The EU Taxonomy: Member States’ Interests Through the Lens of Sustainability

On 2 February 2022, the European Commission adopted a proposal for a delegated act in connection to Regulation to the EU Taxonomy for sustainable investments. This delegated act supplements the initial Regulation by specifying certain technical screening criteria, as well as requirements for the disclosure of investment information. According to the Commission’s proposal for the delegated act, investments in nuclear energy can be labelled as ‘sustainable,’ if a construction permit is given before 2046 and if the project receiving investments includes a permanent storage solution for radioactive waste by 2050. Investments in gas can also be labelled as ‘sustainable,’ if they meet a set of conditions. They must replace oil- or coal-powered power plants; they may not emit more than 270 grammes of CO2-equivalent per kWh; and must only use low-carbon gasses from 2035 onwards.

Political standpoints of EU Member States

France is currently holding the Presidency of the Council of the EU. France has a high level of political ambition, on which we have already written an analysis earlier: https://lykkeadvice.eu/opinions/frenchrotatingcouncilpresidency/. The French presidency aims to introduce no less than a new European economic growth model. This model will be based on a boost of intra-EU industrial production and support for innovative, high-tech, and digital products. The reshoring and expansion of production should reduce the EU’s economic dependence on third countries. Sustainability plays a key role in these ambitions, not only to stay on track to achieve the goals of the Paris Climate Agreement but also to ensure that increased intra-EU economic activity does not lead to increased energy dependency on third countries. France, currently getting about 70% of its energy supply from nuclear power, believes that investments in nuclear energy increase the EU’s energy sovereignty, contribute to reducing greenhouse gas emissions, and answer to future increases in the demand for electricity as a result of its suggested new economic growth model.

France finds Slovenia, Slovakia, Romania, Poland, Hungary, Finland, the Czech Republic, Croatia, and Bulgaria on its side. The newly formed government of the Netherlands recently shifted in favour of nuclear energy, too. The four coalition partners agreed to extend the lifetime of the country’s single operational nuclear power plant, while also giving a green light for the construction of two new nuclear power plants..

Germany used to oppose the inclusion of nuclear energy in favour of gas, but to fully understand Germany’s position, it is necessary to take a closer look at the internal dynamics of both older decisions in Germany and the new government. Former Chancellor Angela Merkel pushed for Germany to abandon nuclear power in 2011. Currently, Germany is getting 13,3% of their electricity supply from the currently three remaining power plants. Germany proposed to the EU that gas-fired power plants should be called sustainable investments, so long as they replace coal- or oil-fired power plants and remain under a certain threshold of CO2 emissions. Earlier this year, Chancellor Scholz signalled his willingness to reach a compromise with France. In exchange for the inclusion of gas, Scholz was ready to accept the inclusion of nuclear energy. However, Scholz’s coalition partner, the Greens, are unwilling to compromise on nuclear energy. The German Green Party was partly born out of the anti-nuclear energy movement, and it was involved in the decision of the Merkel government to phase out nuclear energy. At the same time, the German coalition appears to have recognised that recent developments have thwarted a growth in support for gas. The current prices for gas are relatively high, and geopolitical tensions between the West and Russia over Ukraine are forcing Germany to reconsider the opening of Nord Stream 2. Therefore, should Germany decide to reduce its dependency on gas as well, it is likely that it will become more reliant on existing fossil energy sources and imported French nuclear energy during its transition to a completely sustainable electricity system.

The biggest proponents for the inclusion of gas in the EU Taxonomy on sustainable investment are now the Eastern European Member States. Despite the economic and sustainability-related disadvantages of gas, support for labelling this source of energy as sustainable remains high within Europe. Member States with ageing nuclear, or coal- or oil-fired power plants will need to transition to forms of sustainable energy. In their eyes, gas is a solution for this transition. In Belgium, for instance, a preliminary decision was reached to shift away from nuclear energy. The country’s ability to close its two existing nuclear installations, however, depends on whether it will be able to switch on time to gas-fired electricity generation. Otherwise, shortages of electricity would arise. After debates between the anti-nuclear Flemish Greens and the pro-nuclear Walloon Liberals, the federal government agreed to strive for a closure of the nuclear power plants, and to keep the power plants open for longer if the situation required. Therefore, Belgium is favourable to including investments in gas in the EU Taxonomy.

Austria and Luxembourg are opposed to the inclusion of both nuclear energy and gas in the EU Taxonomy. They find other Member States, such as the Netherlands and Sweden, on their side when it comes to opposing gas. Austria and Luxembourg are threatening to start a court case against the Commission in an attempt to annul the inclusion of gas and nuclear energy in the EU Taxonomy on sustainable investments. Sceptical commentators would argue that these threats are a sign that the countries have been unable to build a sufficiently large alliance with other Member States to block the inclusion of gas and nuclear in the political process.

Understanding the debate: how can sustainability be perceived?

The disagreement between the Member States and other stakeholders on the question of whether investments in gas and nuclear energy can be deemed sustainable, suggests that each actor views sustainability in a different way. Indeed, defining what is sustainable involves the consideration of different aspects. Both gas and nuclear energy may, to some extent, be defined as more sustainable than certain alternatives, depending on how various factors are weighed. So, how might sustainability possibly be defined? How might the concept of sustainability have led to different evaluations of gas and nuclear energy?  

A common way to describe the concept of sustainability is to see it as a ‘bridge’ between current and future generations. In principle, most – if not all – economic activities aim to fulfil people’s needs, demands and desires for products, services, capital, and income. By contrast, sustainable economic activities do not only fulfil today’s needs, demands and desires, but also ensure that future generations will have the same ability to fulfil their own needs, demands and desires. This means that sustainable economic activities neither exhaust natural resources nor cause irreparable damage to the environment. After all, when natural resources are exhausted, future generations will no longer be able to use them for economically productive activities. When our planet’s environment is damaged, future generations will have to deal with more natural degradation and disasters. This would reduce their ability to fulfil their economic needs and demands.

Of course, sustainability is a normative and relative concept. Sustainability is normative, because sustainability is in part an answer to the question of how one should produce. Depending on one’s preferences, one may answer the question of ‘How should my company act?’ differently. Sustainability is relative because the sustainability of one product can be compared to another product. When comparing the resource use and environmental damage created by, say, a recycled and a non-recycled product, one is likely to conclude that the recycled product is more sustainable. Yet that does not mean it is one hundred per cent sustainable: environmental damage and the unsustainable use of natural resources are not always avoidable.

Can gas and nuclear therefore be defined as truly sustainable? To begin with gas: although it is more sustainable than other fossil fuels, it cannot be called a completely sustainable solution. The greenhouse gasses emitted by its combustion contribute to global warming. Climate change, and the associated increased risk of natural disasters, are likely to negatively affect the capacity of future generations to fulfil their aspirations, demands and necessities. Additionally, the exhaustion of this fossil resource reduces the range of economic opportunities for future generations. With less natural gas left, future generations may not be equally capable of using natural gas for future applications.

The exhaustion argument also applies to the question of nuclear energy. Once used, uranium becomes nuclear waste. As the quantity of unused uranium diminishes, With less unused uranium left, prices are bound to increase in the future. This reduces the freedom of future generations to use uranium in profitable economic activities. Nonetheless, the production of nuclear energy produces no greenhouse gasses. By saving emissions, the extent of global warming can be limited. By limiting global warming, planetary degradation and the expected increase in the frequency of natural disasters will remain limited, too. As a result, future generations will be able to enjoy more economic opportunities to fulfil their needs and aspirations. Therefore, at first sight, nuclear energy appears more sustainable than natural gas. One should take in mind, however, that while nuclear energy might contribute towards limiting the expected increase in climate change-related natural disasters, its existence creates the possibility of a man-made nuclear disaster. Furthermore, nuclear waste is considered by some to be an issue, as it creates a need for safe storage solutions. Lastly, nuclear power plants use water as a coolant. In arid areas, high levels of water consumption may lead to increased pressure on the local ecosystem. The possibility of nuclear disasters, nuclear waste and water consumption are often-heard arguments against labelling nuclear energy as sustainable.

Given the definition of sustainability above, both sides of the debate on gas and nuclear energy can be explained. The ‘pro-nuclear’ Member States argue that the sustainability benefits of nuclear energy outweigh its unsustainable downsides. These Member States highly value the ability of nuclear energy to reconcile today’s demands for electricity with a minimal amount of greenhouse gas emissions. The latter is necessary to limit future economic and environmental damage. According to these Member States, these benefits overshadow the supposed downsides, such as the risk of accidents, natural resource exhaustion and nuclear waste.

The ‘pro-gas’ Member States weigh the up- and downsides of nuclear energy differently. In their view, the negative effects of nuclear energy production on the economic opportunities of future generations are too large to justify in light of the alternatives. Hence, they prefer to fulfil the transition towards sustainable energy without nuclear energy. The transition to an economy powered by sustainable energy is a long, costly process. It cannot be accomplished by pressing a button. It requires not only the decommissioning of fossil fuel-fired power plants, but also the creation of new sources of sustainable energy. To bridge the time in between the closure of coal- and gas-fired power plants and the opening of sustainable alternatives, they argue, gas could be necessary as a ‘transition’ source of energy. Like any fossil fuel, gas contributes to climate change, and thus to a reduction of economic opportunities for future generations. However, its environmental damage is smaller compared to other fossil fuels, and thus, it is more sustainable. Or less unsustainable, depending on how you look at it.

Besides defining sustainability in different ways, one should also consider the dependency on the individual energy source especially in these times where energy prices are rising and it is one of the topics the electorates look closely at when evaluating a governments performance.

Now that we have gained a deeper understanding of the political positions regarding this debate on sustainability, what sustainability-related legislative developments do we expect to take place this year?

The Commission’s work programme for the first, second, third and fourth quarter of 2022 includes the following legislative initiatives:

Q1: revision of the EU rules on the sustainable use of pesticides

Q2: adoption of a Commission proposal on a non-legislative policy framework for bio-based, biodegradable, and compostable plastics

Q2: legislative review of the EU rules on fluorinated greenhouse gases

Q3: adoption of a Commission proposal on revised lists of surface and groundwater pollutants for integrated water management

Q3: legislative revision of the EU’s legislation on ambient air quality

Q4: adoption of a Commission proposal on the legislative EU framework for the harmonised measurement of transport and logistics emissions

Q4: legislative review of the CO2 emission standards for heavy-duty vehicles

Q4: adoption of a Commission proposal on the certification of carbon removal (e.g., through reforestation)

Q4: introduction of a package of measures to reduce the release of microplastics in the environment

Is your business involved in the green transition and looking to what opportunities the EU offer companies to help them? Is your business interested in getting to know the details and influence current and upcoming legislation? Lykke Advice can help you. Our team has years of experience in influencing the various EU institutions. Our services can support you in setting up and expanding your network in Brussels, to stay up to speed with future initiatives and be ahead of the curve. Feel free to reach out to us for more information.

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