Blog | Nuclear and gas – not yet ready for the sustainable finance taxonomy
The European Commission proposes a complementary Delegated Act to the EU Taxonomy, which would see nuclear power and fossil gas eligible for sustainable finance. IEEP’s Ben Allen gives his account of the discussion.
In 2020, the European Union established the sustainable finance taxonomy as a ground-breaking initiative that should guide financial markets towards investing in sustainability. It will also support in closing the private investment gaps to deliver on the EU’s environmental ambitions.
The development of the EU taxonomy relies on extensive input from experts from across the economy and civil society in a form of the Platform on sustainable finance. The Platform has been tasked with delivering independent advice to the European Commission through gathering and coordinating input from external experts from the public and private sectors. Last July, the Platform put its draft report outlining new technical screening criteria for all six of the environmental objectives of the Taxonomy Regulation up for consultation, and the EU adopted the climate delegated act of the Taxonomy. In parallel the Commission was working on a complementary delegated act addressing nuclear and gas power. Late in December, the Commission requested the Platform on Sustainable Finance (and Member States) to provide feedback on the newly proposed complementary delegated act.
Ben Allen, Acting Executive Director and Research Director at IEEP, is co-rapporteur of the technical working group on this Platform. In this blog, he provides his opinion on the latest developments of the EU taxonomy (namely on nuclear and fossil gas) in his personal capacity. The Platform will respond formally to the Commission’s request for expert feedback on 21 January and will be published online shortly thereafter.
On New Year Eve, the Platform on Sustainable Finance was asked to provide feedback on sustainability criteria proposed by the European Commission that would see nuclear and fossil gas power enter into the EU’s green finance list. In short, it would be the criteria allowing these economic activities to be considered sustainable and be seen to deliver on the EU’s climate mitigation objectives. The proposed complementary Delegated Act (CDA) was widely leaked.
Why is this appearing now and why is it an issue? Well, it’s mostly politics. Some EU leaders, including Emmanuel Macron who is taking on the Presidency of European Council for the next six months, favoured nuclear power being integrated into the taxonomy on green finance as an attempt to keep the peace with his constituents. On the other hand, countries relying on nuclear power want to be able to call it sustainable and those countries still dependent on coal power need an ‘out’ that would allow them to deploy fossil gas and call this a sustainable ‘transition’ in the absence of having invested enough in renewables. The bottom line is that this is about energy security and internal politics (I am paraphrasing of course).
Having reviewed the CDA and the criteria proposed by the Commission, there are many flaws and inconsistencies with the Taxonomy Regulation and the current climate delegated act adopted at the end of last year:
- First of all, nuclear power, whilst able to deliver against the climate mitigation objective criteria, cannot deliver on the do no significant harm criteria for the other environmental objectives (specifically pollution).
- New nuclear facilities are not likely to come online in a timeframe that would actually deliver on mitigation that would meet the climate objective (for example beyond 2050).
- The varying gas power criteria, do not respect the climate mitigation objective criteria threshold of 100g/CO2/KWh that is used for all other power generation activities in the Taxonomy to date.
- Lastly, the inclusion of nuclear and gas is made in part on the basis of lacking alternative energy modes when renewables are widely available on the market and require exactly the sort of financing that the Taxonomy is designed to deliver.
There are numerous other points, but if an activity cannot deliver on the objective criteria, cannot meet the timeframe in which the objective needs to be delivered, or cannot avoid harm to other environmental objectives, the case is fairly clear.
Yet the fact that the proposed criteria do not fit within the Taxonomy doesn’t stop investments into building, deployment or running of new gas or nuclear facilities, or even investment in old ones. It just means that the EU is not willing to label these as green or sustainable. This point is perhaps one of the single most misunderstood aspects of the Taxonomy. As much as some may want this to be a binding law that controls what you can and cannot do in the EU economy from an environmental perspective, it is more simply a tool to guide investors and focus private capital towards sustainable economic activities.
Therefore, the absence of nuclear and gas in the Taxonomy at present, should not be an issue for energy security, and doesn’t stop a Member State or the finance sector from investing in these energy sources. But perhaps that’s not the point. For a country like France, it would mean that most of their energy source (~ 70% from nuclear) would not be considered sustainable under at least one part of the EU’s many laws.
Franky though, all this politics is short-termism and missing the bigger picture. The climate crisis is real and present, and one of the few hopes we have of even getting close to meeting our climate mitigation needs is to channel finance towards sustainable solutions. This is why the Taxonomy exists. The fact that nuclear and gas investments would divert investment and lock in capital from genuine renewables and sustainable solutions is reason enough to exclude them from the taxonomy altogether. In future, there may be space (and appropriate labelling) in the Taxonomy for activities that are not fully sustainable, or are helping to support a sustainability transition, but that’s not the case now.
Photo by Thomas Millot on Unsplash