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Push back against gas in the EU taxonomy

The European Union is considering labelling natural gas as green. If the current taxonomy debate ends in favour of this fuel being classified as sustainable, some Member States, especially those still heavily based on coal will be licensed to use natural gas to meet the EU’s clean energy and climate objectives.

At the beginning of January 2022, the European Commission started consultations with experts on a draft text of a Taxonomy Complementary Delegated Act which covers gas and nuclear activities. The complementary act is expected to be adopted in January 2022 and seeks to establish technical screening criteria for nuclear and gas. These criteria will enable qualifying the two energy sources sustainable under very specific conditions within the taxonomy framework. For example, gas would be deemed green only if it comes from renewable sources or produces low emissions already by 2035.

The EU taxonomy is a science-based classification system that determines which activities contribute to the green transition and directs private investors towards environmentally sustainable projects that comply with the climate goals of the Paris Agreement and the European Green Deal.

Gas as a bridge fuel for some

Public officials in some Member States of the CEE region have expressed their support for declaring gas as a fuel that will help their countries reach the goals of the European Union’s climate neutrality. In his Twitter post, the Prime Minister of Slovakia, Eduard Heger welcomed the European Commission’s “fulfilled promise” to include “gas as a transit” in the taxonomy, together with nuclear as sustainable.

Little earlier, in December 2021, Hungary’ State Secretary for the Development of Circular Economy, Energy and Climate Policy of the Ministry for Innovation and Technology, Attila Steiner said at Budapest LNG Summit that Hungary would like to see a regulatory regime in the EU that provides an opportunity for investing in natural gas infrastructure and allows that the fuel “does not become a stranded asset.”

Expressing optimism about the upcoming additions in the EU taxonomy on gas as “transitional fuel”, he told the summit attendees that “in our region, natural gas plays a very important role that’s why it is an important element of Hungarian energy and climate strategy.”

Opposing voices

However, the recent leak of the Commission’s draft complementary delegated act has been followed by public outcry. Some stakeholders have raised flags against the concessions made in the Act by including fossil gas in the document.

The Institutional Investors Group on Climate Change (IIGCC) which counts over 370 members and has 50 trillion euros worth of assets under its management, published an open letter to EU Member State representatives and MEPs, calling for gas to be excluded from the EU Taxonomy.

The group declared that the inclusion of gas in the taxonomy means channelling capital towards activities not compatible with the EU’s commitment to climate neutrality by 2050.

Stephanie Pfeifer, CEO, IIGCC emphasised that “as the cornerstone of the EU’s sustainable finance agenda, the inclusion of gas would undermine the credibility of the taxonomy as well as the EU’s own commitment to climate neutrality by 2050. While there is a place for gas as a short-term bridge as part of a period of transition, it cannot honestly be classified as green.”

“For institutional investors, the inclusion of gas will limit their ability to align their portfolios and investment with net-zero. At a time when we need clarity, the inclusion of gas creates an unhelpful precedent and muddies the waters for investors looking to do the right thing”, she added.

Will Martindale, Group Head of Sustainability, at Cardano, sided with the opposers in the private sector and underscored that “many investors, both asset owners and asset managers, are trying to chart a course that supports a 1.5°C future. The inclusion of gas in the taxonomy risks undermining this ambition and creates an unnecessary headache for those looking to align their portfolios and investments with net-zero.”

“This is a landmark piece of legislation that sets the tone for the investment community globally. The ramifications of this must not be forgotten when policymakers make their final decision.”

The pushback came from other actors too: 226 signatories representing environmental organisations, scientists and financial institutions from across Europe and beyond addressed the top officials of the European Commission in an open letter, stating that introducing fossil gas in the EU taxonomy opposes climate science and goes against the recommendations of the Commission’s Technical Expert Group.

“Counting gas as green ignores the significant environmental effects of methane, whose impact on climate change is up to 84 times greater than CO2 in a 20-year timeframe. This means if only 3 per cent of the gas leaks, it can cause more warming than coal. Furthermore, many European gas companies do not properly measure methane emissions in their supply chain and are not seizing the available opportunities to reduce these emissions […]”, reads the letter.

On the other hand, the Commission’s taxonomy proposal reflects directives that it disclosed in mid-December. The directives aim at shaping conditions in which a shift from fossil gas to renewable and low-carbon gases will be possible. These low-carbon gases would include biomethane and hydrogen and lead to developing a hydrogen market as well as its infrastructure.

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