid-winter. The International Association of Oil & Gas Producers warns that without significant changes, the EUMR will “affect the affordability of gas supply for households, power generation, and energy-intensive industries, increasing the use of coal and carbon leakage in the process.”
Rushed implementation also risks selecting for the wrong suppliers. The producers that are voluntarily investing in stringent MRV to better serve their customers and stakeholders will be least likely to assume the risks of shipping noncompliant fuels. They need clarity from the EU to ensure they can meet their contractual obligations. Meanwhile, producers willing to deliver noncompliant shipments may be those least transparent about their own methane performance. Rather than improving transparency and reducing emissions, the EUMR may instead promote opaque and risk tolerant producers and suppliers, weakening the market signal it was meant to create.
What’s next
The EU maintains that the EUMR “should support the security of supply.” While it may yet navigate the issues created by rushed implementation, the underlying equivalency requirement and future methane intensity standards are likely to remain. Other major fuel importers, including South Korea and Japan, are already tracking methane intensity. Fuel producers will need to meet increasingly stringent MRV standards to access the most lucrative global markets.
The Trump administration has placed a heavy emphasis on increasing U.S. energy exports, a goal that will be challenging to achieve amid an evolving global regulatory landscape. A productive next step for the White House would be to support industry in demonstrating compliance with the EUMR and similar global approaches.