On New Years Eve, the EU Commission announced that nuclear and gas would be included in the taxonomy as transitional sources of energy and shared a draft text for a Complementary Delegated Act (CDA). This has proven divisive throughout the EU, drawing both strong criticism from opponents to nuclear and gas, and backing from those who believe that both are needed as transitional power sources.

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This draft was opened for consultations with The Platform on Sustainable Finance and the Member States Expert Group on Sustainable Finance. The Platform on Sustainable Finance is a permanent expert group of the European Commission that has been established under Article 20 of the Taxonomy Regulation. The platform assists the Commission in developing its sustainable finance policies, including the taxonomy. The Sustainable Finance Platform has six subgroups, including the Technical Working Group who advise the EU Commission on the technical screening criteria for the Taxonomy.

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This week, the Platform on Sustainable Finance released their response to the proposed criteria for nuclear and gas. The report is highly sceptical of the proposed technical screening criteria and critical of the suggestion to include these activities in the current form. The expert group have highlighted imprecise and inconsistent criteria and slammed the current activities as being out of line with the aims of the taxonomy.

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Highlighting the varying transition challenges across Member States, the Commission has argued that there is a role for natural gas and nuclear to facilitate a transition towards a renewable-based future and climate neutrality in Europe. They suggest that activities covered in the complementary Delegated Act would “accelerate the phase out of more harmful sources, such as coal” and help to move Europe towards a “more low-carbon greener energy mix". 

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Opponents have argued that nuclear and gas should not be included in the green taxonomy, and that allowing these types of activities to be labelled as ‘green’ could lead to greenwashing of investments, and increased financing of potentially unsustainable projects.

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This report recognises that transitioning the whole economy to meet climate neutrality by 2050 and the 55% GHG emissions reductions by 2030 goals require consideration of environmental, social, cost and supply issues and not environmental performance alone. The focus on nuclear and gas as ‘transitional’ activities in the draft CDA are understood to mean that these activities would be included as part of an energy system in transition, not as green activities in themselves.

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The Platform is developing an extended Taxonomy with an intermediate performance category (“Amber”) and an unsustainable category from which there must be a just transition. The report highlights that the existing green taxonomy is “not intended to include every activity in the economy, in particular energy activities that must transition because emissions are currently too high or significant harm is present” and that a new category should be adopted to deal with transitional and unsustainable activities.

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The overall assessment of the Platform is that the draft activities are ‘not in line with the Taxonomy Regulation’ and most members foresee a serious risk of undermining the Taxonomy framework. They  expressed doubts about how the draft criteria would work in practice and concerns about the potential environmental impacts from implementing them.

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The report identifies four main areas of feedback and recommendations on the CDA:

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1. The CDA activities: “The Technical Screening Criteria (TSCs) differ in fundamental ways to the TSCs in the already in-force Climate Delegated Act and are not consistent with the provisions of the Taxonomy Regulation”. The effect is that the draft CDA activities could not be considered sustainable within the meaning of the Taxonomy Regulation.

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2. Proposed activity ‘energy generation from gaseous fossil fuels’: the proposed technical screening criteria for climate change mitigation do not ensure a substantial contribution to climate change mitigation as suggested CO2 limits are too high. The draft suggested two CO2 limits, and the Platform argues that a limit of 100g CO2e/kWh based on life-cycle assessment should be the maximum that is acceptable as a green activity. 

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3. The Platform acknowledged that nuclear energy is already part of the transitioning energy system and has near to zero GHG emissions but argue that this does not make the activity green and sustainable for Taxonomy purposes.

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The criteria would allow new nuclear plants which have received a building permit by 2045 to be considered taxonomy alignment, even though they would become operational too late to contribute to mitigation efforts to limit warming below 1.5 degrees. Construction of new plants would also bind capital to a future facility with no requirement that the plant operates in a time frame to contribute to 2050 climate goals. Given that the focus of the taxonomy is on 2030 and 2050 climate goals, this would not be logical to include as a substantial contribution.

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The activities’ criteria also do not ensure no significant harm to the sustainable use and protection of water and marine resources, the transition to a circular economy, pollution prevention and control, or the protection and restoration of biodiversity and ecosystem. There is no requirement for existing and operational facilities to have high-level waste repositories in operation. Additionally, the viability of ensuring final disposal sites do no significant harm across 1000s of years is not demonstrated.

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4. Draft disclosure arrangements are currently unsuitable for financial markets as they do not sufficiently distinguish the draft CDA activities from other Taxonomy aligned disclosures. Based on the criticisms of the criteria listed above, the Platform considered that there would need to be an adaptation of disclosure rules for operators and investors to avoid greenwashing and provide full transparency.

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More detailed breakdowns would be required to ensure that investors and stakeholders could distinguish properly between these transitional energy activities and other green activities. 

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Overall the report casts a highly critical light on the CDA proposal. The Platform has identified several inconsistencies between the CDA and the Climate Delegated Act. The Platform has provided some recommendations but were not able to fully suggest viable alternatives  in the short time frame given for the consultation. 

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The EU Commission’s aim is to formally adopt the CDA in January after considering the contributions of the platform. The Platform has highlighted that this is short a time to fully analyse the feedback and make meaningful changes to the CDA. This report highlights many challenges and criticisms facing the CDA in its current form. Critics suggest that adopting this draft text before further consultations could risk threatening the credibility and usability of the EU taxonomy. 

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The response from the Commission to the feedback is not yet clear. The timeline of the taxonomy has faced several delays, and it is likely that the adoption of the draft act will also face some delays in the face of these criticisms. 

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What is clear is that the taxonomy is at a crucial point in its development and implementation. The decisions made now will have lasting impacts on not just the credibility of the taxonomy, but on energy and climate policy across Europe. If the taxonomy is to significantly contribute to Europe’s 2030 and 2050 climate goals, it cannot afford to be subject to compromises and uncertainties.

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The full report can be accessed here: https://ec.europa.eu/info/sites/default/files/business_economy_euro/banking_and_finance/documents/220121-sustainable-finance-platform-response-taxonomy-complementary-delegated-act_en.pdf

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