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21st May 2022

EU green taxonomy becomes law, gas and nuclear postponed

  • Institutional investors have signalled they want a taxonomy that is based on science - not political compromise (Photo: pixor)
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The first two chapters of the sustainable taxonomy, the EU's ambitious labelling system for green investment, was passed on Thursday (9 December).

Until midnight on Wednesday, EU member states had time to reject this first set of rules - the so-called 'first delegated act'.

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But despite opposition from a group of countries, the proposal passed and will come into force on 1 January 2022.

It will describe the sustainable criteria for renewable energy, car manufacturing, shipping, forestry and bioenergy and more, and include a "technology-neutral" benchmark at 100 grams of CO2 per kilowatt-hour for any investments in energy production.

The criteria for the list has mainly been compiled by the Sustainable Finance Platform, a group of 57 NGOs, scientific and financial experts, making the first part of taxonomy "science-based".

"I warmly welcome that European Council has cleared the EU Taxonomy Climate Delegated Act. This will help channel sustainable finance towards projects and businesses to help reach our climate targets," EU commissioner for financial services, Mairead McGuiness, tweeted on Thursday.

The European Commission will now likely unveil the second delegated act on 22 December.

This will describe how nuclear and gas will be labelled under the taxonomy.

But the process has become highly-politicised over the last months.

Second act

In a meeting of member states on 29 November the project nearly faltered.

An EU diplomat, speaking anonymously, explained to EUobserver that a French-led group of 13 member states tried to block the first list "out of principle" - because the commission had not agreed to include nuclear and gas in the green taxonomy.

France and Finland pushed for nuclear to be "fully part of the taxonomy." Ten other mainly eastern European countries want gas included. Sweden joined the group because the new rules endanger its forestry sector.

The group tried to gain a supermajority of 15 to force the commission's hand but fell short. Germany and Italy abstained, but did not respond to requests for explanation made by EUobserver.

The commission will now decide how to label nuclear and gas before the end of the year, and it is not yet clear how the issue will pan out.

In October, EU Commission president Ursula von der Leyen tweeted that "We also need a stable source, nuclear, and during the transition, gas."

On Thursday, EU climate chief Frans Timmermans likewise acknowledged "nuclear and transition gas play a role in the energy transition," while adding that this "does not make them green."

These public statements led some diplomats to speculate the commission is poised to include these controversial energy sources in the taxonomy, with one EU diplomat telling EUobserver that von der Leyen "has promised her commitment to nuclear and gas."

But the commission and the EU Directorate-General for Energy have kept a close lid on their consultations, and outside experts from the Sustainable Finance Platform have not been asked for input yet.

Whatever the commission will decide, only a supermajority in the council - 15 member states - or a parliamentary majority can block the second delegated act. Both are unlikely.

What next?

Institutional investors have already signalled they want a taxonomy based on science, not political compromise.

This will "harm the objective-scientific, transparent character of the taxonomy and increases the risk of 'greenwashing'. Europe promised the world climate leadership, it is time to show it," a group of banks wrote this week.

Sebastien Godinot, a senior economist at WWF and member of the EU's Sustainable Finance Platform, said the commission must not give in to blackmail and bullying.

"The commission must deliver a science-based taxonomy regulation that excludes fossil gas, nuclear, and factory farming. Otherwise, the credibility of the taxonomy is ruined."

But the commission may have no choice but to compromise between the gas and nuclear-supporting member states on one side, and countries opposing these on the other - while also being mindful that investors and experts from its Sustainable Finance Platform will reject a system containing contradictory political concessions.

Green label for gas may be coming unstuck

The European Commission on Tuesday defended labelling natural gas as a sustainable investment during a session at the European Parliament. Sceptical lawmakers said demand for gas is strong enough.

EU gas and nuclear rules derided as 'biggest greenwash ever'

Experts and activists have warned the European Commission that including natural gas and nuclear power in its plan for sustainable finance will lead to further greenwashing, split financial markets and undermine the bloc's climate objectives.

Commission grilled on RePowerEU €210bn pricetag

EU leaders unveiled a €210bn strategy aiming to cut Russian gas out of the European energy equation before 2027 and by two-thirds before the end of the year — but questions remain on how it is to be financed.

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