Nuclear and gas in EU taxonomy slammed as 'greenwashing'

The reasons are obvious: gas projects still generate significant greenhouse gas emissions and there is no proven sustainable solution for nuclear waste.

Nevertheless, the decision to include gas and nuclear was partially justified on the ground that it provided energy security for the 27-nation bloc.

Critics say the proposal undermines the credibility of the EU taxonomy as a science-based investment tool, gives credence to claims of greenwashing, creates confusion in financial markets, and will cause major delays in the much-needed transition away from fossil fuels.

The taxonomy does not ban outright investment in activities not included in the guidelines — but it is designed to steer investments away from companies and investors which falsely claim to be environmentally sustainable.

'Gold standard' gone

Experts have warned that including natural gas (with a higher threshold than the one recommended by experts) and nuclear power in the EU's sustainable finance rules may lead to further greenwashing in financial markets.

University College Dublin professor Andreas Hoepner, who has been one of those leading academic opposition on the taxonomy, describes it as probably "the biggest greenwash ever."

The proposal, he said, ignores rigorous scientific analysis and weakens the credibility of the whole EU sustainable finance agenda. And it may even lead to an increase in emissions incompatible with the Fit-for-55 package and the EU's climate targets.

The rules were meant to create common standards for classifying taxonomy-aligned economic activities as environmentally sustainable.

But Laurence Tubiana, one of the key architects of the 2015 Paris Agreement, has warned that investors may go elsewhere to seek more "more reliable science-based criteria" to classify their investments.

"The whole idea of creating a 'gold standard' is gone" with gas and nuclear power included in the EU taxonomy, Dutch MEP Bas Eickhout told EUobserver in an interview.

With the credibility of the whole taxonomy hanging by a thread, Eickhout warned of the impact on green bonds, given that funds raised from these bonds could be used for gas and nuclear projects. The transition towards net-zero emissions will require massive investment, but not enough money is currently going into projects delivering climate neutrality, he said.

"If we now lower the standard in order to mobilise the money, then we are still fooling ourselves," he said, because the taxonomy must be "a credible standard" to fulfil its goal.

Natural gas has been tentatively identified by Brussels as a transition fuel until renewables and storage capacity can operate at a sufficient scale, but many have questioned the financial reasons for including it in the green taxonomy.

Overall, investment in fossil fuels does well in financial markets — with gas projects gaining a significant increase in profitability in recent years.

And experts argue that actually excluding gas projects from the EU taxonomy would not have created a risk of underinvestment in gas generation as a transition energy source.

Conversely, an analysis from the international EDHEC Business School found that its inclusion in the financial guidelines may create price distortions, and an incentive to limit future investments in renewables.

Investments for a gas-fired power plant are estimated to take more than a decade to be amortised, and gas plans tend to operate an average of 25 to 30 years in Europe. This raises concerns among experts about the taxonomy leading to a delay in the transition away from fossil fuels.

Ursula Woodburn from the UK's cross-sector group of business leaders, CLG Europe, said that this transition is supported by many businesses who see the benefits it offers.

The war in Ukraine shows how geopolitical tensions can cause "massive disruption" in an energy system based on fossil fuels, she warns.

"The EU should rapidly transition away from fossil fuels, fossil-fuel investments and subsidies to deliver climate stability," she added.

The decision to include gas and nuclear in the taxonomy was slammed as the outcome of a both lengthy and highly-politicised process.

But the European Commission has also come under fire for looking at this tool purely through a domestic prism — despite its impact beyond EU borders.