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News 11 January 2022

End of the year twist brings gas and nuclear closer to inclusion in EU taxonomy

The much-debated issue of gas and nuclear criteria’s inclusion in the EU sustainable finance taxonomy saw decisive developments at the end of 2021 and is now reaching a tipping point, with the European Commission expected to propose rules by late January.

A classification system establishing a list of environmentally sustainable economic activities, the EU taxonomy aims to provide companies, investors and policymakers with appropriate definitions of which economic activities can be considered environmentally sustainable.

A draft of the Commission’s proposal – available here – intends to qualify nuclear power plant investments as green if the project has a plan, funds and a site to safely dispose of radioactive waste. Also, permits for new nuclear plants would need to be issued by 2045. According to the text, the lifetime extension of existing power plants could also be considered green “in view of the long lead times for investments in new nuclear generation capacity”, although these need to “include modifications and safety upgrades” to ensure they comply with “the highest achievable safety standards”.

Investments in natural gas power plants could be considered environmentally sustainable if they produce emissions below 270g of CO2 equivalent per kilowatt-hour, a limit requiring carbon capture and storage technologies or the addition of hydrogen and/or biogas to the fuel mix. Other conditions include obtaining construction permits by 31 December 2030 and the plants to be technically equipped to burn low-carbon gases.

The proposed text classifies both fossil gas and nuclear energy as “transitional” green activities, meaning that their use will be subject to the unavailability of technologically and economically feasible low-carbon alternatives. EU countries and a panel of expert advisors are currently examining the draft proposal, and feedback is expected by 21 January. Once published, the text can be vetoed by a majority of EU countries or by the European Parliament, but it cannot be amended.

The proposal has sparked widespread reactions among a diverse group of stakeholders. Several environmental groups have branded the proposal as “greenwashing”, and the decision is also coming as a blow to Member States phasing out nuclear plants, such as Germany and Belgium. On the other hand, a group of Member States, including France, Poland, and the Czech Republic, has been pushing for the inclusion of nuclear as a vital low-carbon technology to provide energy security to the green transition.

With the EU targets set to a 55% emissions reduction by 2030 and climate neutrality by 2050, the sustainable finance taxonomy will be a key tool to direct the necessary investments to reach these targets as, in simpler terms, it will be putting a different price tag on sustainable and non-sustainable assets.