Gas industry lies at the heart of EU Taxonomy delay

Europe
On the 02/09/21 at 7:15AM

by

Tuba Raqshan

The European Union has pushed the finalisation of sustainable finance taxonomy rules to later in the year, following opposition from certain EU member states who called for granting natural gas a transition fuel status in the draft guidelines.
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Mairead McGuinness, commissioner for financial services, financial stability and capital markets union, stated that the public consultation for the first delegated act for the EU green taxonomy, which classifies which commercial activity is sustainable or not to prevent greenwashing, has received 46,000 replies. “Given the big interest in the public consultation, we need to delay the delegated act, so all responses are duly considered. The Commission will consider recalibrating the technical screening criteria where serious concerns are raised, but we do not want to break the link with science or the alignment with Green Deal targets,” said Commissioner McGuinness, at the end of January.

More than 97% of the responses were from citizens calling on the Commission to support the Technical Expert Group's science-based thresholds while merely under 600 responses were from companies and industry associations, the vast majority of which continued to push for more lenient thresholds for their sectors, many of which have been lobbying intensively over the last year, according to an analysis by independent think-tank InfluenceMap.

David Czupryna, head of ESG development at Candriam, said that the Commission now intends to promulgate the precise rules for implementing the Taxonomy by the end of April. This delay is regrettable of course, as it further delays the moment when we will know the precise rules on the basis of which investors will have to communicate on their "green share" from 1 January 2022,” explained the ESG specialist.

Lobbying for transition fuel status for gas industry

The taxonomy rules were delayed because a bloc of 10 countries, including – Bulgaria, Croatia, Cyprus, Czechia, Greece, Hungary, Malta, Poland, Romania, and Slovakia – complained that natural gas has not been granted the transition fuel status in the draft guidelines, according to Euractiv.

Whilst the Commission maintained the 100gCO2e/kWh threshold in the draft delegated act, the gas sector continues to lobby for a weaker electricity generation threshold that could accommodate natural gas, said Rebecca Vaughan, program manager at InfluenceMap. “Whilst the majority of lobbying by the gas sector has been led by powerful industry groups including International Association of Oil and Gas Producers (IOGP) and Eurogas, in October 2020, a gas industry letter on the taxonomy was signed by companies including BP, Equinor, Total, Repsol and PGE. This direct engagement from the companies appears to demonstrate an escalation strategy by the industry. Both increased industry engagement and opposition from some Member States means that gas is becoming a key sticking point in the taxonomy, and risks undermining its scientific integrity,” she said, adding that there have also been a number of examples of sectors targeting Member State representatives in attempts to secure more lenient criteria. 

The reality of Europe’s greenhouse gases emissions reduction targets means quite simply that new natural gas power plants do not have any place in the European power mix anymore.

- David Czupryna, head of ESG development at Candriam

Czupryna underlines that although burning natural gas emits less carbon dioxide (CO2) than coal or oil, it is dangerous present this energy source as part of the transition to a carbon neutral Europe without very strict conditions. “That was the purpose of the quite demanding technical criteria set in the Technical Expert Group final report. The Taxonomy included natural gas power generation, provided that its emissions are kept very low. It was already the result of a compromise. The reality of Europe’s greenhouse gas emissions reduction targets means quite simply that new natural gas power plants do not have any place in the European power mix anymore. And loosening the rules of the Taxonomy on natural gas would send the wrong signal regarding which power generation technology investors need to champion,” he highlighted.

The Taxonomy was not meant to be a description of things how they currently are, but an aspirational list of green activities for the years to come, pointed out Czupryna. “We might still need natural gas power generation for some time as countries ramp up their renewable power generation capabilities and work on reducing power demand. That does not mean that natural gas meets the criteria as a green activity without requiring strict conditions in terms of CO2 emissions,” he told Asset News.

Gas being less polluting than coal is not reason enough for it to be called environment friendly. It is still reasonable for the gas industry to seek to understand their place in the taxonomy.

Nathan Fabian, chair, European Platform for Sustainable Finance

Nathan Fabian, chair, European Platform for Sustainable Finance, which oversees the Taxonomy development, said that the gas lobby is one of the reasons for the delay. “A lot of industries have realised that climate goals that inform the taxonomy criteria are challenging to reach. That is the case with the gas industry. Gas being less polluting than coal is not reason enough for it to be called environment friendly. It is still reasonable for the gas industry to seek to understand their place in the taxonomy. We need good explanations for these questions,” argued Fabian, who is also the chief responsible investment officer for the UN Principles for Responsible Investment (PRI).

Fabian added the platform has been asked by the Commission to answer six questions on transition finance, including how technologies and industries that are not green might still contribute to an economic transition to meet the EU climate goals. “We need to consider this for many areas, including forestry, shipping, rail transport and other industries where these questions are pertinent,” he said.

There is a risk that this industry lobbying will move the taxonomy away from a science-based policy to one which favours narrow vested interests

Rebecca Vaughan, program manager at InfluenceMap

What comes next? “The platform will respond to the Commission questions on transition finance by mid-March. The Commission is reviewing the technical climate mitigation and adaption criteria for the delegated act. The number one challenge for the Platform and the Commission is ensuring effective reporting rules for companies and investors on the Taxonomy. Once these disclosure rules are clear, companies and member states can see how taxonomy can work for them; including how they can contribute to a green economy,” Fabian told Asset News

For example, the platform has recommended that capital expenditure allowing a company to meet the taxonomy criteria to be considered taxonomy aligned. “Green bonds and green loans that are used to finance these improvements can be considered taxonomy aligned. As another example, best in class energy efficiency improvements can be made to almost any building, such as installing triple glaze windows or an efficient heating and cooling system. The capital expenditures and the loans that finance these measures can also be reported as Taxonomy aligned,” Fabian added. He said that with more time and the reporting rules coming out, use of the taxonomy, and the many opportunities it presents for green finance, can be better understood.

Concerns of a diluted taxonomy

The stiff opposition from the gas, bioenergy and forestry industry has raised concerns of a dilution in the taxonomy’s criteria. “In the Commission's December 2020 consultation, there appeared to be particularly high pushback from industry on the gas, bioenergy and forestry criteria. In the case of bioenergy, for example, the criteria in the Commission's draft delegated act already represented a significant weakening of its own Technical Expert Group's recommendations. However, the sector continues to push for an even weaker approach. There is a risk that this industry lobbying will move the taxonomy away from a science-based policy to one which favours narrow vested interests,” explained Vaughan.

Fabian pointed out that there is always a temptation to weaken environmental criteria, or saying we will deal with the environmental goals later. “When the short-term economic priorities come in, there is a risk that environmental and long-term economic goals will be diluted. The EU has committed to the European Green Deal including a Net Zero 2050 target and an ambitious mitigation target for 2030. Because of this political commitment, the ambitions for the taxonomy should not be diluted,” he added.

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