Nuclear and gas in EU taxonomy labeled as ‘greenwashing’

Russia’s invasion of Ukraine and EU plans to reduce its dependence on Russian fossil fuel imports have raised more questions about the fate of the European Commission’s controversial taxonomy proposal .

EU member states were already divided on the role of gas and nuclear in the energy transition and, therefore, in green finance – even before the war in Ukraine.

  • “The very idea of ​​creating a ‘gold standard’ is over,” said Dutch MEP Bas Eickhout (Picture: euranet_plus)

The reasons are obvious: gas projects still generate significant greenhouse gas emissions and there is no proven sustainable solution for nuclear waste.

Nevertheless, the decision to include gas and nuclear was partially justified on the grounds that it provided energy security for the 27-nation bloc.

Critics say the proposal undermines the credibility of the EU taxonomy as a scientific investment tool, lends credence to claims of greenwashing, creates confusion in financial markets and will lead to major delays in the much-needed transition away from fossil fuels.

The taxonomy does not outright prohibit investments in activities not included in the guidelines, but is designed to steer investments away from companies and investors who falsely claim to be environmentally sustainable.

The “gold standard” is gone

Experts have warned that the inclusion of natural gas (with a higher threshold than that recommended by experts) and nuclear energy in EU sustainable finance rules could lead to further greenwashing in financial markets .

Andreas Hoepner, a professor at University College Dublin who has been one of the leading academic opponents of taxonomy, describes it as possibly “the biggest greenwash of all time”.

The proposal, he said, ignores rigorous scientific analysis and undermines the credibility of the EU’s entire sustainable funding scheme. And it could even lead to an increase in emissions incompatible with the Fit-for-55 package and EU climate goals.

The rules aimed to create common standards for classifying taxonomy-aligned economic activities as environmentally sustainable.

But Laurence Tubiana, one of the main architects of the 2015 Paris agreement, warned that investors could look elsewhere for “more reliable scientific criteria” to classify their investments.

“The very idea of ​​creating a ‘gold standard’ disappeared” with the inclusion of gas and nuclear energy in the EU taxonomy, Dutch MEP Bas Eickhout told EUobserver in an interview.

With the credibility of the whole taxonomy hanging by a thread, Eickhout warned of the impact on green bonds, given that funds raised from such bonds could be used for gas and nuclear projects. The transition to net-zero emissions will require massive investment, but there is not enough money currently being spent on projects ensuring climate neutrality, he said.

“If we are now lowering the standard in order to raise the money, then we are still wrong,” he said, because the taxonomy needs to be “a credible standard” to achieve its goal.

Natural gas has been tentatively identified by Brussels as a transitional fuel until renewables and storage capacity can operate at sufficient scale, but many have questioned the financial reasons for its inclusion in the green taxonomy. .

Overall, fossil fuel investments are doing well in financial markets, with gas projects seeing a significant increase in profitability in recent years.

And experts say that effectively excluding gas projects from the EU taxonomy would not have created a risk of underinvestment in gas production as a transitional energy source.

Conversely, an analysis of the international community EDHEC Business School found that its inclusion in the financial guidelines can create price distortions and an incentive to limit future investments in renewable energy.

Investments for a gas-fired power plant are estimated to take more than a decade to pay off, and gas plans tend to operate for an average of 25-30 years in Europe. This raises concerns among experts about the taxonomy leading to a delay in the transition away from fossil fuels.

Ursula Woodburn of the UK’s cross-industry group of business leaders, CLG Europe, said this transition is supported by many companies who see the benefits it offers.

The war in Ukraine shows how geopolitical tensions can cause “massive disruptions” in a fossil fuel-based energy system, she warns.

“The EU should quickly move away from fossil fuels, fossil fuel investments and subsidies to ensure climate stability,” she added.

The decision to include gas and nuclear in the taxonomy has been criticized as the result of a long and highly politicized process.

But the European Commission has also been criticized for looking at the tool only through a national lens – despite its impact beyond EU borders.

This article first appeared in EUobserver’s magazine, War, peace and green economywhich you can now read in full online.