- Marco Kisic
- Head of ESG Research, Nordea
The European Commission on 2 February published its Delegated Act on energy generation from fossil gas and nuclear, confirming the inclusion of these activities in the Climate Taxonomy. The inclusion has drawn widespread criticism, but the Commission defended its position indicating that this will allow the market to invest also in transitional activities in the energy sector, and acknowledged the role that current energy prices had on the decision.
The proposal will now go through a four-month approval process, but at the moment it appears unlikely to be vetoed. The extent to which this part of the taxonomy will get buy-in from the market remains to be seen, but if approved it is likely to improve the alignment of gas and nuclear activities in utilities, indirectly benefiting multi-fuel power plants manufacturers and more broadly we expect it to add legitimacy to gas and nuclear as transition fuels.
Gas and nuclear taxonomy approved
The EU Commission published its Delegated Act on gas and nuclear, confirming the inclusion of these activities in the Climate Taxonomy, largely in line with the draft published in December. The activities included cover power generation, heat/cooling co-generation and district heating from fossil gas, and energy generation from existing and new nuclear plants, provided that certain criteria are met (see below). The Commission defended its position in the face of widespread criticism indicating that the proposal received “overwhelming support” in the commissioners’ vote, and that it would allow investors to invest in transitional activities also in the energy sector. According to the EU Commission’s modelling for Paris-aligned pathways, natural gas would represent 22% of gross inland energy consumption in 2030 and 9% in 2050, although fully abated by 2050. On the other hand, the Commission’s expert advisers last week were of the opinion that the draft rules on gas and nuclear would not be aligned with EU’s climate targets with the goal of being net zero by 2050.
The proposal still needs to await approval by Member States and the European Parliament. The likelihood of blocking the proposal is considered low. For a veto in the Council, 20 Member States out of the total 27 (72%) need to vote against, and in the Parliament, a majority of EU’s 700 lawmakers (353+1 votes) would have to vote against. In addition, there is a review clause included in the act, which means that every three years the provisions will be re-examined, with a particular focus on the time limits provided by the Delegated Act.
If the proposal is approved, we expect it to add legitimacy to gas and nuclear as transition fuels.
The technical screening criteria for Gas
In order to be consider Taxonomy aligned, the new gas-based power/heat plant (or refurbished combined heat and power plant) need to have either:
- lifecycle emissions below 100gCO2e/kWh (i.e. using Carbon Capture and Storage technologies), or
- until 2030, direct emissions below 270gCO2e/kWh, or (for the activity of electricity generation only), their annual direct GHG emissions must not exceed an average of 550kgCO2e/kW of the facility’s capacity over 20 years.
This is conditional upon the following:
- The activity replaces a facility using solid or liquid fossil fuels (e.g. coal).
- Production capacity does not exceed the capacity of the replaced facility by more than 15%.
- The facility should switch fully to renewable or low-carbon gases by 31 December 2035.
- The replacement leads to a reduction in emissions of at least 55% GHG over the lifetime of the newly installed production capacity.
The technical screening criteria for Nuclear
- Modifications and upgrades of existing nuclear installations for the purposes of lifetime extension must be decided by 2040.
- New nuclear power plant projects for energy generation, which will be using best-available existing technologies (“Generation III+”), will be considered sustainable until 2045 (date of approval of construction permit)
- Will be subject to strict safety and environmental conditions including taking care of radioactive waste, in which all reactors must have facilities for interim storage of radioactive waste and have a plan in place be able to dispose it by 2050 the latest, together with ensuring the do no significant harm principle.