Investors warn ‘green’ label for gas undermines EU taxonomy

An exterior view of the Centrale Drogenbos natural gas electricity power plant with its illuminated cooling tower, in Drogenbos, near Brussels, Belgium [Stephanie Lecocq / EPA-EFE]

Investor groups have criticised the European Commission’s plan to label fossil gas projects as “green” under the EU sustainable finance taxonomy, saying it undermines the investment guide’s purpose of promoting climate-friendly activities.

Fossil gas should not be considered green and labelling it as such will confuse investors, warn the Institutional Investors Group on Climate Change (IIGCC), a powerful coalition of pension funds and asset managers, and Eurosif, a European organisation that promotes sustainable investments.

“It is disappointing that natural gas has been included within the scope of the taxonomy. The taxonomy – which is meant to be the cornerstone of the EU’s sustainable finance agenda – now risks undermining a credible pathway to net zero,” said Stephanie Pfeifer the CEO of IIGCC, whose members manage €50 trillion worth of assets.

“For institutional investors, the inclusion of natural gas sends mixed messages and will negatively impact their ability to align their portfolios with net zero,” she added.

Meanwhile, Eurosif warns that the inclusion of both fossil gas and nuclear energy in the taxonomy will most likely “adversely impact both the credibility and usefulness of the framework for sustainable investors”.

Both groups warn that giving the green label to fossil gas will leave investors without a credible guide on sustainable investments – the very role the taxonomy was created to perform.

“Investors may now need to consider going further than the taxonomy requires in order to align with net zero. We will work with them on what is required for a credible transition plan via the Net Zero Investment Framework,” Pfeifer said.

Investors worth €50 trillion call on EU to exclude gas from green finance taxonomy

Fossil gas should be excluded from Europe’s list of sustainable investments, according to a group of climate investors with €50 trillion worth of assets. The group added it was still considering whether to consider nuclear as a sustainable investment.

EIB differs on nuclear and gas lending

Critics of the proposal are now warning that investors will be caught between the criteria of the European Investment Bank (EIB) and the lower standards set by the European Commission.

“The investor community should not be put in a place where some will decide to follow stronger standards such as that used by the European Investment Bank,” said Sandrine Dixson-Declève, co-president of the Club of Rome and member of the European Commission’s advisory Platform on Sustainable Finance.

“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 warned.

Under the EIB’s climate policy, it will only invest in gas projects that release less than 250g CO2e/kWh. And it only considers projects to have a substantial contribution to tackling climate change if they release less than 100g CO2e/kWh. This is considerably more ambitious than the Commission’s proposal.

And, while the EIB is currently rolling out the criteria in the first delegated act of the taxonomy,  it may not take on the criteria for gas. In a press conference last week, President of the EIB Werner Hoyer, effectively said his bank would stick to its own criteria rather than adopting the weaker taxonomy proposal around gas.

“Our job is to take care of the long-term solutions for the European Union and our partners abroad. So therefore, I don’t see a change in our energy lending policy in the years to come,” he said.

Asked whether the EIB would change raise its emissions thresholds for fossil gas investments, Hoyer replied that there was “no reason to think about it”.

Mairead McGuiness, the EU’s financial services commissioner, acknowledged that the European Commission and the EIB would now differ when it comes to nuclear and gas.

“The EIB has its own lending policies, and our taxonomy doesn’t change that,” McGuiness said at a press briefing on Wednesday (2 February). “They will continue to follow their own lending guidelines in relation to both gas and nuclear. And I think that there shouldn’t be a confusion between the work that we’re doing and the work of the EIB.”

EU puts green label for nuclear and gas officially on the table

The European Commission on Wednesday (2 February) proposed including nuclear and gas power in the bloc’s sustainable finance taxonomy, recognising their contribution to the EU’s 2050 climate neutrality goal “subject to clear limits and phase out periods”.

Return to greenwashing

The taxonomy is touted by the European Commission as a way to tackle greenwashing, where companies claim to spend money on sustainable activities that are actually useless for the green transition or even damaging to the environment.

But many are now doubting its ability to serve this purpose.

“This is an act of deception to European investors and citizens,” said Dixson-Declève. “Our remit was to stop greenwashing. Not only does this proposal enhance greenwashing, it crowds out real ‘green’ energy investments.”

The conflict between including certain technologies and preventing greenwashing is even found in the text itself.

Fossil gas gets the green label if, among other requirements, it produces less than 270g CO2e/kWh or does not exceed an average of 550kgCO2e/kW over 20 years. But any power plant that produces over 270g CO2e/kWh is also considered to cause “significant harm” to climate change mitigation under already-adopted parts of the taxonomy, creating a potential conflict.

Investors call for “amber” category

The Club of Rome also argues that both nuclear energy and fossil gas should be in an “amber” category, as suggested by the Sustainable Finance Platform, which was set up by the European Commission to advise on the taxonomy.

But this intermediate “amber” category in the taxonomy was rejected after consultations with EU member states because it would have taken too much time to agree and implement, an official explained.

“We got a clear political signal that there was no traction for this legislation,” the EU official said, adding: “We are operating in a political environment and therefore the political decision was made to include the activities in the taxonomy as we’re doing today.”

According to Dixson-Declève, this was a rushed decision. “The European Commission has tried to cut corners, under the direction of the biggest EU member states, by forcing gas and nuclear through the ‘green’ taxonomy and not adopting an ‘amber’ category. In doing so, it has undermined its own European Green Deal and Fit for 55 package,” she said, referring to the EU’s 2030 climate goals.

Almost all of the platform’s suggestions were ignored by the European Commission, leaving members frustrated.

In his reaction to the Commission’s proposal, the chair of the platform, Nathan Fabian, wrote that “the evident departure from a science-based approach to determining when transitioning energy activities do or do not make a substantial contribution to climate change mitigation targets, risks weakening the integrity of sustainable finance”.

The European Commission, however, defended the inclusion of nuclear energy and fossil gas. In a press conference following the announcement, the EU’s financial services commissioner, Mairead McGuinness, emphasised that there were new disclosure rules and “clear limits and phase out periods” for both technologies.

“We’re adding rules on disclosure in the interest of transparency. Investors will be able to see whether a potential investment includes nuclear or gas activities. And they will remain free to choose if they want to invest in nuclear or gas or not,” she stressed.

The decision “may be imperfect, but it is a real solution – it moves us further towards our ultimate goal of carbon neutrality,” she told journalists.

McGuiness also invited the investment community to look at the Commission’s proposal “in a more settled atmosphere” after analysing the detail.

“There has to be considered view as to whether this instrument will be used, how it will be used, and that is a choice. A voluntary choice by investors.”

'Imperfect but real solution': Brussels weathers backlash over gas and nuclear

The European Commission on Wednesday (2 February) defied angry dissent from EU governments and protests from green campaigners to give a sustainable finance label to investments in both gas and nuclear power.

[Edited by Frédéric Simon]

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