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27th Jun 2022

EU backs gas as 'green' amid energy supply concerns

  • Imports from Russia account for some 40 percent of EU gas demand (Photo: gazprom.com)
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The European Commission on Wednesday (2 February) unveiled plans to include gas in its new guidelines for clean and sustainable finance — a move that responds to the bloc's environmental goals and the dramatic rise in energy security concerns.

The so-called EU taxonomy will see certain investments in gas and nuclear included in the category of "transitional economic activities."

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  • Russian president Vladimir Putin's ability to turn on - and off - Europe's gas supplies has thrown another element into the mix (Photo: kremlin.ru)

The commission has insisted that gas has a key role to play in the green transition. But the categorisation of this fossil fuel as a so-called transitional activity also follows intense lobbying from EU member states and industry.

The commission is going ahead with its plan despite criticism from a seemingly unlikely spectrum of green groups and asset managers, plus MEPs and some member states.

"We believe gas has a role because you move away from something that is much worse," EU commissioner for finance Mairead McGuinness explained to a news conference.

She was referring to the replacement of coal-power plants by the relatively cleaner-burning alternatives like natural gas.

But McGuinness acknowledged the current dilemmas for Europe in reshaping the way it generates power.

"Since the energy price increase, we are having perhaps difficult conversations in member states but nonetheless essential conversations around our energy mix today and all the work we need to do to get to a much better place," said McGuinness.

The new rules might be "imperfect" but they are "a real solution," she added, particularly as EU member states are at different stages in their transition to using cleaner energy.

French 'win' for nuclear

Along with natural gas, a second controversial element in the proposal is the inclusion of nuclear power - which leaves dangerous waste but does not produce emissions.

France, which generates the majority of its power from nuclear power and builds and operates nuclear power plants, has been pushing for the inclusion of nuclear power in the taxonomy.

French tactics to win the inclusion of nuclear power included allying with a coalition of southern and eastern Europe governments in defending their continued use of gas in their energy mix.

But the current compromise sits poorly with a number of member states.

Austria, which is strongly opposed to nuclear power, and Luxembourg, have threatened to sue the commission over that part of the proposal.

Meanwhile, Denmark, Sweden and the Netherlands are strongly opposed to the green label for gas.

Germany, for its part, opposes nuclear but has pushed for the inclusion of gas in the new rules. But Berlin is now under fire for weakening the conditions for gas to be taxonomy-compliant, despite its three-party governing coalition including the Greens.

Yet, if anything, the pressure to keep the gas taps open has increased on EU regulators since a sharp spike in gas and electricity prices since the autumn triggered concerns about the EU's energy security.

Those concerns have only been exacerbated by the growing geopolitical tensions over Ukraine with Russia - which could potentially lead Russia to block gas supplies to Europe.

Overall, imports from Russia account for some 40 percent of EU gas demand.

"Russian gas is cheap, certainly cheaper than liquefied natural gas but also Norwegian gas," said Christian Egenhofer from the think tank Centre for European Policy Studies (CEPS). "And as we have learned by now, gas prices matter," he added, referring to the record-high energy prices recorded last year.

With market prices indicating gas could be one of the most expensive forms of electricity for the next few years, Europe would do better to deliver a massive step-up in renewable generation, according to Charles Moore from energy think tank Ember.

Backing wrong horse?

Europe, by facilitating gas, "is backing the losing horse," said Moore.

To add to the complexities, Europe also would be continuing to do business with a supplier, Russia, that has a track record of using its gas supplies as a political and economic tool in relations with other countries.

EU trade commissioner Valdis Dombrovskis raised concerns this week about the "weaponisation" of gas supplies by Russia, noting "this problem … is not new".

The EU and Germany still are considering whether to give Nord Stream 2, which would boost supplies of Russian gas to the EU, clearance to begin deliveries. A decision on Nord Stream 2 has been further complicated by the buildup of Russian troops along the Ukrainian border.

For Egenhofer of CEPS, the interrelations between the EU and Russia, as the EU's largest supplier of natural gas, have come with a price: not being able to impose sanctions on Russia without hurting oneself.

"There was the conviction that interdependence helps stabilise political relations. [But] the EU has forgotten that interdependence reduces foreign policy options," said Egenhofer.

Lawyers threaten action over new EU gas and nuclear rules

Environmental lawyers are threatening to take legal action against the European Commission if gas is included in the EU guidelines for sustainable finances. But the draft taxonomy has also triggered discontent among some EU national capitals and MEPs.

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.

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.

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