On Wednesday, 6th July, the European Parliament voted not to object to the Commission’s Complementary Climate Delegated Act adding certain nuclear and gas activities to the activities covered by the EU Taxonomy.
This blog post will look in-depth at the Complementary Climate Delegated Act background, which activities will be covered, and what the inclusion of gas and nuclear in the taxonomy means in practice.
What is the Complementary Climate Delegated Act? Short background
The Commission proposed the inclusion of nuclear and gas at the end of 2021, and the first draft criteria were published on New Years' Eve. This proved divisive throughout the EU, drawing strong criticisms from opponents of nuclear and gas and backing from those who believe both are needed as transitional power sources. You can read more about the inclusion of natural gas in the EU Taxonomy in this blog, and of nuclear energy here.
In January, the Platform on Sustainable Finance released their response to the proposed criteria for nuclear and gas. The report was skeptical of the proposed technical screening criteria and critical of the suggestion to include these activities in the current form. The expert group suggested several areas in which criteria should be tightened.
In February, the Commission published a revised text for the Complementary Climate Delegated Act with updated criteria for specific nuclear and gas activities.
In June, two of the European Parliament's lead committees, the Environment (ENVI) and the Economic and Monetary Affairs committees (ECON), voted against the Complementary Delegated Act and the inclusion of nuclear and gas activities in the EU Taxonomy. These groups criticized imprecise and inconsistent criteria and slammed the current activities as being out of line with the aims of the taxonomy.
Bas Eickhout, Member of the European Parliament's ENVI and ECON committees and European Parliament rapporteur for the taxonomy regulation, commented:
"Today's vote shows that while many of the MEPs understand that nuclear power and gas are not sustainable, it is still a tight race. We need massive investment in the expansion of renewable energies, not the energies of the past. The Green Deal must not be used to finance energies that harm the environment and climate and pose unmanageable risks."
The resolution was set to be voted on during the July plenary.
What was Parliament’s vote and future steps?
In the plenary, an absolute majority of 353 votes (out of 705 MEPs) was needed for Parliament to veto the Commission's proposal.
278 MEPs voted in. favor of the resolution, 328 against and 33 abstained. If the Council does not object to the proposal by the 11th of July 2022, the Complementary Delegated Act will go forwards. It will enter into force and apply as of the 1st of January 2023.
What was the reaction to the vote and Complementary Delegated Act?
The decision to include some specific gas and nuclear activities in the EU Taxonomy has proved very divisive, with some countries and groups supporting the inclusion contingent on strict criteria and a transitional basis and others vehemently against it (with Austria pledging to sue the EU over the decision).
The European Commission has welcomed the result. The Commission highlights that the Complementary Climate Delegated Act recognizes their 'pragmatic and realistic approach in helping the many Member States on their transition path towards climate neutrality.' The Commission acknowledges that the Russian war on Ukraine adds urgency to accelerating the clean transition but argues that the REPowerEU Plan and the Complementary Delegated Act both reflect this reality and help reduce dependency on Russian gas. The Commission state that they are 'committed to using all available tools to move away from high carbon-emitting energy sources.
Mairead McGuinness, Commissioner in charge of Financial Services, Financial Stability, and Capital Markets Union, said:
"I welcome the outcome of this vote. The Complementary Delegated Act is a pragmatic proposal to ensure that private investments in gas and nuclear, needed for our energy transition, meet strict criteria. Investment in renewables is already prioritized in our Taxonomy - this is our future. Our proposal ensures transparency, so investors will know what they are investing in. Today brings much-needed clarity to the EU position."
While recognizing the main criticisms on including nuclear and gas and acknowledging the divided opinion and feedback received, the Commission states that they reject this criticism insofar it seems to be based on 'the assumption, which is contrary to the purpose of Article 10(2) of the Taxonomy Regulation, that only the technical screening criteria that ensure the most substantial contribution to the climate change mitigation objective and do no harm, or the least harm to the other environmental objectives, could be included in the Delegated Act'.
Under Article 10(2) and (3) of the Taxonomy Regulation, the Commission is required to set out technical screening criteria for economic activities for which, at present, there is no technologically and economically feasible low-carbon alternative and which would be necessary for the transition towards climate neutrality. The Commission also highlighted that it is useful to recall that what does not qualify as a sustainable economic activity under the EU Taxonomy is 'not by definition harmful.'
As outlined in the Taxonomy Regulation (Regulation 2020/852), the Taxonomy covers more than climate-neutral and renewable investments. It also covers economic activities that are not climate-neutral or renewable but could, under strict conditions and for a limited time, enable the transition towards a sustainable energy system, such as the economic activities in the natural gas and nuclear sector. They should not hamper the development of renewable sources through their inclusion and should not lead to a lock-in effect on fossil fuels.
Inclusion of the transitional activities of gas and nuclear is a small part of the EU Taxonomy, which is focused on renewable energies. The Taxonomy Regulation and Delegated Acts do not mandate any investments. Still, they are intended to help the financial market and investors identify, subject to strict conditions, relevant gas and nuclear-related activities needed for the transition of the Member States' energy systems towards climate neutrality in line with Union climate goals and commitments. Renewables will continue to be the focus for green investors and the creation of green financial products.
How are nuclear and gas activities included?
Gas and nuclear will now be included in the Taxonomy as transitional activities in a limited number of circumstances and under strict conditions. These activities are recognized as short- and medium-term steppingstones in the transition towards more renewables.
The Complementary Climate Delegated Act sets the technical screening criteria for some specific nuclear and gas activities. However, the Delegated Act provides a time-limited recognition of contribution to climate change mitigation for specific transitional activities regarding fossil gas activities.
The Complementary Climate Delegated Act will also amend the Taxonomy Disclosures Delegated Act by providing new specific disclosure requirements for the natural gas and nuclear energy sectors. This way, any taxonomy eligibility or alignment related to natural gas or nuclear energy will be distinguished in reporting from taxonomy eligibility or alignment related to other activities. This should enhance transparency and make taxonomy disclosures more straightforward.
Additionally, compliance with the technical screening criteria related to fossil gas activities should be verified by a third party that should have the resources and expertise to perform that verification, be independent to avoid any conflict of interest with the owner or the funder, and should not be involved in the development or operation of such fossil gas activities.
What are the eligible nuclear and gas activities?
Six new activities are included – three related to nuclear energy and three related to natural gas. These are:
4.26. Pre-commercial stages of advanced technologies to produce energy from nuclear processes with minimal waste from the fuel cycle
4.27. Construction and safe operation of new nuclear power plants for the generation of electricity or heat, including for hydrogen production, using the best available technologies
4.28. Electricity generation from nuclear energy in existing installations
4.29. Electricity generation from gaseous fossil fuels
4.30. High-efficiency co-generation of heat/cool and power from gaseous fossil fuels
4.31. Production of heat/cool from gaseous fossil fuels in an efficient district heating and cooling system
There are no activities relating to oil and gas exploration or extraction. The activities relate only to the generation of electricity or heat/cool. Oil and gas exploration and transportation cannot be considered sustainable. Many nuclear and gas activities may be eligible under these activities, but very few are expected to meet the strict technical screening criteria needed to be in alignment.
What technical screening criteria do these activities need to meet?
Nuclear energy activities:
The technical screening criteria for nuclear energy activities have two parts: general requirements focusing on Member State Compliance with relevant legislation and additional requirements relating to the performance of a specific project.
General requirements for nuclear projects:
The project must be located in a member state that has transposed and fulfills all Union legislation on nuclear power. The full criteria can be found here.
Additional criteria for a substantial contribution to climate change mitigation:
The activity aims at generating or generating electricity using nuclear energy. Life-cycle greenhouse gas (GHG) emissions from electricity generation from nuclear energy are below the threshold of 100 g CO2e/kWh.
Life-cycle GHG emission savings are calculated using Commission Recommendation 2013/179/EU or ISO 14067:2018 or ISO 14064-1:2018.
An independent third party verifies quantified life-cycle GHG emissions.
The additional criteria also include the requirement to do no significant harm to the other environmental objectives. For example, to do no significant harm to 'transition to a circular economy,' the project must have a plan to manage both non-radioactive and radioactive waste. It ensures maximal reuse or recycling of such waste at the end of life in accordance with the waste hierarchy, including through contractual agreements with waste management partners, the reflection in financial projections, or the official project documentation.
Natural gas activities:
Natural gas activities have two opportunities to make a substantial contribution to climate change mitigation:
The life-cycle GHG emissions from electricity generation using gaseous fossil fuels are lower than 100 g CO2e/kWh.
Where available, life-cycle GHG emissions are calculated based on project-specific data, using Recommendation 2013/179/EU or, alternatively, using ISO 14067:2018 or ISO 14064-1:2018.
An independent third party verifies quantified life-cycle GHG emissions.
Where facilities incorporate any form of abatement, including carbon capture or use of renewable or low-carbon gases, that abatement activity complies with the criteria set out in the relevant Section of this Annex, where applicable.
Where the CO2 that would otherwise be emitted from the electricity generation process is captured for underground storage, the CO2 is transported and stored underground, in accordance with the technical screening criteria set out in Sections 5.11 and 5.12 of this Annex.
1. Facilities for which the construction permit is granted by the 31st of December 2030 comply with all of the following:
(i) direct GHG emissions of the activity are lower than 270g CO2e/kWh of the output energy, or annual direct GHG emissions of the activity do not exceed an average of 550kgCO2e/kW of the facility’s capacity over 20 years;
(ii) the power to be replaced cannot be generated from renewable energy sources, based on a comparative assessment with the most cost-effective and technically feasible renewable alternative for the same capacity identified; the result of this comparative assessment is published and is subject to a stakeholder consultation;
(iii) the activity replaces an existing high emitting electricity generation activity that uses solid or liquid fossil fuels;
(iv) the newly installed production capacity does not exceed the capacity of the replaced facility by more than 15%;
(v) the facility is designed and constructed to use renewable and/or low-carbon gaseous fuels, and the switch to full use of renewable and/or low-carbon gaseous fuels takes place by the 31st of December 2035, with a commitment and verifiable plan approved by the management body of the undertaking;
(vi) the replacement leads to a reduction in emissions of at least 55% GHG over the lifetime of the newly installed production capacity;
(vii) where the activity takes place on the territory of a Member State in which coal is used for energy generation, that Member State has committed to phasing out the use of energy generation from coal and has reported this in its integrated national energy and climate plan referred to in Article 3 of Regulation (EU) 2018/1999 of the European Parliament and of the Council*8 or in another instrument.
An independent third party verifies compliance with point 1(b) criteria. The independent third-party verifier has the necessary resources and expertise to perform such verification. The independent third-party verifier does not have any conflict of interest with the owner or the funder and is not involved in the development or operation of the activity. The independent third-party verifier diligently carries out the verification of compliance with the technical screening criteria. In particular, every year, the independent third party publishes and transmits to the Commission a report:
( a )certifying the level of direct GHG emissions referred to in point 1(b)(i);
( b )where applicable, assessing whether annual direct GHG emissions of the activity are on a credible trajectory to comply with the average threshold over 20 years referred to in point 1(b)(i);
( c )assessing whether the activity is on a credible trajectory to comply with point 1(b)(v).
When undertaking the assessment referred to in point 1(b), the independent third-party verifier takes into account, in particular, the planned annual direct GHG emissions for each year of the trajectory realized direct yearly GHG emissions, planned and realized operating hours, and planned and realized the use of renewable or low carbon gases.
Based on the reports transmitted, the Commission may address an opinion to the relevant operators. The Commission shall consider those reports when performing the review referred to in Article 19(5) of Regulation (EU) 2020/852.
2. The activity meets either of the following criteria:
( a ) at construction, measurement equipment for monitoring physical emissions, such as those from methane leakage, is installed, or a leak detection and repair program is introduced;
( b ) at operation, physical measurement of emissions is reported, and the leak is eliminated.
3. Where the activity blends gaseous fossil fuels with gaseous or liquid biofuels, the agricultural biomass used for the production of the biofuels complies with the criteria laid down in Article 29, paragraphs 2 to 5, of Directive (EU) 2018/2001 while forest biomass complies with the criteria laid down in Article 29, paragraphs 6 and 7, of that Directive.
In practice, Option A is not possible without burning renewable fuel or performing carbon capture and storage.
For option B, the plant must have life-cycle GHG emissions under 270g CO2e/kWh. This requires an efficient plant as the current average emissions for a natural gas plant are much higher. At the same time, it should also not replace renewables, replace an existing high emitting electricity generation activity that uses solid or liquid fossil fuels, be designed and constructed to use renewable and/or low-carbon gaseous fuels with switch to full use of renewable and/or low-carbon gaseous fuels takes place by the 31st of December 2035.
Six specific nuclear energy and natural gas activities are set to come into force from January 2023 if the Council does not object by the 11th of July.
The activities only cover electricity generation or production of heat/cool, not exploration or extraction of fossil fuels.
Each activity has rigorous technical screening criteria to become aligned with the EU Taxonomy – the majority of projects that are eligible under these activities will not be aligned.
If an activity is aligned, it is not a 'sustainable' or 'green' activity per se but a 'transitional' activity that can make a short- to medium-term contribution to climate change mitigation by replacing solid fossil fuels or a best-performing transitional energy source for which there is no better alternative.
To be aligned, natural gas projects that do not have life-cycle GHG emissions under 100g CO2e/kWh must not replace renewables, must replace an existing high emitting electricity generation activity that uses solid or liquid fossil fuels, and should transition to full use of renewable and/or low-carbon gaseous fuels takes place by the 31st of December 2035.