Reprieve for Nuclear, Gas in EU’s Sustainable Finance Taxonomy Rules
The highly regarded European Union (EU) taxonomic climate delegated act – the world’s first ‘green list’ – unveiled by the European Commission (EC) on April 21 qualifies several power generation sectors in its technical selection criteria for sustainable investment decisions. However, he is delaying controversial decisions on gas and nuclear.
The EC adopted the delegated act within the framework of an ambitious package to help improve the flow of money to sustainable activities across the EU and help the region meet its climate neutrality goals by 2050. The decision came a day before the EU reached an agreement provisional to reduce GHGs by 55% in 2030.
Alongside the delegated act – which the EU will formally adopt at the end of May and apply from January 2022 – the EC on Wednesday unveiled a proposal for a directive on corporate sustainability reporting, which aims to make corporate sustainability reports more consistent. Wednesday’s package also includes six amending delegated acts on fiduciary obligations, which essentially define how financial firms could include sustainability in their procedures and investment advice to clients.
A concrete definition of what qualifies for a green investment
the Delegated act on EU taxonomy strengthens the EU’s taxonomic regulation, which entered into force on July 12, 2020, to create the ‘very first’ green list ‘in the world,’ the EC said.
The 2020 Taxonomy Regulation tasked the commission with establishing technical selection criteria through delegated acts, and the EU Climate Taxonomy Delegated Act adopted on Wednesday is the first politically accepted delegated act. The first delegated act will serve as a classification system, based on âscientific technical criteriaâ for ecologically sustainable economic activities.
In other words, it creates a “common language that investors can use when investing in projects and economic activities that have a substantial positive impact on the climate and the environment,” the commission said.
As an international law firm Matheson explained last week, the EU taxonomic regulation encourages the environmental objectives of companies, which voluntarily and increasingly adopt environmental, social and governance (ESG) criteria. However, the EU’s response also aims to reduce the fragmentation of sustainable financing practices âto prevent the green laundering of financial productsâ.
For now, large financial companies, financial market participants and non-financial companies that fall under the non-financial reporting directive of Regulation 2020 must indicate the extent to which the activities they carry out to meet the criteria set out in EU taxonomy. Companies not included in policy instruments are also likely to voluntarily adopt the criteria of the EU taxonomy to strengthen their ESG initiatives and transition strategies.
As examples of other voluntary uses, âcompanies and project promoters may choose to meet the criteria of the EU taxonomy with the aim of attracting investors interested in green investment opportunities. Investors can choose to use the criteria of the EU taxonomy in their due diligence for the selection and identification of sustainable investment opportunities aimed at achieving positive environmental impact, âsaid the EC.
Nuclear power and gas absent – for the moment
While the Act Delegated to EU Taxonomy is “a living document and will continue to evolve over time” to adapt to technological progress, the criteria covered by the first act will cover the economic activity of around 40% of companies based in the EU (with more than 500 employees), in sectors responsible for around 80% of direct greenhouse gas (GHG) emissions in Europe. These include energy, manufacturing, transportation and buildings.
For the energy sector – which accounts for around 22% of direct GHGs, the EC has maintained a rate of 100 gCO2/ 2e / life cycle emission threshold in kWh below which energy production technologies can be considered sustainable. As it stands, the threshold cannot be met by relentlessly fueled coal and natural gas power plants. The threshold also eliminates coal equipped with carbon capture and storage (CCS).
The inclusion of nuclear and gas in the taxonomy was a specific point of controversy that had grown as the EC approached the publication of green finance rules. As Euractiv reported that EU countries in Eastern and Southern Europe threatened to veto an earlier project because it did not qualify the gas as “green” or “transitional” investments. France, for its part, has lobbied fiercely to make nuclear a recognized green technology.
On Wednesday, the EC suggested nuclear and gas be included in a “complementary delegated act” which “will be adopted later in 2021”.
The complementary act, specifically âwill cover natural gas and related technologies as a transitional activity as they fall within the limits of the EU taxonomic regulation,â the EC said. The inclusion of natural gas has been “subject to technical assessment and public comment,” he said.
Although the inclusion of nuclear “reflects a delicate compromise”, it will also be “subject to and consistent with the results of the specific review process underway in accordance with the EU taxonomic regulation,” the EC said.
First, independent experts – the Expert Group on Radiation Protection and Waste Management under Article 31 of the Euratom Treaty and the Scientific Committee on Health, Environmental and Emerging RisksâComplete a three-month review of the EC’s Joint Research Center (JRC) in March 2021 âDo no significantly harmâ report on nuclear power. The JRC’s analyzes, in particular, “have found no scientific evidence that nuclear energy harms human health or the environment more than other power generation technologies already included in the taxonomy.”
Foratom, the European nuclear trade organization, on Wednesday welcomed the EC’s decision to include nuclear in a complementary act. âWe are of course delighted to finally have some clarity on what the Commission will do with the results of the JRC report,â said Yves Desbazeille, Director General of FORATOM.
However, Desbazeille urged the EC to provide more clarity on a timetable. “To ensure that the taxonomy does not lead to market distortions, the Commission must publish this [delegated act (DA)] as quickly as possible once expert advice is available, âhe said. “We believe that this could already be done in September 2021 and thus make it possible to add nuclear to the second set of AD – relating to the criteria” Do not do significant damage “- expected at the end of this year.”
Context-specific criteria for hydropower and hydrogen
The EC, in particular, has also made its criteria more context specific for hydropower. “Namely,” run-of-river “(ie tankless) plants or plants with a power density greater than 5 W / m2, will not have to carry out the life cycle assessment to prove that they meet the 100g threshold as with other renewable technologies, âexplained the EC. “Although this ‘power density threshold’ has already been introduced by the group of technical experts, the criteria have been made clearer and more usable.”
Installations with tank and power density less than 5 W / m2, however, will need to confirm that they meet the lifecycle GHG emissions intensity threshold of 100 gCO2/ 2e / kWh. The EC said the determination was the result of “careful alignment” between the requirements of the Taxonomy Regulation – in particular the “do not significantly harm” requirements – existing legislation, such as the Water Framework Directive. .
It should also be noted that the EC has recognized multiple low-carbon applications of hydrogen as an energy carrier, storage solution, fuel or feedstock, going beyond the recommendations of its group of technical experts.
âToday’s taxonomic criteria are in line with the EU’s hydrogen strategy and encourage the production and use of hydrogen in line with the objectives of the European Green Deal,â the EC said. More specifically, he noted that the criteria for manufacturing hydrogen “are set at a level deemed sufficiently ambitious to guarantee a substantial contribution to the mitigation of climate change, by promoting the production of hydrogen from renewable sources” .