On Wednesday February 2, the European Commission officially—and controversially—proposed including natural gas and nuclear energy as “transitional” technologies” in a new green finance taxonomy. According to Euractiv:
The proposal is politically sensitive, with France pressuring the Commission to include nuclear in the EU’s green finance rulebook, and Germany making detailed requests on gas to reflect the demands of its energy-hungry industry.
An EU official defended the decision on February 2nd, telling journalists: “We have taken a realistic and pragmatic approach to the inclusion of nuclear and gas in the taxonomy.”
The Commission’s official proposal was very similar to the draft initially sent out for comment at the end of last year. Two small, but significant, changes were made: one a concession to Germany and another a concession to the nuclear sector, Euractiv reports.
At the request of Germany, the original required blending rates of decarbonised gases of 30% by 2026 and 55% by 2030 were dropped as “unrealistic.”
As in the original draft, new gas plants must replace an existing coal-fired power station and be built by 31 December 2030 to achieve the green EU label. They must also transition to 100% renewable energy by December 31, 2035 and contribute to “a reduction in emissions of at least 55%” over their lifetimes.
For nuclear fuel, the commission changed a requirement for nuclear plants to have accident-tolerant nuclear fuel immediately to “from 2025” in order for nuclear projects to get the EU’s green investment label. According to the nuclear industry, accident-tolerant fuels are only at the research stage, and so it would have been impossible to meet the requirement.
But investor groups, to whom the taxonomy is aimed, have been critical of the draft.
Including fossil gas as green energy will confuse investors, warns the Institutional Investors Group on Climate Change (IIGCC), a powerful coalition of pension funds and asset managers, and Eurosif, a European organisation that promotes sustainable investments.
“Investors may now need to consider going further than the taxonomy requires in order to align with net zero. We will work with them on what is required for a credible transition plan via the Net Zero Investment Framework,” Stephanie Pfeifer, CEO of IIGCC, which is worth 50 trillion euros, told Euractiv.
The Net Zero Investment Framework was developed by the Paris Aligned Investment Initiative, a coalition of 70 global investors and published on March 10, 2021, as a guide for investors to align their investments with the objectives of the Paris climate agreement.
Critics are warning that investors will be caught between the criteria of the European Investment Bank (EIB) and the lower standards set by the European Commission. Europe needs robust investment to transition to green energy.
Under the EIB’s climate policy, only gas projects that release less than 250g CO2e/kWh are allowed for investment, though it only considers projects to have a substantial contribution to tackling climate change if they release less than 100g CO2e/kWh. These emissions limits are considerably more ambitious than the Commission’s proposal.
President of the EIB Werner Hoyer, said his bank would stick to the Paris criteria rather than adopting the weaker taxonomy proposal around gas by the EU.
“Our job is to take care of the long-term solutions for the European Union and our partners abroad. So therefore, I don’t see a change in our energy lending policy in the years to come,” he said.
Even within the EU green taxonomy there is conflict, according to Euractiv. Fossil gas gets the green label if it produces less than 270g CO2e/kWh or does not exceed an average of 550kgCO2e/kW over 20 years. At the same time, any power plant that produces over 270g CO2e/kWh is also considered to cause “significant harm” to climate change mitigation under already-adopted parts of the taxonomy, meaning a gas plant could potentially be emitting at levels considered harmful while maintaining its green label.
But Europe is simply not ready for stricter measures.
In a press conference following the announcement, the EU’s financial services commissioner, Mairead McGuinness, said the decision “may be imperfect, but it is a real solution— it moves us further towards our ultimate goal of carbon neutrality,” she told journalists.
The draft now goes to the European Parliament and Council of Ministers for approval. As a delegated act, the other EU entities can only accept or reject it, not amend it. It is expected to pass in both chambers but faces more opposition in Parliament.
