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New rules to label certain gas and nuclear investments as green

Today, the European Commission has approved in principle a Complementary Climate Delegated Act which labels certain nuclear and gas activities as sustainable.

The main point is that both nuclear and gas can be taken into consideration only if they help accelerate the shift from solid or liquid fossil fuels, including coal, towards a climate-neutral future.

“Our mission and obligation is climate neutrality,” said Valdis Dombrovskis, Executive Vice-President for an Economy that Works for People. “We need to act now if we are to meet our 2030 and 2050 targets. Today’s Delegated Act is about accompanying the EU economy in the energy transition, a just transition, as a bridge towards a green energy system based on renewable energy sources. It will accelerate the private investment we need, especially in this decade. With today’s new rules, we are also strengthening transparency and disclosures of information, so that investors make informed decisions, thereby avoiding any greenwashing.”

“The EU is committed to achieving climate neutrality by 2050 and we need to use all the tools at our disposal to get there,” added Mairead McGuinness, Commissioner in charge of Financial Services, Financial Stability and Capital Markets Union. “Stepping up private investment in the transition is key to reaching our climate goals. Today we are setting out strict conditions to help mobilise finance to support this transition, away from more harmful energy sources like coal. And we are boosting market transparency so that investors will be able to easily identify gas and nuclear activities in any investment decisions.”

Nuclear and gas accepted only if…

The Commission recognised that natural gas will continue to play an important role in terms of consumption and generation until 2030, after which a decline is expected by 2050. In the Commission’s modelling for Paris-aligned pathways, natural gas is projected to represent 22 per cent of gross inland energy consumption in 2030 and 9 per cent in 2050. Any natural gas in 2050 will have to be abated.

Thus, concretely, gas will be labelled green only if lifecycle emissions of new power plants are below 100grams CO2 equivalent (CO2e)/kilowatt-hours (kWh); or if, until 2030 and where renewables are not available at sufficient scale, direct emissions are below 270 grams of CO2e/kWh; or, for the activity of electricity generation, their annual direct greenhouse gas emissions must not exceed an average of 550 kilograms of CO2e/kW of the facility’s capacity over 20 years.

In this case, the activity must meet a set of cumulative conditions: for example, it replaces a facility using solid or liquid fossil fuels, the activity ensures a full switch to renewable or low-carbon gases by 2035 and regular independent verification of compliance with the criteria is carried out.

Concerning nuclear energy, must fulfil nuclear and environmental safety requirements and ensure compliance with the do not harm principle, as proven by a report conducted by the Joint Research Centre, the Commission’s science and knowledge service, according to which compliance with the safety standards and waste management requirements ensures a high level of protection for the environment and for people.

Furthermore, new nuclear plants, which will be using the best-available existing technologies must receive construction permits before 2045 while modifications and upgrades of existing nuclear installations for the purposes of lifetime extension would only be recognised until 2040.

A helpful decision for CEE Member States…

However, the Commission reminded that the Taxonomy classification does not determine whether a certain technology will or will not be part of Member State energy mixes. The objective is to step up the transition, by drawing on all possible solutions to help us reach our climate goals, but each Member State remains free to choose. Indeed, for some Central and Eastern European countries it is an easy choice.

The CEO of Czech utility group ČEZ, Daniel Beneš has already defined the EU’s taxonomy guide as “a move in a positive direction”.

By the end of 2023, the Czech Ministry of Industry and Trade will prepare an update of the State Energy Concept with regard to the EU’s climate and energy goals and the development of nuclear energy, including preparation of documents on additional units in Dukovany and Temelín are among the main priorities for the new Czech government. Also, businesses are involved: earlier in January, manufacturing company Westinghouse Electric has signed a series of Memorandums of Understanding (MOUs) with seven Czech companies on the potential deployment of an AP1000 plant for the Dukovany 5 project. And, at the end of December, leading Czech nuclear power industry suppliers I&C Energo, Sigma Group, ŠKODA JS and ZAT signed other Memorandums on the future cooperation with the Electricité de France (EDF), who is one of the three potential bidders for the construction of new nuclear units in the Czech Republic.

Poland is mainly working towards new technologies like small modular reactors, after Polish oil refiner and petrol retailer PKN ORLEN signed an investment agreement to prepare and commercialise small nuclear reactor technology. Again modular reactors will be at the base of a project to build a nuclear power plant in Pątnów by Poland’s two largest private entrepreneurs, Zygmunt Solorz and Michał Sołowow.

But what is more important for Poland would be the use of gas as a bridging fuel and as a replacement for coal power, which still accounts for over 70 per cent of the country’s energy mix.

Andrzej Sadoś, Poland’s permanent representative to the EU, told the Polish Press Agency that the draft is favourable to his country as it “takes into account a number of proposals made by Poland and the other Member States concerning gas and nuclear energy.”

…or will it just enhance greenwashing?

Once translated into all official EU languages, the Complementary Delegated Act will be formally transmitted to the co-legislators for their scrutiny. The European Parliament and the Council will have four months to scrutinise the document and, should they find it necessary, to object to it. Once the scrutiny period is over and if neither of the co-legislators objects, the Act will enter into force and apply as of 1 January 2023.

So, there’s still hope for all those associations and NGOs that are already criticising the Act. According to them, “the proposal would technically allow new conventional gas plants to be considered sustainable investments, defeating the very purpose of the taxonomy to help investors decide what is green or what is greenwashing.”

Furthermore, the latest draft included a rule that obliged gas plants to gradually burn more low-carbon gases starting in 2026 and reaching 100 per cent of low-carbon gases by 2035. In today’s proposal, the 2026 date has disappeared and the requirement is only to burn 100 per cent low-carbon gases by 2035.

“The EU Taxonomy was envisioned as a vital tool to align financial flows with the Paris Agreement,” stated Laurence Tubiana, CEO of the European Climate Foundation. “Instead, Europe is undermining its climate leadership and lowering standards in the EU and beyond. When a gold standard does emerge elsewhere, this Taxonomy will be left behind.”

Also, Sandrine Dixson-Declève, a member of the European Commission’s advisory Platform on Sustainable Finance is afraid that this proposal could enhance greenwashing and crowd out real “green energy investments.”

“The proposal will create a two-speed model for the EU‘s environmental financing plans which will be insufficient for delivering the investment needs for the transformation of the economy,” she said. “Consequences will be felt well beyond the bloc itself, leading to significant impacts to global emission reduction trajectories.
 
Finally, William Todts, executive director of Transport & Environment (T&E) underlines the geopolitical risks.

“The Commission’s labelling of gas as green […] encourages a wave of investment in fossil gas, undermining the shift to clean energy and increasing our dependence on Russia,” he said.

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