Few topics in the sustainable bond market are discussed as heatedly and contentiously as the European Union’s Sustainable Finance Taxonomy and the European Green Bond Standard. Key actions from the European Commission’s 2018 Action Plan on Financing Sustainable Growth and part of the European Green Deal, the initiatives have been widely criticized by investors and issuers.

The EU Taxonomy is a classification system that provides businesses, investors and policy makers with appropriate definitions for environmentally sustainable economic activities. The European Green Bond Standard is a voluntary measure to help increase the ambition of green bonds. It has two main objectives: to support the growth of the green bond segment and to promote its transparency and integrity.

The big challenge for the EU taxonomy is that it must be both ambitious and achievable. The framework is meant to change over time, but many issuers and investors complain that the taxonomy could become too complex. While the technical selection criteria for climate change mitigation are quite straightforward (the focus is exclusively on carbon dioxide emissions), the criteria for the remaining four environmental objectives are more complex as they cannot be reduced to a single indicator. Moreover, it is limited in the economic activities covered.

Too much complexity could dissuade project promoters from (re)financing sustainably. Instead, they will most likely opt for traditional borrowing. This could lead to sustainability-focused investors having fewer investment options to choose from.

Other criticisms relate to overly demanding general criteria and overly restrictive criteria concerning the transition activities of hard-to-reduce sectors which have a negative impact on competitiveness. Other critics have denounced disproportionate administrative burden, lack of regional context, and the need for consistent taxonomic alignment at the entity and product level.

However, some critics accuse the taxonomy of being too lax. One complaint is that the discussion of what is considered green has shifted from a scientific perspective to a political one. Many people see the inclusion of nuclear and natural gas in the taxonomy as a setback. While natural gas can be considered a transition technology because it produces fewer emissions than coal, nuclear power – a high-risk technology with a long transition period – is condemned by many as unsuitable for a future. sustainable.

The success of the European Green Bond Standard is closely linked to the evolution of the EU taxonomy, which will be crucial in gaining acceptance of the standard by sustainability-focused investors.

Many issuers assume that due to demanding thresholds for certain activities, few issuers will initially be able to demonstrate 100% alignment with the European Green Bond Standard. This is especially true for past activities and assets.

Calls by some market players to lower the alignment thresholds have so far gone unheeded. For this reason, many issuers still structure their frameworks in accordance with the International Capital Market Association’s Green Bond Principles. They recognize the need for taxonomy and attempt to identify the positive contribution of revenue use to environmental goals. There will most likely be coexistence between ICMA’s GBP-aligned green bonds and European green bonds for some time to come.

Acceptance of the EU taxonomy will involve carrying out genuine sustainable activities or initiating transitional activities. Particular attention must be given to the latter, as we cannot implement the global sustainability agenda by painting already green activities a greener hue. Rather, we must allow brown activities to transition to light brown or light green. This has been evident in the market for some time, as more and more asset managers are living the new credo: “transform instead of divest”.

Many investors will take a pragmatic approach to critical activities. For example, sustainability-focused investors who have not yet invested in nuclear energy will not do so in the future, whether the taxonomy allows it or not. Therefore, the taxonomy may be “political greenwashing” in some places, but not from an investor perspective.

In the interest of feasibility and acceptance, the EU should ensure that the taxonomy does not become a bureaucratic hurdle for financial market participants. Some guidance is needed, but excessive regulation would be detrimental to the objective of growing the sustainable finance market.

European sovereigns, sub-sovereigns, supranationals and agencies are likely to align with the European Green Bond Standard as a result of political pressure. Since investors will also be benchmarked by the taxonomic alignment ratio in the future, they are likely to prefer European green bonds over non-European green bonds. Moreover, if the European Central Bank’s recommendation that the EU should make its green bond standard mandatory within five years becomes a reality, no market player should be able to escape it.

Marcus Pratsch is Head of Sustainability Bonds and Finance, DZ BANK AG.

Five energy groups are suing four European governments for nearly 4 billion euros for blocking coal, oil and gas projects amid growing concerns about climate change, using a secret process based on an international climate change treaty. ‘energy.

Energy and exploration companies, including RWE and Uniper in Germany and Rockhopper in the UK, have sued the Netherlands, Italy, Poland and Slovenia under the Charter Treaty energy (TCE).

Active cases revolve around the decisions of the governments concerned to order the closure of coal-fired power plants, to prevent the development of specific projects or to require an environmental impact assessment.

RWE said it endorsed “the importance of the energy transition” but “does not consider it fair” that the Dutch coal phase-out “does not include compensation for the disruption of corporate ownership”.

Uniper said its “first concern” was to “achieve legal clarity” over the early shutdown of its coal plant without adequate compensation. Rockhopper declined to comment.

The ECT, developed after the Cold War and signed by more than 50 countries, was intended to protect international energy investments by foreign companies or individuals. That protection extends to fossil fuel projects, and climate change experts say it discourages governments from developing policies to curb industries that cause global warming because of the risk of lawsuits.

The various companies are seeking compensation estimated at 3.7 billion euros in the five cases, according to documents reviewed by the Financial Times. A sixth case, for an unknown amount, was brought against Romania by the Austrian company Petrochemical Holding concerning an oil development contract.

Petrochemical Holding legal counsel Andrew Savage, a partner at global law firm McDermott Will & Emery, warned of Romania’s “stated desire to move away from fossil fuels. . . may give rise to further claims.

Climate experts sounded the alarm that the treaty was becoming an obstacle to tackling projects that lead to global warming in an open letter more than two years ago.

Dmitry Evseev, a partner at law firm Arnold & Porter, agreed that the lawsuit “could have a chilling effect, no doubt, on all sorts of policy changes”. “Investor-state arbitration is the biggest stick investors have,” he said.

Germany’s finance ministry warned the chancellor’s office in 2019 that using the regulations to phase out coal would create an “increased risk of litigation, especially international ECT-based litigation”, according to an email. seen by the FT.

When the Dutch Minister and State Secretary for Economic Affairs and Climate were asked last year about accelerating the dismantling of coal and gas-fired power plants, they said “a new intervention in the coal sector entails major legal risks in the context of pending claims”.

One of the lawyers representing Italy in the case brought by Rockhopper – after the state refused to allow development of the Ombrina Mare oil field in the Adriatic Sea – said a defeat would be “extremely serious”, because it would give other companies “the desire to imitate Rockhopper”.

The active cases add to the increase in global climate litigation involving both the public and private sectors. But ECT cases are often shrouded in secrecy, with documents rarely made public. The secretariat’s website notes that “certain awards (and even the existence of certain procedures) remain confidential”.

The cost of bringing or defending a treaty-related case can run into the millions, with some claims being funded by specialist litigation funders in exchange for a share of damages. The compensation sought by investors may include an estimate of future loss of profit.

A 2021 report by the International Institute for Sustainable Development found that “the majority of known fossil fuels [investor-state dispute] cases are decided in favor of the investors”.

Talks to “modernize” the treaty are ongoing. The European Commission has submitted a proposal that would see the phasing out of protections for fossil fuel investments, which so far has been rejected by other signatory countries.

EU member states that remain dependent on fossil fuels, including Poland, are pushing the Commission to leave the treaty if the debate is not resolved. “The EU must have a well-prepared set of options for a possible EU exit from the ECT,” Poland’s Climate and Environment Minister Michał Kurtyka wrote in a letter seen by the FT. and sent to EU climate policy chief Frans. Timmermans last year.

However, countries that withdraw from the treaty remain bound by it for 20 years under the agreement’s ‘sunset clause’.

[By: International Windship Association]

Following the very well-received Wind Propulsion Forum at One Ocean Summit this morning, International Windship Association Secretary General Gavin Allwright made a number of recommendations and a call to action for policy makers and world leaders attending the summit. The key elements of this statement are:

“During the forum we have already heard calls for an appropriate level of carbon pricing and levies to be introduced to the shipping industry, these are very clear so I won’t take the time to repeat them now.

Crucially, we need to fully integrate the potential of wind-powered ships into international and European institutions, to further improve ocean protection and urgently meet decarbonisation commitments by adopting a “resource-centric approach”. propulsion or energy rather than a narrow approach on fuel”. centred’.

To this end, actively support the development of the texts of the International Maritime Organization so that wind propulsion is considered in the same way as alternative fuels and is placed at the heart of the decarbonization trajectory of maritime transport. Also, promote direct wind energy for maritime transport in European policies dedicated to the greening of the fleet, including in proposals currently under discussion such as Fuel EU Maritime and the wider “Fit 55” programme.

Another key recommendation is concrete, that of deploying a fleet of wind-powered vessels in island territories that are extremely vulnerable to climate change and which will face the challenges of the availability and cost of alternative fuels – in particular the islands of the Pacific, but also the territories of the Caribbean and many other less developed regions and small island developing states. This fleet will be a strong factor in building resilience in these regions and will be a symbol of international solidarity and commitment to a “just transition” in the ocean sphere.

Your national, regional and international support for the research, development and deployment of direct wind propulsion systems and ships will send a clear and unequivocal message that urgent and deep reductions in ship emissions are not only possible this decade, but affordable and hugely beneficial to the blue economy and ocean environment.
As we call it, a Win, Win, Wind situation for all!

The three-day One Ocean Summit will take place from February 9-11 and was convened by the French President as part of the French Presidency of the Council of the European Union, with the support of the United Nations.

The products and services described in this press release are not endorsed by The Maritime Executive.

Massive efforts are needed to urgently mitigate greenhouse gas emissions and, in parallel, support adaptation measures for those already affected by its negative impact.

On the occasion of the EU-US Energy Council in February 2022, it is useful to recall the dramatic impact of the European recovery program – the Marshall Plan – on the reconstruction of Europe; that the financial, technical, and political support of the United States to former friends and foes in Europe was essential to restore democracy and growth in a Europe devastated by internal conflict and war. Seventy-five years after Secretary of State George Marshall announced the plan, and 50 years after the creation of the German Marshall Fund to strengthen transatlantic and international cooperation, the time has come to reflect on how European powers and can work together globally to address climate change immediately, adequately and innovatively to ensure global prosperity and democracy. Cooperation of transatlantic powers to transfer regulatory best practices and new technologies in the clean energy transition can help all global partners achieve net zero emissions by 2050. In addition, technical and financial assistance to those suffering the more of the consequences of climate change must be provided to help them take urgent adaptation and protection measures.

Now is the time to reflect on how European and American powers can work together globally to tackle climate change immediately, adequately and innovatively to ensure global prosperity and democracy.

What would a “modern Marshall Plan” for the energy transition of the transatlantic partners look like?

Energetic efficiency

Recognizing that energy efficiency should be a first principle of all energy systems and in all states, the United States and the European Union can cooperate and lead new digital and other innovative technologies to reduce energy consumption. energy, reduce greenhouse gas emissions and improve energy efficiency. As a principle to be applied worldwide, they can provide know-how to others to improve the efficiency of energy consumption.

Electricity

“Greening the Grid” is an important priority for both the US and the EU. Cooperation on better regulation for the integration of renewable energy sources into electricity networks should enable and encourage better digital management of networks in order to guarantee an efficient match between demand and supply of renewable energies. In addition, better interconnections (new and more extensive infrastructure to extend and diversify supply sources and respond to demand) will give others a boost to exhibit technical efficiencies that help increase the level of energies renewables in electricity supply.

Increased investment in renewable electricity sources from private and public funds will help increase supply and reduce costs for consumers.

Hydrogen

After better management of electricity networks and an increased supply of renewable energy, “surplus” renewable electricity can be used to generate clean hydrogen. The US and EU have already begun to cooperate bilaterally and multilaterally to advance a hydrogen market and need new regulatory, infrastructure and investment momentum to ensure that this component of the energy mix is ​​in place and operational on a large scale. Hydrogen storage can be used to offset the variability of renewable electricity.

With respect to hydrogen generated from natural gas, better and more efficient carbon capture and storage technologies at lower cost should be promoted to ensure that ‘blue’ hydrogen can be scaled up as a transition in parallel with the development of “green” hydrogen. . The cost-benefit analysis will depend to a large extent on market prices for natural gas; his availability; costs of carbon capture, use and sequestration (CCUS); and alternative sources for hydrogen production. Nevertheless, for many countries, hydrogen will be an important part of the future energy mix and efforts to encourage and contribute to regulatory and technological improvements can advance this development.

Natural gas

Natural gas will continue to play a key role as a transition fuel in the clean energy future. Replacing coal with natural gas can cut greenhouse gas emissions in half, but access to supply, and at a reasonable price, will be a big factor. Given the current high cost of natural gas in many parts of the world, more supply at lower cost will be needed to encourage this shift.

Gas as a storage and backup fuel for electricity supply will also continue to be important during the transition period, and joint efforts to reduce methane emissions (as announced at COP26) will be crucial to create greater public acceptance of the use of natural gas while increasing production from renewable sources.

The supply of natural gas and the role of international markets are essential to the proper functioning and application of natural gas as a transition fuel; both the US and the EU should continue to strengthen regulatory provisions to encourage the efficient operation of these markets.

Nuclear

An important feature of the common interest in nuclear energy between the United States and the European Union has been cooperation in nuclear safety and security. While some EU Member States are categorically opposed to the use of nuclear energy in their country, others wish to improve, develop and modernize clean, efficient and safe nuclear energy and to use new and innovative technologies to achieve these goals. The work of the Euratom Treaty and the European Commission’s Joint Research Center for Safety and Security of Nuclear Fuel and its Installation is an important contribution to EU-US cooperation.

In addition, the cooperation between the two on the International Thermonuclear Experimental Reactor nuclear fusion project, which includes other international partners, is expected to continue, as it provides a good example of innovative international cooperation on a new energy source.” moon shot”.

Just Transition

It is clear that the clean energy transition will have winners and losers. Workers dependent on jobs in coal mining and processing or servicing internal combustion engines will find that the demand for their services will decline over time. New jobs, retraining and the ability to use their skills and experience to develop new markets will be key to encouraging these workers and their families to see the benefits of the clean energy transition. Government support for them will be a fundamental factor in securing public acceptance for the many changes to come.

Again, leading by example how new jobs are created through greening energy systems, providing support to workers and families impacted by the transition, and shifting to efficient, green and energy-creating technologies. jobs will give impetus to other countries. to take similar measures.

Loss and Damage Fund

With regard to adaptation to climate change, perhaps one of the most important symbolic contributions that the European Union and the United States can make is to honor their commitments to the promised loss and damage fund. during COP21 to help the populations of the countries of the South who have been most affected by climate change. change and will continue to suffer its effects. This does not exclude other bilateral or multilateral actions they may undertake to provide financial and technical assistance to the most seriously affected countries and regions.

The 2022 EU-US Energy Council meeting will be an opportunity for transatlantic partners to enhance their mutual concern and cooperation on practical implementation measures in the context of the clean energy transition and to offer the world an example of how change can drive sustainable growth and prosperity. . Together, the European Union and the United States must lead the global effort towards an efficient energy transition that benefits everyone.

The list of green investments proposed by the European Commission has sparked months of battles – now comes the time to see if it was worth it.

On Wednesday, the Commission presented a second list of technologies that meet the standards for inclusion in the Taxonomy Regulation – the green investment rules that are meant to send a clear signal to retail investors, fund managers and bond issuers on the types of schemes that can rightfully be called green.

This latest list included nuclear and natural gas – covered by numerous conditions – which outraged many campaigners and triggered warnings of legal action from some member countries.

Last year the Commission presented another, less controversial list, covering technologies like wind and solar. Next comes a list of environmental goals like water, biodiversity and the circular economy.

But does it really matter?

In its boldest form, the taxonomy can redirect financial capital flows into real green investments. Otherwise, it is just a list that, through political artifice, will simply be ignored.

Here are two reasons why the fuss is warranted. And two reasons why this is not the case.

Finance will have to jump through the hoops of taxonomy

This year, thousands of large EU-based companies, as well as banks, insurers and fund managers, will for the first time disclose how the investments and products they claim to be sustainable compare to a common standard. of green definitions.

“The taxonomy has a big gig – it’s a common language, which has yet to be disclosed,” said Sean Kidney, CEO of the Climate Bonds Initiative think tank and member of the Commission’s advisory platform on sustainable finance.

“Every country, every government, every bank has a different approach [sustainability] “, Kidney said. “So Barclay’s is offering something, and Unicredit is offering something, and you can kind of compare … but they hire their own consultants, they write different methodologies.”

“How are they approved, who knows? Who can tell? Someone is paying a fortune to try to analyze them,” he added.

Even though banks, insurers and fund managers may not agree with all the definitions in the EU list, they cannot afford to ignore the standard altogether since their own performance will be assessed by relation to it. And it’s in their interest to make their “green ratios” of taxonomy-aligned holdings as high as possible.

In years to come, it will serve not just as a barometer for green products, but as an indicator of how green entire companies are – and it will be public information.

A common standard makes it easier for people to choose green investments and compare them across financial institutions. It will also be easier for consumers to vote with their wallet if they don’t like what they see.

Taxonomy or not, the green investment wave is real

Global awareness of the climate crisis has fueled enthusiasm for products that claim to help the planet – and financial markets are no different.

This year alone, some $1.35 trillion in sustainable and green bonds will be issued globally, according to a report by Moody’s ESG Solutions. Five years ago, this figure was less than 200 billion dollars.

Financiers know there is money to tap into and are launching products in response.

But a hodgepodge of existing green methodologies has made it very difficult to look under the hood. This means that financial players have been able to label almost anything they want as green.

The taxonomy is supposed to put an end to it by serving as a reference.

There are signs that tougher rules are driving some of the more dubiously defined investments out of the market. From 2018 to 2020, the amount of sustainable assets in Europe fell from $14 trillion to $12 trillion due to a stricter methodology for what can legally be called sustainable investing, the report says. Annual Report of the Global Sustainable Investment Alliance.

But the inclusion of nuclear and gas blew the consensus

Getting investors to trust your best-in-class definitions only works if they agree on what is green.

And the great battle over nuclear power and gas has shattered any consensus.

“The only thing worse than greenwashing by private parties is greenwashing by public entities and by law,” said Thierry Philipponnat, chief economist at Finance Watch, who does not want nuclear or gas are included.

Last week, the head of the European Investment Bank, Werner Hoyer, stated categorically that, whatever the content of the taxonomy, the EIB has “no intention” of ever financing nuclear, and that “for the least we can say, the gas is finished”.

“Smart money will ignore the EU taxonomy if it becomes a political tool influenced by vested interests.” Laurence Tubiana, chief negotiator of the Paris Climate Agreement, warned Wednesday.

There are signs that are already happening: the Institutional Investors Group on Climate Change, which together manages 50 trillion euros, has warned the Commission that the inclusion of gas “hinders our members’ ability to align their portfolios to net zero”.

This opens the door for every investor to use their own different metrics again – but there’s a chance the European version will still work, thanks to a last-minute fudge.

In addition to the normal taxonomy reporting requirements, the Commission on Wednesday added an additional yes/no form to indicate whether nuclear and gas are included in the investment.

This additional screening tool could allow investors otherwise satisfied with the taxonomy definitions to simply ignore products and companies that answered “yes”.

Taxonomy alone cannot change the world

As policymakers pressure the financial sector to redirect investment flows to help the economy go green, there are still not enough sustainable investment opportunities.

“The push on the financial sector is interesting but it has its limits,” said one lobbyist, saying there are not yet ready-made investment streams that tick all the boxes in the taxonomy.

The current definitions are meant to act as a mild positive boost for investors. But if that proves ineffective, there is a more extreme option – environmental advocates argue regulators should go further by hitting banks or insurers with punitive measures for polluting assets.

In the coming months, Commission advisers will propose adding a “red list” to the taxonomy, which would force disclosure of actively harmful or toxic investments.

But that’s another battle.

This article is part of POLITICS‘s Sustainability Pro service, which dives deep into sustainability issues across all sectors including: circular economy, waste and plastics strategy, chemicals and more. For a free trial, send an e-mail [email protected] mention of sustainability.

The EU’s green finance taxonomy is not just limited to climate finance, it is also an opportunity to improve our health and well-being by phasing out polluting chemicals, write Timothy Suljada and Charlotte Wagner.

Timothy Suljada is Head of Climate, Energy and Society at the Stockholm Environment Institute (SEI). Charlotte Wagner is a scientist at UTE.

1 in 8 deaths in the European Union can be attributed to environmental pollution, including air and noise pollution, events associated with climate change and chemical pollution. The European Environment Agency estimates that 62% of chemicals (by volume) consumed in Europe in 2016 were hazardous to health. The taxonomic criteria for pollution and the circular economy under consideration by the European Commission at present provide an opportunity to address serious threats to human health and to make the EU a role model to follow. global scale. However, the opportunity may be lost if these criteria are not tightened.

The formal Commission proposal is expected in the coming months, and the stakes are high: global sales of chemicals are expected to double over the next decade, and 84% of Europeans are already worried about the impact of the products. chemicals in consumer products affect their health. However, our analysis of the criteria currently being examined by the Commission reveals that more could be done to meet the ambition set by the European Green Deal.

One of the founding principles of the European Green Deal is to improve the health and well-being of Europe by transforming the European economic model. Enabling private investment is essential for developing sustainable economic activities and implementing the Green Deal. The EU Taxonomy for Sustainable Activities is intended to guide businesses and investors towards sustainable products and portfolios by formalizing criteria for what is considered sustainable. A key objective of taxonomy is to reduce environmental pollution, including greenhouse gas emissions and chemical and plastic pollution.

The strength of the criteria defined in the taxonomy will determine the ability of the taxonomy to eliminate economic activities that harm the environment and compromise human health and well-being. It will determine whether the taxonomy allows private investments to stimulate the realization of the Green Deal or simply legitimizes unsustainable and harmful economic activities in Europe.

The ambition is clear in the pollution prevention strategies published to date as part of the Green Deal roadmap. They promote the transition from chemical regulation by chemical product to a comprehensive fight against chemical pollution in the Zero pollution action plan and its strategy on chemicals.

Steps are also being taken to reduce the volume of waste by shifting product value chains from the predominant production-use-disposal model to innovative circular business models in the Circular Economy Action Plan. The chemicals strategy recognizes that regardless of the relatively sophisticated chemicals policies in the EU, the substitution of harmful chemicals has been slow, and stronger political and financial support is needed to drive the transition to safe and secure chemicals. sustainable.

Taxonomic criteria not in line with the ambition of the Green deal

However, the taxonomic criteria for pollution prevention and control currently being considered by the European Commission build on existing regulations rather than the ambition of the Green Deal roadmap, as we highlight in our submission. for public consultation.

In the case of chemical pollution, the criteria taken into account exclude only the use of regulated substances of concern, which means that economic activities using compounds already proven to be dangerous by science but not yet regulated could be considered as sustainable. and even “inherently safe”.

In addition, the recommended pollution prevention criteria aim to reduce pollution by comparing chemical releases to the average emissions associated with the best available pollution control techniques, echoing the approach taken for greenhouse gas emissions. tight.

However, when considering chemical pollution of soil, water and air, the toxicity and potential for exposure, in addition to the magnitude of the releases, determine the overall impact on human health. and that of ecosystems. Focusing only on the magnitude of the releases opens the door to regrettable substitutions where manufacturers replace a known dangerous chemical with an unregulated alternative that has not been thoroughly investigated and which could be equally or more toxic.

The criteria currently under review would not prevent the continued accumulation of plastics and their harmful effects on health and the environment. The criteria intended to promote a transition to a circular economy do not prioritize plastic for reuse over recycling, nor do they take into account end-of-life releases of chemicals, chemicals or the manufacturing of organic products. ‘plastic packaging. This is in direct conflict with the end-use hierarchy favoring less transformation set out by the EU Circular Economy Action Plan.

A potential orientation model for sustainable investments

First of its kind, a well-designed taxonomy could become a guiding model for sustainable investments well beyond its legal jurisdiction in the EU. As a transparency tool, it will force some companies and investors to disclose their share of taxonomy-aligned activities and protect private investors from greenwashing.

As a financial tool, it will enable businesses to become more sustainable, reduce market fragmentation and move investments where they are most needed. Taxonomy presents a huge opportunity to meet the ambition of the Green Deal and examine the impact of economic activities on human health and well-being in a holistic way, thus shaping the economic landscape for decades to come.

The Commission is expected to present its formal proposal on the remaining criteria for the circular economy, pollution, water and biodiversity in early 2022. The coming months will determine whether the taxonomy is truly up to the task of defining activities. sustainable economic development and meet the ambition of the Green Deal.

IINVESTOR ENTHUSIASM for the financing of the green transition is growing – just look at the rise in interest in the electric car industry. Tesla shares rose 50% in 2021; those from CATL, the Chinese battery giant, rose 68%. Yet if you take a closer look you will find huge problems. If the world is to reach net zero emissions by 2050, investments will need to more than double, to $ 5 billion per year. And fund management is full of “green-washing”. Sustainability rating systems have proliferated but are extremely inconsistent, while many funds mislead investors about their green credentials.

To the rescue came the European Union, which has developed a new labeling system, or taxonomy, which sorts the economy into activities it deems environmentally sustainable, from the installation of heat pumps to anaerobic digestion. sewage sludge. The idea is that funds and companies will use this to disclose how much of their business is considered green, and this clarity will help free up a flood of capital from the markets. The proposals have been in the works for years and on December 31 the European Commission released its final thoughts.

Countries have different sources of energy, so the exercise was necessarily political. Still, the classification seems reasonable. Calling nuclear power green – subject to conditions, including the safe disposal of toxic waste – has been greeted by howls from the Green Party in Germany. But nuclear can play an important role in achieving net zero; indeed, by judging it green only during the transition, the taxonomy is, if at all, too timid. The plan to label natural gas as green has also been controversial. But the rules reflect a stubborn assessment that it will be a vital transitional fuel over the next decade. They treat gas projects as green for a limited period, if they replace more polluting fossil fuels, receive approval by the end of the decade, and contain plans to switch to cleaner energy sources. here 2035.

The flaws in the plan lie in its bureaucratic design. The simplistic nature of the labeling can lead to a purity test in which funds exclude dirty assets. In fact, a key job of capital markets is to own polluting businesses and manage their emissions. Classification is static, while technological changes will reduce the carbon intensity of some activities and lead to inventions that classifiers have not considered. This fits a model of well-intentioned but marginal European climate finance ideas, including using the European Central Bank to buy green bonds (which could overstep its mandate) and imposing green ‘stress tests’ on banks, even if the lifespan of their assets is shorter than the horizon of the most devastating climate change.

This article appeared in the Leaders section of the print edition under the title “The Meaning of Green”

BRUSSELS (AP) – The European Union’s draft plans that would allow nuclear and gas energy to continue to be part of the bloc’s path to a climate-friendly future were the subject of immediate criticism this weekend. end from environmentalists and some ruling political parties in EU member states.

In the draft conclusions consulted by the Associated Press, the EU Executive Board proposes a classification system to define what counts as an investment in sustainable energy. Under certain conditions, it would allow gas and nuclear energy to be part of the mix.

The plans would have a huge impact on nuclear economies like France and on gas-fired power plants in Germany, as they might have had to fundamentally change their strategies.

Energy consumption accounts for around three quarters of greenhouse gas emissions produced in the EU and is therefore essential to the efforts of the bloc of 27 countries to meet its commitments in the fight against global warming.

The plans still need the support of a large majority of the 27 member states and a simple majority in the European Parliament. But the initial push from the European Commission is a key part of the transition process.

“Classifying investments in gas and nuclear energy as sustainable contradicts the Green Deal”, the EU initiative which aims to make the bloc climate neutral by 2050, said Ska Keller, chairman of the Greens group in the European Parliament.

France has called for nuclear energy to be included in the so-called ‘taxonomy’ by the end of the year, leading the charge with several other EU countries that operate nuclear power plants and want to make it eligible green financing.

French European Affairs Minister Clément Beaune said the proposal was technically sound and insisted on Sunday that the bloc “cannot become carbon neutral by 2050 without nuclear power.

Germany, the EU’s largest economy, goes the other way, with Germany shutting down half of the six nuclear power plants it still had in operation on Friday, a year before the country pulled back the curtain final on its use of atomic energy for decades.

Gas is a polluting fossil fuel, but it is still seen by the EU as a bridge technology to achieve a cleaner energy future.

German Economy Minister Robert Habeck criticized plans to classify investments in gas and nuclear power plants as climate friendly.

“The European Commission’s proposals weaken the right label for sustainability,” told German news agency dpa Habeck, which represents the German Green Greens in the country’s coalition government. “We do not see how to approve the new proposals of the European Commission,” he said.

“In any case, one can wonder if this greenwashing will even be accepted on the financial market”, underlined Habeck, referring to the practice of describing investments as sustainable when they are not in reality.

In Austria, Climate Protection Minister Leonore Gewessler of the Greens also categorically rejected the proposed regulation, saying “the European Commission has taken a step towards greenwashing nuclear energy and fossil gas in a night and fog action “.

“They are harmful to the climate and the environment and destroy the future of our children,” said Gewessler.

The environmental NGO Greenpeace has described the Commission’s draft proposals as “greenwashing permits”.

“Polluting companies will be delighted to have the EU seal of approval to attract money and continue to destroy the planet by burning fossil gas and producing radioactive waste,” said Magda Stoczkiewicz of Greenpeace.

Nuclear power, in particular, remains extremely controversial in Europe, where many still vividly remember the fear that followed the 1986 nuclear accident in Chernobyl, Ukraine. In Germany, children were not allowed to play outside for months, could not go mushroom hunting for years, and farmers had to destroy their entire crop the same year.

On the flip side, nuclear power plants emit few pollutants into the air, making them an option as nations around the world seek clean energy to meet their climate change goals.

Climate activists also argue that the use of nuclear power risks slowing the deployment of renewable energy sources.

___

Grieshaber reported from Berlin. Barbara Surk contributed from Nice, France.

Copyright 2022 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed without permission.