The European Commission has asked advisors to rework the EU’s green finance taxonomy rules after member states rejected draft implementing guidelines, unhappy about the exclusion of gas as a “transition” activity towards net-zero emissions.
“On Wednesday, 20 January, we requested the Platform on Sustainable Finance to provide further input on the taxonomy framework,” said Aikaterini Apostola, an EU Commission spokesperson.
“They will provide this input by mid-March,” she told EURACTIV in emailed comments, explaining that the idea is to examine how the taxonomy “could facilitate all companies to transition toward improving their environmental performance.”
The exact date of publication of the new draft rules is still unclear but EURACTIV understands it is unlikely to happen before the end of March or early April.
The EU executive published its draft implementing rules – or delegated acts in EU jargon – on 20 November, touting the proposal as “the world’s first ‘green-list’” of economic activities that could drive billions of euros of private investments into the green economy.
The draft list defines CO2 emissions thresholds for a wide range of energy and climate mitigation technologies – from electric cars to building insulation materials – effectively defining what is “sustainable” and what is not.
But the rules were postponed after a group of ten EU states led by Poland threatened to veto the proposal, saying the suggested emissions thresholds for gas were too strict.
In a joint paper, the ten countries emphasised “the need to maintain the possibility of using gas as a transition fuel” and produce hydrogen from sources other than renewables, according to an EU diplomat with knowledge of Warsaw’s position.
Other critics said the definition of “sustainable” activities was too narrow and risked creating a “green bubble” that would see investors rushing to buy stocks from a handful of firms considered truly “sustainable” under EU rules.
A clearer definition of “transition” activities
The European Commission pushed back on those allegations. “The Taxonomy goes further in some cases than existing legislation and policy because it is necessary to do so,” said Mairead McGuiness, the EU commissioner responsible for financial services.
“The status quo is why we have a climate problem. Continuing on our current path will not do,” she told the European Parliament’s economic affairs committee earlier this week.
She admitted however that further clarity was needed on transition activities, saying “the Commission will consider recalibrating the technical screening criteria where serious concerns are raised”.
However, she warned there will be no turning back on the initial objectives of the taxonomy, saying: “we do not want to break the link with science or the alignment with Green Deal targets.”
At the request of the EU executive, the Commission advisory group is now working on a broader definition of “transition” activities.
“Companies and investors need more clarity on how to transition from activities causing significant harm to less harmful activities,” the Commission wrote in a note explaining its request to the advisory group.
“We know that financing the transition of sectors and enterprises towards the climate targets is essential,” the Commission added, recognising the “need to give reassurance that the taxonomy will not block access to finance for enterprises and sectors in transition towards our climate targets”.
Sandrine Dixson-Declève, an advisor sitting on the EU’s platform on sustainable finance, confirmed that the group has been tasked to address concerns that have emerged around transition issues.
“Now, that doesn’t mean watering down the taxonomy. But it does seek to potentially allow those industries that are truly trying to move in the right direction to be part of the taxonomy,” she told EURACTIV.
“How do you evaluate what transition means in reality? Is it a transition period, is it a link to investment plans and capital expenditure? We need to make those links, and make them clear, because clarity is the name of the game here — this is what both the financial and business community are asking for”.
In a statement, Nathan Fabian, the chair of the platform on sustainable finance, said the taxonomy can “do more to recognise efforts” made by big polluters to improve their environmental performance “and be more inclusive” towards those that “have limited options to meet the taxonomy criteria today.”
However, Dixson-Declève also insisted that the taxonomy delegated act must reward “best-in-class activities which contribute substantially to mitigation,” not incremental improvements on polluting activities.
On gas, European Commission vice-president Frans Timmermans has suggested that EU funding could be envisaged in cases where it replaces coal. Gas emits on average half of the emissions of coal when burned in power plants and is considered essential by countries like Poland and Germany in their transition away from coal-fired power generation.
Pascal Canfin, a French MEP who chairs the European Parliament’s powerful environment committee, says EU regulators must break away from the “black-and-white debate on gas” and recognise it as a “transition” technology under strict conditions.
“The question we should be asking ourselves is this: under what conditions can gas be considered as helping the transition when it replaces coal, while ensuring supply security?,” he told EURACTIV in an interview last year.
“This is a difficult question because we must avoid a ‘lock-in effect’ with natural gas over the long run. Even though natural gas allows CO2 savings in the short term, it remains a polluting fossil fuel, and becomes a trap in the long term: if you look over several decades, which is the usual lifespan of these types of projects, gas prevents the transition to low-carbon energies such as renewables.”
“Clear lobbying interests”
Dixson-Declève agrees. For her, the key question about the inclusion of gas in the taxonomy is to prevent a re-routing of investments away from renewables, which remain the EU’s top priority on clean energy.
“No one wants to create a situation where we would be pulling all of our investments into gas rather than renewables. Yes, gas might be better than coal but it does continue to pollute and impacts our greenhouse gas emissions. The fact is gas does not meet the principles of the Regulation to substantially contribute to mitigation,” she said.
Another essential feature, she said, is to keep the science-based targets as the foundation for whatever comes out from the green finance taxonomy in terms of implementing rules.
“Anything less would reduce the credibility and impact of the taxonomy,” she warned, pointing out that 90% of feedback received during the public consultation came from academia and scientific institutes saying the emission thresholds defined in the taxonomy cannot be watered down and need to be rooted in science-based targets.
Dixson-Declève also warned against corporate lobbying pressure exerted on decision-makers, saying any backtracking on the green finance taxonomy will affect the EU’s credibility as a global leader on green finance.
“Some voices have been very vocal, especially in some key countries. But overall the pushback has come from clear lobbying interests. And all the other stakeholders are saying we need to get on with this,” she said.
“The EU has been a global leader on green finance with the taxonomy. And now all of a sudden we’re backtracking because there is some very clear criticism from lobbyists, from big business who do not want to see a strong taxonomy.”
[Edited by Zoran Radosavljevic]