EU provokes criticism on plans to include nuclear and gas in taxonomy

Last week, the European Commission proposed including nuclear and gas power in the EU’s sustainable finance taxonomy, identifying their contribution to the bloc’s 2050 net-zero goal as “subject to clear limits and phase-out periods”. EcoAct’s Jordan Hairabedian looks at what the labelling of nuclear and gas means, and how it risks damaging the reputation of the taxonomy and the net-zero transition of the EU.

The EU Commission agrees on a final text for integrating nuclear and gas in the taxonomy

Launched in 2020, the European taxonomy is a common classification of around 90 economic activities substantially contributing to environmental objectives, using science-based criteria. The EU’s goal was to identify the criteria that would make an activity sustainable and aligned with the Paris Agreement. Moreover, the taxonomy supports the Green Deal and the EU sustainable finance framework.

On February 2^nd, the European Commission agreed to integrate Nuclear & Gas activities as transitional ones in the scope of the European taxonomy. What does that mean? Nuclear and gas are identified as “supporting activities for the transition of a climate-neutral economy consistent with a pathway to limit the temperature increase to 1,5°C above preindustrial levels, including by phasing out greenhouse gas emissions.”

Normally, the European Commission adopts its texts by consensus which means with no formal vote. For the delegated act regarding nuclear and gas activities, a formal vote had to be organised and three commissioners voted against, which is rare.

How was the technical criteria for nuclear and gas as transition activities defined?

As part of new disclosure rules, companies would have to report annually to comply with the taxonomy on gas and nuclear power.

Main nuclear criteria for climate mitigation:

• Life-cycle greenhouse gas emissions (GHG) from the generation of electricity from nuclear energy would have to be below the threshold of 100 gCO2e/kWh.
• Construction of new nuclear installations up to 2045 would be integrated in the taxonomy.
• Modification of existing nuclear installations up to 2040 would be integrated too.
• The project would have to fully apply the best-available technology and from 2025 accident-tolerant fuel (fuels that can tolerate a loss of the active cooling system for a longer period than conventional fuels)
• A radioactive waste management fund coupled with a nuclear decommissioning fund is necessary.
• Activities of research, development, demonstration, and deployment of innovative electricity generation from nuclear energy would be considered as transitional activities.

Main gas criteria for climate mitigation:

• The life-cycle GHG emissions from the generation of electricity using fossil gaseous fuels would have to be lower than 100 gCO2e/kWh (CO2 capture and storage activities would have to be aligned with the taxonomy).
• Facilities for which the construction permit is granted by 31 December 2030 would have to comply with:
  • Direct GHG emissions of the activity lower than 270 gCO2e/kWh of the output energy, or annual direct GHG emissions of the activity not exceeding an average of 550 kgCO2e/kW of the facility’s capacity over 20 years
  • The facility would have to be designed and constructed to switch to full use of renewable and/or low-carbon gaseous fuels by 31 December 2035
  • The replacement of power would have to lead to a reduction in emissions of at least 55% over the lifetime of the newly installed production capacity

In the interest of transparency, the European Commission has taken advantage of this delegated act to modify the disclosure requirements related to natural gas and nuclear energy activities. Large listed non-financial and financial companies will have to disclose the proportion of their natural gas and nuclear energy activities. This should help investors distinguish which activities they are investing in.

Can nuclear and gas be considered green?

From a carbon focus, it is relevant to examine the carbon intensity of electricity production:

Electricity produced by nuclear power emits 6 gCO2e/kWh, equal to hydropower and lower than solar and wind energy. Then, from a carbon perspective, the inclusion of nuclear is welcomed, so long as robust radioactive waste management and nuclear decommissioning strategies are included.

However, the integration of natural gas under the criteria presented by the Commission is much more controversial. Its carbon intensity is equal to 418 gCO2e/kWh, far above the EU set value of 100 gCO2e/kWh to define a sustainable energy production source. Allowing natural gas power plants  by the end of 2030, even if they comply with the lower than 270g CO2e/kWh stipulation, is not compatible with a net-zero future. This would mean large reliance on carbon capture and storage: a technology currently not mature yet and energy intensive.

Moreover, the risk is that it may lead to large financial flows to the natural gas sector, instead of low-carbon and renewable energy sectors. It could contravene the criteria set by Article 10 of the Taxonomy Regulation and lead to “a lock-in of carbon-intensive assets, considering the economic lifetime of those assets.” Ultimately, this decision could delay the net-zero transition.

Furthermore, in the initial project suggested by the European Commission on December 31^st 2021, intermediate commitments were planned to include an increasing share of renewable or low-carbon gas in 2026 and 2030. This was dropped in last week’s version. This is a failure for the low-carbon transition.

What are the implications to the reputation of the taxonomy?

The arbitration carried out by the Commission is generating lots of criticisms. Inclusion opponents consider that, beyond carbon, this labeling of gas and nuclear as “support for the transition” risks damaging the reputation of the taxonomy.

First, the Platform on Sustainable Finance (PSF), the taxonomy advisory body for the Commission, rejected the first proposal on nuclear and gas because “the draft CDA (Complementary Delegated Act) activities are not in line with the Taxonomy Regulation and most members see a serious risk of undermining the sustainable Taxonomy framework. Further, Platform members have doubts about how the draft criteria would work in practice and many are deeply concerned about the environmental impacts that may result.”

For many economic actors, including gas and nuclear in the taxonomy would call into question the robustness of this European classiffication tool. If gas and nuclear are integrated as “transitional activities” and not sustainable ones, the message could be unclear on where we really need to be investing in order to achieve the goals of the Paris Agreement.

Next steps and timings

The text will now be examined by the EU Parliament and Council. They have four months (with an additional two months extension possible) to adopt/oppose the text.

• From the EU Council side, it seems difficult to block the rules, as it would need a super-majority of 20 out of the 27 EU countries – a threshold seen as unlikely by Reuters.
• From the Parliament side, a majority of lawmakers would be required in order reject the text.

At this point, nothing is yet certain. However, if the text is adopted it would come into force from 2023.

 

 

 

 

▶️ Sources – To for further reading

[2020, EU Parliament and Council] Taxonomy Regulation

[2022, EU Commission] Delegated act regarding nuclear & gas activities

[2022, EU Commission] Technical screening criteria for mitigation – nuclear & gas

[2022, EU Commission] Technical screening criteria for adaptation – nuclear & gas

[2022, EU Commission] Specific public disclosures for those economic activities