IEEP’s response to the public consultation on the EU taxonomy for green investments
IEEP has submitted feedback to the European Commission’s public consultation on the EU classification system for green finance, with a focus on mitigation in the agriculture, forestry and bioenergy sector.
Context: In the framework of the EU’s “Action Plan on Financing Sustainable Growth”, the European Commission is tasked to deliver a classification system of economic activities which are considered as having a positive impact on the climate and the environment. In the legislative process, the European Commission launched a review of the first Delegated Act which aims at defining technical screening criteria for economic activities that contribute substantially to climate change mitigation and adaption.
The Delegated Act under review is based on recommendations from a Technical Expert Group (TEG). The overarching Taxonomy Regulation underlines the objective of redirecting capital flows to projects delivering a low-carbon, resilient and resource-efficient economy.
IEEP welcomes the opportunity to contribute to the European Commission’s public consultation, which asked for feedback on draft Delegated Regulation of the classification system for sustainable economic activities (‘taxonomy’). The Institute welcomes the proposal for a Delegated Act on climate mitigation and adaptation for the initiative that it sets within EU law. Establishing clear, scientific and evidence-based criteria and thresholds on which to judge the sustainability of private (and public) finance and investments is a landmark step in orienting capital flows towards sustainability, and in shaping how the EU recovers from the economic impacts of COVID-19.
The complementary written submission is provided to improve the robustness of the Delegated Act, particularly focussing on recommendations in the mitigation context for the agriculture, forestry and bioenergy sectors. The recommendations are based on the work of the Technical Expert Group (TEG) on sustainable finance and IEEP’s work as an evidence-based and independent think-tank.
The specific recommendations on agriculture encompass improvements needed regarding criteria for growing crops and livestock.
(Agriculture 1): To reinstate the option for land managers to demonstrate climate performance on the basis of measured GHG emission reductions and to include the proposed criterion from the TEG report on maintaining and increasing Carbon stocks on agricultural land. This would encourage the entrepreneurship of land managers to deliver climate mitigation on farmed land and exploit the significant potential for rebuilding carbon in soils and biomass on the same land.
(Agriculture 2): The content of the essential management practices for NACE A1.1, A1.2 and A1.4 should be reviewed and revised in the Delegated Act to be consistent with the recommendations provided by the TEG. Where there are deviations from these recommendations, evidence should be provided (and cited) as to how the practices listed deliver a substantial contribution to mitigation in the given sub-sector.
Overall, the inclusion of ‘essential management practices’ as part of the technical screening criteria is positive. Nonetheless, specific deviations were noted in the specific criteria (detailed example on non-perennial crops in attached submission) and a lack of evidence needs required in the case of practices not applicable to holdings. Where there are significant deviations, a revision is recommended to align with the evidence presented in the TEG report.
Furthermore, IEEP acknowledges the challenge in setting an emission reduction threshold or carbon stock increase target for the agriculture sector. Yet, this is an important element in driving ambition. To allow flexibility and enable ambitious mitigation in the sector a compromise approache with additional flexibility would be to deliver a measured carbon impact relative to a baseline for a given farm where possible, or the other to rely on an essential set of management practices that are expected to deliver mitigation impact if applied correctly and consistently.
Similarly, for the criteria for livestock, the option to demonstrate performance based on emission reductions or increases in carbon removals (such as through permanent pastures) is not present in the Delegated Act and should be reinstated.
In the forestry sector, IEEP’s recommendation focuses on operations in relation to carbon stocks in forests and forest activities.
(Forestry 1): To remove the reference to, or inference that Article 29(6) of Directive (EU) 2018/2001) is sufficient to guarantee substantial contribution to mitigation and to replace this with mandatory requirements for activities within forest operations that help to build and maintain carbon stocks in forests and through forest activities. Such requirements can be drawn from the Criterion 1 lists provided for forest activities set out in the TEG report Annex from 2020.
The Delegated Act incorporated some of the principles set out in the TEG recommendations, for instance requiring undertaking a “climate benefit analysis” to establish the balance of GHG emissions and removals in line with business-as-usual approach. Nevertheless, the lack of inclusion of Sustainable Forest Management (SFM) requirements for building carbon stocks in forests is again deviating from the TEG recommendations. The proposed ‘Forest Plan’ does not appear to have specific requirement focused on GHG emission reduction or increase in carbon stocks and should be reinstated within the substantial contribution criteria.
The recommendation for improving the criteria on bioenergy aims at the biomass supply chain.
(Bioenergy 1): To require that the criteria for substantial contribution to climate mitigation from bioenergy include the requirement that the biomass is sourced from an agriculture or forestry activity that is Taxonomy compliant for mitigation.
The Taxonomy Regulation requires that the technical screening criteria are set for a specific economic activity, however they do not function in isolation, with supply chains linking one economic activity to another. In the biomass supply chain, the Delegated Act cites some of the sustainability criteria provisions of RED II to prevent an increase in GHG emissions or reduction in Carbon removals in the process. The purpose of the RED II sustainability criteria is different from that of taxonomy criteria designed to deliver substantial contribution to mitigation. IEEP’s recommendation is to require that the biomass used in the bioenergy sector should arise from agriculture or forestry activities that are themselves Taxonomy compliant for mitigation, consistent with the logic of bioenergy as a transitional activity.
In general, for all deviations from the TEG recommendations, evidence should be provided as to how the included revised criteria deliver substantial contribution to mitigation (or adaptation). Input from technical experts for developing the criteria is required in the Taxonomy Regulation. It is unclear in this still some activities in this draft Act what evidence has been used to make changes to TEG recommended criteria and thresholds that arose from nearly two years of activity. are not based on the expert recommendations.
The revisions would help to provide clarity to investors and give confidence to those using the taxonomy that the criteria are based on rigorous analysis and scientific evidence.
IEEP’s response to the European Commission’s public consultation drew from a broad evidence base, including: Allen & Marechal 2017; Nanni et al, 2020; Heart et al, 2017; Allen & Hiller, 2020; Arcadis et al, 2020; Stainforth et al, 2020;
The response was compiled and submitted by Ben Allen, Nora Hiller, Anne Marechal, Anna Lorant and Daniela Russi. For more information on IEEP’s work on this area, please contact Ben Allen (email@example.com).