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The EU's executive this week extended its green finance criteria
to nuclear and natural gas-fired power despite objections from
NGOs, investors, member states, and its own expert group.
On 2 February, the European Commission (EC) published the second
delegated act of the EU Taxonomy Regulation for adoption over the next four to
six months after scrutiny by co-legislators.
The first delegated act, defining green activities from sectors
such as energy, chemicals, and waste was adopted in December and
entered into force on 1 January. The second could enter into force
in January 2023.
The pair of acts are cornerstones to the two policies in the
EU's 2018 Sustainable Finance Strategy:
the Sustainable Finance Disclosure Regulation (SFDR) entering into
effect in stages last March and next January, and the Taxonomy
Regulations that became effective in 2020.
Using the acts, the EU wants firms and companies to report on
and direct investments to businesses that contribute to meeting the
EU's net-zero aims.
The reporting obligations for companies and firms under these
criteria have been in flux, wrote sustainable finance consultant
Danielle Conen Henriquez in a blog.
Already under SFDR, asset managers and financial advisors must
disclose their financial products' alignment with the EU Taxonomy,
picking one of three categories: dark green, light green, and
non-sustainable.
A further policy, the Corporate Sustainability Reporting
Directive, aims to make sure more companies report using the
standards. It would apply for the first time in 2024, according to law firm Arthur
Cox.
The policies also help define how member states should spend
€723.8 billion ($874 billion) in EU funds set to help make Europe
climate neutral by 2050 under the Recovery and Resilience Facility
(RRF).
On 3 February, Nathan Fabian, the chair of the Platform on
Sustainable Finance (PSF), a permanent expert group the EC created
to assist development of the disclosure rules, tweeted dismay over criteria
that he said were "weaker than the previous draft."
Platform member and NGO Environmental Coalition on Standards
(ECOS), said of the latest act: "The
draft [delegated act] is no less that institutional greenwashing
and would have dramatic consequences if adopted. There is no place
for fossil fuels in the Taxonomy. Not only would it channel money
into the wrong kinds of investments, but it would also undermine
the environmental credibility of the entire Taxonomy, setting a
precedent for other dirty activities, such as waste incineration,
to be labelled green."
ECOS also said the EC wrongly applies
Article 10(2) of the Taxonomy Regulation, which lays down the rule
that energy transition activity can only be green where no
low-carbon alternatives exist.
The industry, political, and academic group Club of Rome's
Co-President, Sandrine Dixson-Decleve, who is also member of the
PSF, tweeted that there was no
scientific support for a green label for natural gas and nuclear
power. "Europe's own investment bank has understood this and
policymakers should follow suit," she added.
Those concerns were echoed by Stephanie Pfeifer, the CEO of the
Institutional Investors Group on Climate Change, with members
managing €50 trillion worth of assets. "For institutional
investors, the inclusion of gas will limit their ability to align
their portfolios and investment with net zero," she said of the
draft of the act.
Nuclear power
Germany's Climate Minister Robert Habeck and Environment
Minister Steffi Lemke also criticized the decision to
label nuclear power as green.
Germany, Belgium, and Spain committed to phasing out nuclear
power plants after the 2011 Fukushima nuclear disaster. "[Nuclear
power] is fraught with risks and expensive. Nor can new reactor
designs such as mini reactors, which raise similar problems, be
classified as sustainable," said Habeck and Lemke in a statement.
However, French President Emmanuel Macron, whose government is
funding small nuclear reactors, backed nuclear power being in the
taxonomy. France's nuclear power industry produces 69% of its total
power and exports power to its neighbors.
On the day the act was published, EU Financial Services
Commissioner Mairead McGuinness hit back at the criticism by
pointing out that the EU needed all the weapons it could get to
fight its dependency on coal. The EU was also a signatory to a pledge to accelerate a
transition away from unabated coal power at COP26.
But the EU's expert group (PSF) questioned aspects of the latest
act. Nuclear plants failed to meet certain criteria because of
potential water pollution by nuclear waste, among other things, it
said in its report to the EC last
month.
These criteria include the Do No Significant Harm (DNSH)
principle introduced in the SFDR, which finds an investment
sustainable only if it does not harm other EU environmental or
social objectives.
In April, the first delegated act defined causing significant
harm in power generation as a system in which direct emissions
exceed 270g CO2e/kWh of output. No fossil fuel generation system
currently meets this threshold, but they may be able to using
carbon capture and storage technologies or low-carbon gases.
While the latest act's criteria allow emissions from gas-fired
generation at levels below this, it also allows direct GHG below an
average of 550 kg CO2e/kW of the facility's capacity over 20
years.
The expert group insists that the lifecycle threshold should be
the 100g CO2e/kWh of the output energy defined in the first
delegated act, which can only be met by renewable sources such as
solar, wind, and hydropower.
However, a July report from the EC's Joint
Research Centre found that nuclear passes the DNSH criteria as its
lifecycle GHG emissions were comparable to hydropower and wind
power and it had a similar level of impact on water toxicity,
although there were no long-term underground repositories yet
established for so-called high-level waste.
Gas-fired power
The inclusion of gas-fired power, which emits mostly NOx as well
as methane via the natural gas supply chain, drew additional
criticism.
Green umbrella group CAN Europe recently criticized a draft of
the act in an open letter, saying: "The inclusion of fossil gas and
nuclear in the EU Taxonomy would not only mislead consumers and
investors but would also call into question the extent to which the
EC values scientific evidence."
New power plants using natural gas would start operating with
emissions above the DNSH criteria level and stay that way for 20
years, the PSF said in its report.
But the latest act does not allow much runway for
new gas-fired power investment. The projects it approves are
limited in terms of the construction permit date (before 31
December 2030) and there are limits on the quantity of emitting
fossil gas that can be included in the fuel mix.
The act requires that unabated fossil fuel gas-fired power
plants be designed to start running on exclusively low-carbon gases
such as biogas and hydrogen in 2035.
The PSF warned however, that low-carbon gas hydrogen is not yet
available from renewable sources, and without standards for fossil
fuel-origin hydrogen, "increased blending with low carbon gases may
actually be worsening the overall GHG emissions."
Posted 04 February 2022 by Cristina Brooks, Senior Journalist, Climate and Sustainability