LEAK: EU considers expanding role of gas in green finance

Thermo electric power station in Bucharest, Romania. [ROBERT GHEMENT / EPA]

The European Commission is reconsidering the position of gas in its sustainable finance taxonomy by recognising the fossil fuel’s role in keeping the lights on during peak electricity demand, according to a leaked document seen by EURACTIV.

The EU executive is currently drafting a rulebook for sustainable finance, drawing up a complete set of criteria defining what can be considered as a “green” investment in the European Union.

The draft rules – or “delegated acts” in EU jargon – are an essential part of plans to bring private finance onboard with Europe’s transition to a zero carbon economy and prevent greenwashing from firms making false environmental claims.

However, environmental groups have voiced concern that a leaked proposal to expand the remit of fossil gas in the taxonomy could in itself amount to greenwashing.

“Stakeholder feedback has highlighted that gas-fired power generation plays an important role in guaranteeing the reliability of electricity supply by compensating for times of low generation by intermittent renewable energy generation (wind, solar) and contributing to grid stability,” the leaked proposal says.

To acknowledge this, the draft text puts forward two options:

  • The first recognises a role for “gaseous and liquid fuels” in providing a backup role for electricity generation, provided that “the direct greenhouse gas emissions of the activity are lower than 244gCO2e/kWh” or lifecycle emissions are “lower than 820 kgCO2e per kW of net installed capacity.”
  • The second is to create a new category recognising “the role of gas-fired electricity generation” in grid stability, provided that “the activity is associated with life-cycle greenhouse gas emissions that are lower than 820 kgCO2e per kW of net installed capacity per year.”

“A gas-fired power plant used specifically for maintaining the reliability of electricity supply by contributing to grid stability can be assumed to operate 2,000 hours per year or less,” says the draft text.

This would enable gas plants which operate for less than 2,000 hours a year to fit into a “transition” category in the sustainable finance taxonomy because they would “guarantee the reliability of electricity supply” until their operating hours eventually fall down to zero by 2050.

As a general rule, the European Commission never comments on leaked documents.

Natural gas is a 'caveat' in energy transition, EU admits

While fossil fuel projects are in theory excluded from EU funding, natural gas will continue to play a key role in replacing coal while helping to build a hydrogen infrastructure at least cost, EU climate chief Frans Timmermans said on Thursday (28 May).

Eurogas, a trade association, also refused to comment on the leak specifically but made a general comment backing the Commission’s proposed formulation.

“Gaseous fuels should be recognised for their ability to drive the transition in the coming years, including as a support for increasing volumes of intermittent renewable power,” said Laura Bosetti, a policy advisor at Eurogas.

“This could be reflected in the delegated act by establishing criteria for such enabling and transitional activities which could be classed as sustainable activities. As the gas sector decarbonises, these activities will move beyond ‘transition’ and ‘enabling’ activities to directly deliver on climate change mitigation,” she told EURACTIV.

But green activists say the change has nothing to do with renewables or grid stabilisation.

“It’s a loophole to label fossil fuel gas as ‘green’,” said Luca Bonaccorsi from green NGO Transport and Environment (T&E). “Some early estimates show that more than half of Europe’s gas might slip through the loophole and syphon funds meant to support the green transition.”

“It is greenwashing at its worst,” he said.

The European Commission has taken an ambivalent stance on gas. While insisting that fossil gas must be cut to zero by 2050, EU climate chief Frans Timmermans said it will continue to play a key role to replace coal in power generation and build a hydrogen infrastructure at least cost.

However, gas has so far remained outside the green finance taxonomy because of the carbon emissions associated with burning the fuel. That caused uproar among a group of ten EU member states, which threatened to veto the Commission’s green taxonomy rulebook, sending the EU executive back to the drawing board.

Brussels postponed green finance rules after 10 EU states wielded veto

The European Commission was forced to delay publication of detailed implementing rules on the EU’s sustainable finance taxonomy because of the sheer number of comments received and a threat of blockage from eastern and southern EU member states, EURACTIV can reveal.

Now, critics argue the Commission is going too far in its concessions to pro-gas EU member states.

The governments of Austria, Denmark, Ireland, Luxembourg and Spain have written to the Commission, expressing concern about “proposals coming from various member states” to increase the threshold for gas and asking the EU executive to keep fossil fuels out of the taxonomy.

“We welcome the efforts made in favour of a science based delegated act that reflects the actual contribution of each technology and sector to the energy transition and the achievement of a climate neutral EU by 2050 at the latest,” the letter reads.

The taxonomy should thus not incentivised any new investment into fossil fuel infrastructure that lead into a locking of carbon intensive assets,” it continues.

The Commission is “caving into the gas lobby”, said conservation group WWF, pointing out that security of electricity supply is already dealt with in EU policy by so-called “capacity mechanisms”.

With the updated criteria, up to half of all EU gas power plants could be labelled as a “transition activity,” said the WWF, citing data from the European Environment Agency on gas turbines and engines in 2019.

“This last minute proposal is scandalously opposed to climate science and would destroy the credibility of the whole EU taxonomy,” said Sebastien Godinot, an economist at WWF’s EU office.

“Beyond debasing the taxonomy, this very proposal is in complete contradiction with President von der Leyen’s ambitions for the European Green Deal and higher EU climate targets, and would discredit the global climate leadership of the EU,” Godinot said.

Critics also warn that the change could weaken the EU’s credibility on a global stage just after US climate envoy John Kerry’s visit to Brussels, and as the UK drafts its own taxonomy.

“The reputation of the Green Deal is at stake,” said Kate Levick, sustainable finance programme leader at E3G, a climate think tank. “If the EU were to move away from using science to define what investments are green, then the world would need to look to other international leaders – including the US and UK – to lead the way on the economic transition to meeting the goals of the Paris Agreement by mid-century,” Levick said.

“Blurring labels would undermine the taxonomy’s effectiveness as a compass for investors and risks locking in valuable private finance into high-risk solutions that are bad for the climate,” added Lisa Fischer, programme leader for energy infrastructure at E3G.

> Read the proposed draft below or download here.

Proposed text for gas in the taxonomy

[Edited by Frédéric Simon]

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