Scope

The Regulation applies to the following activities and facilities:

(i) Oil and gas exploration and production, and gas gathering and processing

(ii) Inactive, temporarily plugged and permanently plugged and abandoned wells

(iii) Natural gas transmission and distribution, underground storage and operations in LNG facilities

(iv)Active underground coal mines and surface coal mines, closed underground coal mines and abandoned underground coal mines

The Regulation is not limited to operations conducted within the Union; it also applies to methane emissions occurring outside of the EU, with respect to oil, gas and coal products that are “placed on the Union market” by an “importer”.

The Regulation focuses on methane emissions associated with fossil energy produced and consumed within the EU; as such, methane emissions associated with products derived from natural gas (e.g., fertilisers and ammonia) are not within the scope of the Regulation.

Key requirements under the Regulation

The Regulation imposes new obligations on oil and gas operators, coal mine operators and Member States with regard to quantification, monitoring, reporting, verification and reduction of methane emissions associated with the production and transportation of fossil fuels. It also imposes obligations on entities that import oil, gas and coal into the EU. The purpose is to: (i) improve the accuracy of data on the main sources of methane emissions associated with energy consumed in the EU, which will in turn increase the reliability of reporting; (ii) ensure further effective mitigation of methane emissions across the energy supply chain in the EU; and (iii) reduce methane emissions related to fossil energy imported into the EU.

The Regulation adopts a multi-phase approach. First, operators and importers will be required to measure, report and verify methane emissions associated with producing oil, gas or coal. Such information will be used to compile a methane transparency database, which is intended to be used to inform the purchasing decisions of importers of oil, gas and coal to the Union market.

The methane transparency database will then be used to produce methane performance profiles, which will provide an assessment of the work done by oil, gas, and coal producers in the Union and globally, and by importers, to measure and report – as well as reduce – methane emissions. The Commission will also establish a global methane monitoring tool and a rapid reaction mechanism to identify and address significant and high-methane-emitting events globally.

Once all of the above has been achieved, the Commission will establish a methodology to calculate the methane intensity of the production of oil, gas and coal. The methodology will then be used to establish maximum methane intensity values and classes associated with the production of oil, gas and coal placed on the Union market.

Penalties for infringements, to be established by Member States, are required to be “effective, proportionate and dissuasive” and can include administrative fines of up to 20 per cent of the annual turnover of the relevant legal entity in the preceding business year. A significant incentive to comply.

To achieve that target of reducing methane emissions associated with the production of oil, gas or coal, the Regulation imposes the following obligations on market players:

A. Requirements for oil and gas operators²

1. Quantification, monitoring, reporting and verification of emissions

The Regulation establishes a Monitoring, Reporting and Verification (MRV) system for methane emissions, which requires “operators” and “undertakings” established in the EU to monitor and report emissions at “source-level”, i.e., at the level of direct emissions.

The Regulation prescribes the use of the Oil and Gas Methane Partnership 2.0 (OGMP 2.0) Framework, pending the development of harmonised standards for measurement and quantification of methane emissions by the European Commission.³ OGMP 2.0 is the United Nations’ flagship oil and gas emissions reporting and mitigation programme. It establishes five measurement-based reporting levels, with the highest level (level 5) requiring companies to reconcile their source-level emission estimates with measurements at the “site-level”. Operators will need to achieve OGMP 2.0 Level 5 reporting by 2027.

No measurement and quantification standards are prescribed in the Regulation, and until such standards have been adopted by the Commission in a delegated act, operators will be required to follow state-of-the-art industry practices and to use the best technologies available for the measurement and quantification of methane emissions.⁴ Operators are directed to the latest OGMP 2.0 technical guidance documents for such purpose.

2. Leak detection and repair

The Regulation also sets out detailed methane emission mitigation requirements through prescribed leak detection and repair (LDAR) programmes, which include frequent inspections and repairs of any detected leaks. By 5 August 2025, the Commission will establish, by way of an implementing act, the minimum detection limits, survey guidelines and specific techniques to assist companies and operators with establishing their LDAR programmes. The Regulation prescribes the levels of methane emissions at which operators will be obliged to repair or replace components found to be emitting methane above the prescribed level.

3. Limits on flaring and venting

The Regulation imposes stringent limits on flaring (burning of methane) and prohibits venting (releasing of unburned methane), except in circumstances expressly listed in the Regulation. Operators are required to comply with the flaring and venting provisions of the Regulation by 5 August 2026 for existing sites, and within 12 months from the date of the start of operations for new sites. Operators are also required to notify competent authorities of certain significant venting and flaring events.

B. Requirements on active coal mine operators⁵

1. Quantification, monitoring, reporting and verification of emissions

Operators of active underground and surface coal mines are required to monitor and report methane emissions. For underground coal mines, mine operators must take continuous source-level measurements and quantify emissions on all exhaust ventilation shafts. As with the MRV requirements for oil and gas operators, the Regulation does not currently specify a quantification/reconciliation methodology. Until such standards are adopted, mine operators are required to follow state-of-the-art industry practices and use the best available technologies for the measurement and quantification of methane emissions. By 5 August 2025, and by 31 May of each subsequent year, mine operators must submit a report to the competent authorities setting out yearly source-level methane emissions data required by the Regulation.

2. Limits on flaring and venting

Similar to the requirements for oil and gas operators, the Regulation also sets limits and prohibitions on flaring and venting of methane through ventilation shafts and from drainage systems. Venting of methane will be prohibited: (a) from drainage systems beginning 1 January 2025, subject to exceptions for emergencies, malfunctions, or where necessary for maintenance; and (b) through ventilation shafts from 1 January 2027, or 1 January 2031 (depending on the tonnes of methane emitted per kiloton of coal mined), except in emergencies. The Regulation also specifies reporting requirements with regard to venting and flaring events which will apply from 1 January 2025.

C. Requirements on importers of oil, gas and coal

The Regulation also progressively phases in reporting requirements and a maximum methane intensity threshold for importers⁶ placing oil, gas or coal on the Union market.

1. Reporting obligations

From 5 May 2025, and by 31 May of each following year, importers of oil, gas and coal placed on the Union market will be required to provide various prescribed information to the competent authorities in the Member State in which they are established. Such data includes whether the relevant producer or exporter “is carrying out source- and site-level measurement and quantification, whether the data are subject to independent third-party verification, whether its methane emissions are reported, either independently or as part of commitments to report national greenhouse gas inventories in line with UNFCCC requirements, and whether they are in compliance with UNFCCC reporting obligations or with OGMP 2.0 standards”. By 5 August 2025, and by 31 August of each following year, Member States will be required to submit such information to the Commission.

2. MRV equivalence

From 1 January 2027, importers must demonstrate (and report to the competent authorities in the Member State in which they are established) that supply contracts for oil, gas and coal concluded or renewed on or after 4 August 2024 (New Contracts) include MRV measures applied at the level of the “producer” that are equivalent to those applicable to EU operators under the Regulation.⁷

For contracts signed before 4 August 2024 (Existing Contracts), importers must use “all reasonable efforts” to ensure that EU-equivalent MRV measures are in place.⁸ Such efforts are explicitly stated to include “the amendment of those contracts”.

From 1 January 2027, importers will be required to file annual reports of their efforts to require oil, gas or coal supplies under Existing Contracts to be subject to MRV measures, which are equivalent to those set out in the Regulation. If the importer is unsuccessful, the importer is required to “provide sound justification” for such failure and “the actions that they have undertaken as part of those efforts”. Therefore, it seems reasonable to assume that importers must take affirmative action to comply with this obligation, including making written requests to exporters to modify the terms of the Existing Contracts, albeit such obligation is limited to an “all reasonable efforts” standard.

For imports of oil and gas, MRV measures will be considered equivalent if:

(a) There is independent third-party verification (using standards and technical prescriptions for the measurement and quantification of methane emissions to be established by delegated acts, conducted by verifiers accredited by a national accreditation body under Regulation (EC) No 765/2008); and

(b) The producer applies monitoring and reporting measures equivalent to those to be prescribed by the Commission to operators in the Union (as discussed above) or at OGMP 2.0 Level 5.⁹

It is also possible for third countries to adopt a regulatory framework on MRV that is equivalent to the standard applied in the Union. MRV measures taken by producers and exporters established in such a third country supplying oil, gas or coal to the Union market will be deemed to be equivalent under the Regulation. The process of establishing equivalence is not set out in the Regulation, and will require an implementing act. We anticipate that it will not be a straightforward process. Equivalence may be revoked by the Commission at any time.¹⁰

3. Methane intensity thresholds

From 5 August 2028, and in each following year, under New Contracts, importers will be required to report the methane intensity of the production of oil, gas and coal placed by them on the Union market. For Existing Contracts, importers will be required to use “all reasonable efforts” to report such methane intensity data.

Finally, by 5 August 2030, and in each following year, Union producers and importers placing oil, gas or coal on the Union market under contracts concluded or renewed after 5 August 2030 must demonstrate that the methane intensity of the production of the oil, gas or coal, as applicable, is below the maximum methane intensity values established by the Commission.¹¹

In this respect, the Commission will adopt a delegated act by 5 August 2027 to set out the methodology for calculating, at the level of the producer, the methane intensity of crude oil, gas or coal production. By 5 August 2029, the Commission will issue a report assessing the potential impact of certain levels of maximum methane intensity values, before then supplementing the Regulation by actually setting maximum methane intensity values.

D. Penalties

Member States will be responsible for setting the rules for penalties applicable to any infringement of the Regulation. Such penalties are required to be “effective, proportionate and dissuasive”, that is, “proportionate to the environmental damage and impact on human safety and health” and “gradually increases for repeated serious infringements”.¹²

Provided the penalties do not endanger the security of energy supplies to the Union, the penalties can include: (a) confiscation of profits gained or losses avoided due to the infringement; (b) public warnings or notices; (c) periodic penalty fines; and (d) administrative fines. Such administrative fines are capped at 20 per cent of the annual turnover of the relevant entity in the preceding business year. A significant deterrent.

Examples of omissions which could trigger such penalties include:¹³ (i) failure of operators or mine operators to submit methane emission reports; (ii) failure of importers to provide information required under the Regulation; and (iii) failure of Union producers or importers to comply with the maximum methane intensity values.

Next steps

The Regulation enters into force on 4 August 2024. Therefore, action needs to be taken now.

• EU-based operators will need to start preparing MRV procedures which correspond to OGMP 2.0 reporting standards with the aim of achieving OGMP 2.0 Level 5 by February 2027 (for operated assets) and by August 2028 (for non-operated assets).
• Importers should ensure that New Contracts contain clauses that require the exporter to adopt EU-equivalent MRV measures. Importers should also negotiate appropriate clauses to require the exporter to provide methane intensity information. Consideration will also need to be given to the risk that contracted quantities, when set by the Commission, may fail to achieve the maximum methane intensity values.
• For Existing Contracts, importers must take "all reasonable efforts" to ensure that EU-equivalent MRV measures are adopted. Such efforts may include seeking amendments to those contracts. Importers need to be prepared to justify any failure to incorporate such obligations in Existing Contracts in future filings to the competent authorities of the relevant Member State.

1. Regulation (EU) 2024/1787 of the European Parliament and of the Council of 13 June 2024 on the reduction of methane emissions in the energy sector and amending (EU) 2019/942:
2. An “operator” is defined in article 2(3) of the Regulation as “any natural or legal person who operates or controls an asset, or, where provided for under national law, to whom decisive economic power over the technical functioning of an asset has been delegated”. The definition of “asset” includes “operated assets” and “non-operated assets”, which are defined, respectively, as assets that are under the operational control of the operator and assets that are not under the operational control of the operator.
3. Article 12(5).
4. Article 12(5).
5. A “mine operator” is defined in article 2(12) of the Regulation as “any natural or legal person who operates or controls a coal mine or, where provided for under national law, to whom decisive economic power over the technical functioning of a coal mine has been delegated”.
6. An “importer” is defined in article 2(59) of the Regulation as: “a natural or legal person who, in the course of a commercial activity, places crude oil, natural gas or coal originating from a third country on the Union market, including any natural or legal person established in the Union appointed to carry out acts and formalities required under Chapter 5”.
7. Article 28(1).
8. Article 28(2).
9. Article 28(5).
10. Article 28(6).
11. Article 29.
12. Article 33(1).
13. Article 33(5).

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