EU sustainable finance taxonomy

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The EU Taxonomy is a tool to help investors understand whether an economic activity is environmentally sustainable, and to navigate the transition to a low-carbon economy. Setting a common language between investors, issuers, project promoters and policy makers, it helps investors to assess whether investments are meeting robust environmental standards and are consistent with high-level policy commitments such as the Paris Agreement on Climate Change[1].

In order to meet the EU’s climate and energy targets for 2030 and reach the objectives of the European Green Deal, it is fundamental to direct investments towards sustainable projects and activities. ... To achieve this, a common language and a clear definition of what is ‘sustainable’ is needed. This is why the action plan on financing sustainable growth called for the creation of a common classification system for sustainable economic activities, or an “EU taxonomy”.

The EU taxonomy is a classification system, establishing a list of environmentally sustainable economic activities. The EU taxonomy is an important enabler to scale up sustainable investment and to implement the European Green Deal. Notably, by providing appropriate definitions to companies, investors and policymakers on which economic activities can be considered environmentally sustainable, it is expected to create security for investors, protect private investors from greenwashing, help companies to plan the transition, mitigate market fragmentation and eventually help shift investments where they are most needed[2].

Natural gas

Inclusion of natural gas in the sustainable finance taxonomy threatens the credibility of EU energy policy Viite; 25 Mar 2021

The European Commission’s proposal for the sustainable finance taxonomy has been leaked. According to the proposal, natural gas plants would be classified as sustainable investments under certain conditions. The sustainable finance taxonomy is an important tool to avoid greenwashing, so that private and institutional investors can be confident of the environmental friendliness of the investments which have received the sustainability label.

Nuclear energy

EU experts to say nuclear power qualifies for green investment label: document Kate Abnett; Reuters; 27 Mar 2021

BRUSSELS (Reuters) - Experts tasked with assessing whether the European Union should label nuclear power as a green investment will say that the fuel qualifies as sustainable, according to a document reviewed by Reuters.

The European Commission is attempting to finish its sustainable finance taxonomy, which will decide which economic activities can be labelled as a sustainable investment in the EU, based on whether they meet strict environmental criteria.

Brussels’ expert advisors last year split over whether nuclear power deserved a green label, recognising that while it produces very low planet-warming CO2 emissions, more analysis was needed on the environmental impact of radioactive waste disposal.

The Commission asked the Joint Research Centre (JRC), its scientific expert arm, to report on the issue.

A draft of the JRC report, seen by Reuters and due to be published next week, said nuclear deserves a green label.

“The analyses did not reveal any science-based evidence that nuclear energy does more harm to human health or to the environment than other electricity production technologies,” it said.

Storage of nuclear waste in deep geologic formations is deemed “appropriate and safe”, it said, citing countries including France and Finland in the advanced stages of developing such sites.

Two expert committees will scrutinise the JRC’s findings for three months, before the Commission takes a final decision.

The Commission declined to comment on the draft document.

EU countries are split over nuclear. France, Hungary and five other countries this month urged the Commission to support nuclear in policies including the taxonomy.

Other states including Austria, and some environmental groups, oppose the fuel, pointing to its hazardous waste and the delays and spiralling costs of recent projects.

“The nuclear industry is desperate for funds as nuclear power is too expensive and new projects are evaporating,” said Greenpeace EU policy adviser Silvia Pastorelli.

EU countries are also split over how the taxonomy should treat investments in natural gas.

After a plan to exclude gas faced pushback from pro-gas countries, the Commission this month drafted plans to label some gas as sustainable - splintering countries between those who support the fuel as an alternative to more-polluting coal, and those who say new gas plants risk locking in emissions for decades, thwarting climate goals.

Commentary

David Hess Twitter; 5 Apr 2021

With the JRC report confirming nuclear sustainability and suitability for inclusion in #EUtaxonomy I think it’s time for a bit of a self-audit thread. IMHO I got a lot right and a little wrong a year and a half ago

Michael Liebreich Twitter; 2 Apr 2021

ICYMI because of the launch of Biden's $2tr Infrastructure Plan, the other big news this week was the JRC report on nuclear power which gave it the green light under Do No Significant Harm, clearing it for inclusion in the EU Sustainable Finance Taxonomy: https://ec.europa.eu/info/sites/info/files/business_economy_euro/banking_and_finance/documents/210329-jrc-report-nuclear-energy-assessment_en.pdf

It's not that nuclear power is a climate silver bullet, as silly ecomodernist bros endlessly and boringly claim. In fact, the current generation of nuclear plants has been tested pretty much to economic disruption, as I wrote in this piece in July 2019.

Liebreich: We Need To Talk About Nuclear Power

The point is that nuclear power is still the largest single producer of near zero-carbon electricity in the EU, responsible for over 25% of all power. At the very least, prolonging the life of existing, safe nuclear plants must be considered a sustainable activity. Eurostat Electricity production by source chart

However, the technical group behind the EU Sustainable Finance Taxonomy bottled it: the Germans, Austrians and Italians blocked nuclear from inclusion, the excuse being it would fail the Do No Significant Harm test. It was left to the Joint Research Centre to fill in the details.

A number of us put up a spirited defence of nuclear power's inclusion in the Taxonomy, led by @kirstygogan @QvistStaffan James Hansen bryworthington @bricelalonde @Gen_Atomic and countless others.

Letter: EU must include nuclear power in its list of sustainable sources From James E Hansen and others; Financial Times; 17 Dec 2019

So this week, the JRC unexpectedly ruled in favour of its inclusion - showing that persistence, allied with logic and data (and no doubt a lot of pressure from France, Poland and the other nuclear or would-be nuclear EU nations) pays off.

The JRC found: "The analyses did not reveal any science-based evidence that nuclear energy does more harm to human health or to the environment than other electricity production technologies already included in the Taxonomy as activities supporting climate change mitigation."

"Comparison of impacts of various electricity generation technologies on human health and the environment, based on recent Life Cycle Analyses, shows that impacts of #nuclear energy are mostly comparable with hydropower and renewables, with regard to non-radiological effects."

"With regard to potential radiological impacts on the environment and human health, analyses demonstrate that appropriate measures to prevent occurrence of potentially harmful impacts or mitigate their consequences can be implemented using existing technology at reasonable costs"

"There is broad scientific and technical consensus that disposal of high-level, long-lived radioactive waste in deep geologic formations is, at the state of today’s knowledge, considered an appropriate and safe means of isolating it from the biosphere for very long time scales."

"Provided that all industrial activities in the nuclear fuel cycle comply with regulatory frameworks and related Technical Screening Criteria, measures to control and prevent potentially harmful impacts on human health and the environment are in place to ensure very low impact."

Also: "Nuclear energy has very low NOx (nitrous oxides), SO2 (sulphur dioxide), PM (particulate matter) and NMVOC (non-methane volatile organic compounds) emissions. The values are comparable to or better than the corresponding emissions from the solar PV and wind energy chains."

With regard to acidification, eutrophication, water eco-toxicity, ozone depletion and photochemical oxidants, JRC found nuclear energy comparable to or better than solar PV and wind. "Land occupation of nuclear energy generation is significantly smaller than wind or solar PV."

Where the JRC urged caution was over the need to manage thermal pollution of freshwater bodies and water consumption: "very low for once-through cooling, using recirculation cooling, but evaporative cooling towers or pond cooling usually consume a significant amount of water."

On ionising radiation, the JRC found "The average annual exposure to a member of the public, due to effects attributable to nuclear energy based electricity production is about 0.2 mSv, ten thousand times less than the average annual dose due to natural background radiation."

This is pretty clear: "According to Life Cycle Impact Analysis studies analysed, the total impact on human health of both the radiological and non-radiological emissions from the #nuclear energy chain are comparable with the human health impact from offshore wind energy."

On accident risk, current Western Gen II nuclear plants have a fatality rate much smaller than that of any form of fossil fuel-based electricity technology, "comparable with hydropower in OECD countries and wind power (only solar power has significantly lower fatality rate)."

After Chernobyl, international and national efforts focused on plant designs that meet enhanced requirements for severe accident prevention and mitigation. "Fatality rates characterizing state-of-the art Gen III NPPs are the lowest of all electricity generation technologies."

What should happen following the JRC report is not just that #nuclear power must be included in the EU Sustainable Finance Taxonomy, but Belgium, Germany, Spain and Switzerland must put on hold their early nuclear shut-downs, which are climate crimes with no basis in science.

Now, please note: NONE OF THIS is an argument that building new nuclear plants makes economic sense. That is up to investors and policy-makers to decide. If you don't like nuclear power, that's fine. Just don't pretend it cannot safely produce large volumes of low-carbon power.

And finally, I really suggest you read the JRC report. It is a historic document, released during a historic week in a historic year. Happy Easter, Nuclear is Risen!

https://politico.eu/wp-content/uploads/2021/03/26/JRC-report_March-2021-clean-Copy-printed.pdf


Guy Scriven, Climate risk correspondent; Economist; 19 April 2021

The European Union’s plans for sustainable finance have run into trouble. As part of their Green Deal which was launched in December 2019, European leaders want to draw up a taxonomy of environmentally friendly activities. The idea is to answer a problem at the heart of sustainable finance: which activities are green and which are not?

In the first step a panel of experts assigned green metrics and thresholds to high-emitting economic activities. Car transport, for example, will be judged by carbon dioxide emissions per vehicle kilometre. Cars that emit below a certain level will qualify as green; others will not. By 2023, big companies and investors will have to disclose what share of their revenues and their investments meet these standards. The car standard, for instance, will apply broadly, to carmakers, taxi services and vehicle-hire companies. The idea is that this will channel more investment into green activities and put a halt to greenwashing. The taxonomy may also guide other EU regulation. There were hopes that the 30% of the EU’s €1.8trn ($2.2trn) covid-relief stimulus allocated to climate-friendly investments would follow the taxonomy’s definition of green.

A handful of other countries and regions have similar classifications, including China. Plenty of others, such as Canada and Mexico, are considering developing their own. But many hold high hopes for Europe’s taxonomy. They think it could be adopted as a template around the world. Other types of European rules, such as those pertaining to data privacy and to chemical safety, have spread beyond the EU’s borders. If that happens with green rules too, the EU’s taxonomy could reshape financial flows and accelerate the energy transition.

But the European Commission is struggling to pin down the details. This week it is due to publish a new version of the taxonomy, following a first draft in March 2020. But some contentious decisions look likely to be delayed. Documents leaked to the press suggest that the commission may not decide until later this year how to classify natural gas and nuclear power.

The cause of the delay is lobbying. Several countries, such as Poland and Bulgaria, are objecting to the first draft’s classification of gas-power plants as not sustainable. Other member states, including France and the Czech Republic, are also pushing for the taxonomy to recognise nuclear as sustainable. Meanwhile, many financial firms are pressing for the disclosure rules to be watered down. InfluenceMap, a non-profit group, found that many asset managers and banks that have made statements supporting the taxonomy nevertheless remain members of trade groups that lobby against it.

This highlights one of the problems with green classification systems. Interest groups will inevitably, and in some cases reasonably, push for favourable changes to the thresholds. This problem will become more prevalent as the corporate world grapples with decarbonisation. One solution is to have a variety of definitions of green, reducing the incentive to lobby. Mark Carney, a former governor of the Bank of England, has argued for such a “fifty shades of green” approach. Another approach is to scrap the classification system altogether and require far greater disclosure from corporations and financial firms on green metrics. Investors can then make up their own minds on what counts as sustainable.

If the decision is delayed, it is not clear that finding a consensus will be any easier later on. Debates about the role of these power sources in decarbonisation have been bubbling away for decades. The commission will ultimately have to upset some member states. And in doing so it will have to balance scientific rigour with political pragmatism. That will be a tricky balance to strike.

Footnotes and references

  1. EU Sustainable Finance Taxonomy Principles for Responsible Investment
  2. EU taxonomy for sustainable activities European Commission