EU Commission (temporarily) classifies nuclear power and natural gas power plants as ‘sustainable’

EU Commission (temporarily) classifies nuclear power and natural gas power plants as ‘sustainable’

Climate label for gas and nuclear power

On February 2nd, 2022, the EU-Commission has presented a Complementary Climate Delegated Act to accelerate defossilisation. Under this act, investments in gas and nuclear power are being rated as environmentally sustainable (on a transitional basis, and subject to certain conditions). This adds to the activities already covered by the first delegated act on climate mitigation and adaptation under the EU taxonomy regulation.  

High barriers for taxonomy-conform gas investments

The barriers for taxonomy-conform investments are relatively high and there are three possible ways for gas investments to meet the criteria:

  • A green field development with life-cycle emissions of less than 100g CO2e/kWh (carbon capture and storage is recognised as a way to lower emissions); or
  • A plant that replaces the capacity from a former coal (or oil) plant that receives a construction permit before 31 December 2030 and switches to 100% renewable and/or low-carbon gas by 2036, which either
    • has direct emissions of less than 270g CO2e/kWh; or
    • hast annual emissions of less than 550g CO2e/kW on average over 20 years. However, this option to meet the criteria is not granted for co-generation plants.

Power plant operators/investors, however, will still have the choice to build gas power plants that do not conform to the taxonomy.

Unclear effects on the investor community

The Taxonomy aims at informing citizens and investors on climate-friendly investment projects as an EU-wide classification system for sustainable activities. According to the Commission, the EU’s goal of climate neutrality by 2050 will require annual investments of around EUR 350 billion. The Taxonomy is supposed to contribute to increasing the availability (or reducing the cost) of finance for sustainable investments. Investors and citizens seeking to invest in sustainable projects can choose between a wide range of projects from all environmental and climate-friendly industries while participating companies are subject to a scoring system where they can be scored (up to 100 points) for their climate friendliness.

However, the Taxonomy (and the latest delegated act in particular) is controversial. The EU Commission is trying to replace the number of different (and sometimes opaque) “green” labels for investment projects with a single categorisation. Investors uncomfortable including fossil gas or nuclear investments in their portfolio may nonetheless adopt alternative criteria.

Frontier regularly advises on EU climate policy and power plant investments.

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