While Italy has seen high rates of growth in production capacity over the last few years, the GO market has not developed greatly – while much of the infrastructure exist, including a gas GO register as well as membership in the AIB gas scheme, information regarding GOs remains untransparent. Auction results are published, but this has largely been for very niche characteristics (transport fuel usage, non-exportable) which have low associated value.

Gas GO value?

Biomethane GOs have an uncertain status; according to RED Article 19 they are the standard disclosure tool for renewable energy, but to date this has been unable to stimulate significant demand. Unlike their electricity counterparts, gas GO usage as market-based tools to show reduced GHG Scope emissions is not widely accepted, with stakeholders awaiting the final word from the GHG Protocol regarding market-based accounting.

One area which has seen much interest of late is the use of biomethane GOs to reduce EU ETS obligations for gas users; where biomethane replaces natural gas, emissions are avoided. However, this picture has also remained unclear; while some Member States allow this the rules are not uniform over the EU.

The Italian context

Support via tariffs has been available for producers for several years, with the 2022 decree extending tariffs to biomethane for non-transport applications. In particular, the premium tariff allows producers to receive revenues from physical gas and GO sales while still receiving support, albeit at a discounted rate.

The recently released Application Rules attempts to clarify the requirements for subsidised biomethane in Italy to be eligible for ETS usage. The end-consumers eligible for such usage are restricted to the hard to abate (HtA) sectors, which include hospitality and several manufacturing sectors – the exact breakdown can be found in the Public Notice for DM 463/2022. The subsidised GOs in question must come from a premium tariff operation (not a comprehensive tariff – tariffa omnicomprensiva – recipient), with production associated with ‘other usage’ (that is, non-transport).

The definition of self-consumer (“autoconsumo”) has been broadened operationally to also affect these changes (paragraphs 2.3.7 and 6.5 of the May 2025 update). Typically, the concept of self/auto-consumption involves the same entity both producing and consuming biomethane. However, the update clarifies that arrangements where the producer and consumer are separate entities can also count, if the GO is transferred between the two for zero value (as per Art. 5-bis of DL 63/2024). The usage must also be assigned specifically to the facility where it is to be used and reflected on the GO cancellation statement.

The tariff that the producer (or biomethane seller) is adjusted. Note the premium tariff (“tariffa premio”) is calculated via:

Note: this is a simplification of the official formula, which also includes factors for a variety of operating scenarios. Refer to the GSE document.

The producer can only enter a contract with one client at a time per eligible configuration (paragraph 6.5), although this is not reciprocal (consumers can enter multiple contracts with different producers to aggregate biomethane volumes). The producer and consumer enter a contract of at least one-year length and inform the GSE.

The GSE has determined that since in the case of ETS GOs, since the GOs are transferred to the buyer at no benefit to the seller, the GO correction to the premium tariff is no longer applied. The listed GO price on the GME platform for May was EUR 1.5/MWh, for September 2024 production, which is order of magnitude lower than the current EU/UK market prices. Further, it is unclear if this price applies, given this is for ‘transport’, rather than ‘other usage’ biomethane. In any case, it is expected that producers can hold on to a saleable GO for minimal loss of tariff.

However, while producers looking to sell to HtA sectors cannot benefit from a revenue from GO sale, the ETS reduction benefit of the biomethane can be reflected in a sale contract (likely in the form of a BPA, or biomethane purchase agreement). In this way, producers can monetise either the GO through sale, or the ETS via a BPA, but not both for the same volume of biomethane (i.e. no double counting).

Expected value from the ETS

Demand far exceeds supply; while capacity is rapidly building up, with a sixth auction round likely to be announced soon, the gas consumption of the HtA industries is an order of magnitude higher. By our estimates, annual natural gas consumption in these sectors is around 90 TWh, approximately one fifth of total national gas consumption. Even assuming all winning bids to date per fifth auction are in full operation, this would amount to around 24 TWh annually. Further, not all this volume would be eligible for ETS reduction purposes.

As a result, we expect that sellers will receive a price close to the value of the emission reductions. Using a typical conversion factor of 1 MWh biomethane avoiding 200 kg of emissions, and a current EUA price around EUR 70/t, this leads to an emissions reduction utility of EUR 14/MWh.

However, transfer agreements are likely to involve longer-term BPAs greater than ten years, offering sellers secure future cash flows and buyers a hedge on carbon prices. Based on Veyt’s EUA forecast, given a ten-year agreement and an 8% discount rate we expect the ETS premium to be valued around EUR 24/MWh.