EU Taxonomy: are fossil gas and nuclear investments “green”?

Aimed at steering investments towards economic activities that can help achieve climate neutrality by 2050, the EU adopted the Taxonomy Regulation on 18 June 2020, providing a framework to identify environmentally sustainable economic activities. The EU recognizes the energy sector’s crucial role in reducing greenhouse gas (GHG) emissions, as it is responsible for 75% of direct emissions. As such, the EU Taxonomy identifies economic sectors and activities related to the energy supply chain that can enable Member States to move towards climate neutrality.

On 2 February 2022, the European Commission presented its proposal for a Complementary Climate Delegated Act identifying criteria to determine, which gas and nuclear related activities can be used to accelerate the phase-out of harmful energy sources, such as coal, and support Member States’ move towards a more low-carbon energy mix.

EU Taxonomy – How does it work?

The Taxonomy Regulation aims at steering private investments in economic activities that are needed to achieve climate neutrality in the next 30 years. The Taxonomy, through a series of Delegated Acts, classifies climate-friendly activities in a wide range of sectors. With this system, the Commission’s objective is to attract investments in the most sustainable activities related to nuclear and gas, and limit “greenwashing”, meaning companies or investors falsely declaring themselves sustainable.

The first EU Taxonomy Climate Delegated Act was adopted on 4 June 2021, setting out the criteria to identify economic activities having the potential to substantially contribute to climate change mitigation or adaptation and not causing significant harm to any of the other relevant environmental objectives. The Delegated Act left out – among others – both nuclear energy and fossil gas. At the time, nuclear energy and fossil gas were excluded since the assessment of the potential significantly harmful impacts were still ongoing.

How does the proposed Complementary Delegated Act fit in the EU Taxonomy framework?

The objective of the proposed Complementary Delegated Act is to complement the first Delegated Act of June 2021 by setting out the technical screening criteria for economic activities related to nuclear energy and fossil gas. With this new Delegated Act, the European Commission recognizes that both the fossil gas and nuclear energy sectors can contribute to the transition towards a decarbonized EU energy sector, labelling certain gas and nuclear activities “green”. Nonetheless, the Commission sets strict criteria that nuclear and gas activities must respect. Notably, the Delegated Act details certain conditions for the construction of new gas projects or new nuclear plants, both in terms of technologies to use and authorization from Member States. The Delegated Act plans for the sustainability criteria for both gas and nuclear activities to be updated regularly as technology evolves.

What to expect next?

Once translated into all official EU languages, the Delegated Act will be formally transmitted to the co-legislators for their scrutiny. Both the European Parliament and the Council of the EU will have four months to analyze the document, and should they find it necessary, to make objections. Both institutions may request an additional two months of scrutiny time. If neither of the co-legislators submit objections and the scrutiny period has passed, the Delegated Act would enter into force and apply as of 1 January 2023.

Fit for 55 services

Since EU Member States and Members of the European Parliament (MEPs) are divided on the topic of the inclusion of gas and nuclear energy in the EU Taxonomy, the discussions will likely be lengthy and heated. France, most notably, and other countries including Bulgaria, Croatia, Czech Republic, Finland, Hungary, the Netherlands, Poland, Romania, Slovakia and Slovenia are strong supporters of the inclusion of nuclear energy in the EU Taxonomy. According to these countries, nuclear power plants are part of the solution to the climate crisis and should therefore be included. In contrast, other countries such as Germany, Luxembourg, Austria and Spain oppose the inclusion to the point of considering launching legal proceedings against the Delegated Act to stop its implementation.

Gas proves to be similarly divisive, with Member States split between those that say it is needed to help transition from coal, and those that argue labeling a fossil fuel as a green investment is not credible. Furthermore, the issue leaves MEPs clashing with their home countries, for instance between the Finish and French Green MEPs opposing the inclusion of nuclear and gas in the Taxonomy, while both Finland and France are actively calling for their inclusion. Within the European Parliament itself, the division is also strong. In contrast to the European People’s Party (EPP), which welcomed the Commission’s proposal, the Greens/EFA and Socialists & Democrats argue against the inclusion of gas and nuclear activities in the EU Taxonomy as they consider money invested in these energy sectors is urgently needed for the development of renewable energies.