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10th May 2022

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Brussels faces backlash over delay to decision on whether gas is green

The European Commission is facing a political and scientific backlash over its decision to delay part of its landmark classification system for investors in an attempt to resolve a dispute about how to label energy sources such as natural gas and nuclear power.

Brussels on Wednesday published a new draft of its proposals on how to classify industries that generate 80 per cent of emissions in Europe. The green labelling system, known as the taxonomy for sustainable finance, will cover 40 per cent of the EU economy.

However, the text leaves out technologies such as gas and nuclear, for which Brussels will propose a separate classification system after the summer.

The delay and the inclusion of forestry and bioenergy as forms of green economic activity were fiercely criticised by expert groups, prompting a walkout from environmental NGOs and consumer bodies which have been involved in the two-year consultation process.

Mairead McGuinness, EU commissioner for financial services, said the commission had tried to balance science on climate change with “the real world” and insisted that the rules would continually evolve along with the scientific evidence.

After meetings with McGuinness, groups including Transport & Environment, the World Wildlife Fund and the European Consumer Group said they were stepping down from the EU’s sustainable finance platform in protest.

“The taxonomy law was supposed to be the gold standard of sustainable finance. But the result has been the greenwashing of dirty cargo ships, gas buses, and logging and burning trees,” said Luca Bonaccorsi, director of sustainable finance at Transport & Environment.

Sandrine Dixson-Declève, co-president of the Club of Rome and a member of the EU’s expert group, said: “Unfortunately this process got out of control due to intense pressure from national interests, including member state governments and MEPs.”

The taxonomy was designed as a science-led exercise to guide investors and make the EU the first major regulator to set the rules for what counts as a truly green investment.

But the project has been beset by delays and political controversy. Earlier this year, some EU governments threatened to veto the draft rules unless the commission gave more favourable treatment to lower emissions technologies such as natural gas.

Germany and countries in eastern Europe see gas as a crucial part of their transition from fossil fuels, which will help the EU meet its emissions goals by 2030. France and the Czech Republic have also demanded that nuclear technology is not penalised under the system.

The decision to postpone the question of whether gas and nuclear should be included is designed to stave off a political backlash from governments and MEPs who have the power to reject the text if they can find a qualified majority to oppose the measures.

Brussels plans to issue a separate legal document covering the treatment of transitional technologies such as natural gas later this year. The commission will consider “the merits of a sunset clause” limiting their use, the draft text said.

Valdis Dombrovskis, executive vice-president of the commission, said gas would be subject to “strict legal limits” in line with scientific advice on emissions.

“Further work is needed on gas. There are quite clear limitations in the taxonomy so we need to find a way forward while recognising the role of gas in switching from oil and coal,” he said.

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Six EU countries, including Poland, Bulgaria and the Czech Republic, on Tuesday signed a joint letter to the commission saying that they opposed the carve-out of nuclear and gas from the proposals and demanding their inclusion in the main taxonomy document.

“It would be wrong to mark nuclear and gas for a transitional period of time clearly as not green and it will substantially harm countries with a strong share of industry in their economy,” said the letter.

Countries including Finland and Sweden have pushed for the recognition of forestry, which forms a major source of their bioenergy fuels.

“The proposed rules for sectors like forestry and bioenergy will actively mislead people into making unsustainable investments,” said Monique Goyens, head of the European Consumer Organisation. “As it stands, the taxonomy is set to become little more than a greenwashing tool.”

Christian Kopf, head of fixed income at Union Investment, said asset managers wanted clarity on the taxonomy as they developed ESG investment products. “It’s important that the credibility of the taxonomy is preserved and that lobbying by industry groups is limited,” he said, adding that the EU rules were increasingly seen as a global standard. 

Eoin Murray, head of international investment at Federated Hermes, said the taxonomy “could have been a landmark piece of legislation” but instead “feels like a missed opportunity”.

The publication of the taxonomy came on the same day that EU negotiators agreed a climate law to cut the bloc’s emissions by 55 per cent by 2030 — a milestone that will help the EU present a united front at the US-led global climate summit on Thursday.

Additional reporting by Joshua Oliver

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2021-04-21 17:26:29

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