A project to leak the European Commission’s proposal to qualify certain natural gas and nuclear power plants as “transitional” or “green” investments has caused some members of the European Union (EU) to retreat. Critics are also mounting in South Korea, where liquefied natural gas (LNG) has been included in its new green taxonomy guidelines, but nuclear has been left out.
Battles around “green” taxonomy are mobilizing given their potentially significant influence on green finance. A taxonomy is essentially a document, usually binding, that serves to define factual and scientific views on the sustainability of an asset class. In other words, it creates a “common language” that investors can use to determine what sustainable economic projects and activities the market needs to meet climate and environmental goals.
In the EU, for example, taxonomy regulation is designed to encourage the allocation of capital to companies’ environmental objectives over the next 30 years until 2050. But the taxonomy could also apply to public funding, for example by designating projects that may be eligible for certain public funding. In the meantime, companies around the world are also voluntarily relying on these “green lists” in environmental, social and governance (ESG) criteria, which are integrated into sustainability and transition strategies.
EU considers inclusion of gas and nuclear
In Europe, the taxonomy debate intensified on January 1, after the The European Commission has announced it had started consultations with Member States on a draft text of a “Additional Delegated Taxonomy ”which includes certain gas and nuclear activities. The “complementary” act, which the Commission plans to adopt formally in January 2022, follows on from the of the EU Delegated taxonomic act adopted in 2021. The first part qualified several electricity-producing sectors in its technical selection criteria but delayed controversial decisions on gas and nuclear in order to allow more time for technical assessments and public feedback.
According to several media outlets which this week received a leaked version of the Commission proposal, the Board of directors seeks to label nuclear power and some gas investments as green. Nuclear power plants must have a a plan, funds and site to safely dispose of radioactive waste, and new nuclear power plants are to receive building permits before 2045, EURActiv suggested.
Reuters reported that investments in natural gas power plants would also be “considered green” if they produce emissions of less than 270 grams of CO2 equivalent per kWh, replace a more polluting fossil fuel plant, obtain a building permit by December 31, 2030, and consider switching to low-carbon gases by the end of 2035.
The taxonomy proposal echoes in particular the proposed rules and guidelines unveiled by the European Commission on December 15 which seek to create the conditions for a switch from fossil natural gas to renewable and low-carbon gases, mainly biomethane and hydrogen. The Commission’s carbon-free gas initiatives could establish a market for hydrogen, including its trade and infrastructure, in two phases, before and after 2030. In this set of proposals, the European Commission has defined renewable gases as gases produced from biomass and hydrogen produced from renewable sources. He defines “low carbon” gases as gases that produce “at least 70% less greenhouse gas emissions than fossil natural gas throughout their life cycle.
The EU’s taxonomic proposal has the backing of France, which derives around 70% of its electricity from nuclear power, as well as the Czech Republic and Finland. Slovakia also well received Proposal. Austria, however, reportedly has already ordered a legal opinion on the inclusion of nuclear energy in taxonomy. Political opinion in Germany, which closed three of its last six nuclear power plants on December 31, is said to be divided within the new German coalition government.
FORATOM, the European nuclear trade organization, welcomed the proposal on Tuesday, although it said the industry was still reviewing “the terms of this leaked text in order to identify its impact on the sector.” He added : “Nevertheless, we do not believe that #nuclear should be treated as a bridging technology as it clearly contributes to climate change mitigation goals and does not cause more damage than any other power generation technology already considered taxonomically compliant.
ETN Global, an association of gas turbine technology members, in a letter of December 22 to the European Commission welcomed the recent legislative package on carbon-free gas, but urged caution about initiatives that could hamper technological investments.
“The role of EU taxonomy is decisive here: initial CO too tight2 the limits imposed on cogeneration plants and gas-fired power plants will not only make it more difficult and more expensive to finance the energy transition, but will also penalize companies in the financial markets that wish to secure the transition ”, declared the organization. . “To support and accelerate the transformation of the energy sector in Europe, it is crucial that factories, which respect a gradual reduction of emissions over time (sunset clause), are classified as aligned with the taxonomy of EU in the next complementary delegated act.
South Korea includes LNG in Green List guidelines
In South Korea, the guidelines published on December 30 by the Ministry of the Environment on “K taxonomy” excluded nuclear energy. but includes LNG. The guidelines, which the ministry said have been prepared with technical consultation and public comment over two years, will promote green finance, support the flow of private and public finance to green projects and technologies, and “prevent damage caused by greenwashing, such as excessive and false information “.
In addition to the inclusion of renewable technologies, including solar power and solar heat, the guidelines state that LNG power plants and plants that use “mixed gas” including LNG and biogas, hydrogen, ammonia or gas by-product will be considered “low carbon.” Until at least 2030. The guidelines will temporarily support LNG power plants with greenhouse gas emissions of less than 340 grams of CO2 equivalent / kWh based on design specifications. They also include gas plants that plan to reduce their intensity to achieve, over their “average design life”, 250 grams of CO.2 equivalent / kWh. Taxonomy K also includes carbon neutral fuel, carbon capture, use and storage (CCUS) technology. Blue hydrogen will be included until at least 2030.
that of South Korea 9e The Basic Long-Term Electricity Plan (BPLE) provides for an increase in the share of new and renewable energy production—7.4% today to 20% in 2030 and 30 to 35% in 2040. While the country is increasing its share of renewable energies, it anticipates a reduction in the share of nuclear power and a ban on new coal-fired production.
A Report published in September 2021 jointly drafted by the International Energy Agency (IEA) and the Korea Institute of Energy Economics at the request of the Ministry of Trade, Industry and Energy suggests South Korea will need to increase flexibility requirements as its distributable output share drops from 94% to 79% by 2030. The 9th BPLE, in particular, plans to convert a large part of its current coal production to liquefied natural gas. “Of the coal-fired power plants over 30 years old, 30 are already approaching retirement age, but 24 of them (12.7 GW) are expected to be replaced by new ones. [combined cycle gas turbine] plants, ”the report says.
Backlash against the K-Taxonomy measure has intensified since the country released its draft green taxonomy guidelines in November. “The obvious dichotomy here is that the recognition of gas and LNG as an environmentally sustainable ‘transition’ fuel will likely lock South Korea into a high-emission future, which directly contradicts policy and market incentives. created by President Moon’s new emission reduction targets ”, VShristina Ng, head of research and stakeholder engagement at Institute of Energy Economics and Financial Analysis (IEEFA) written in a blog post. “This means that new relentless LNG power projects, of which around 10 gigawatts are expected to flood South Korea’s energy market by 2025, could benefit from green bond financing and loans if the K-Taxonomy project is finalized without change. “
Ng suggested that South Korea’s inclusion of LNG in its taxonomy echoes efforts by other Asian countries. China, which is the region’s largest green debt market, has however recognized “the importance of a truly green taxonomy,” she noted. In mid-2021, “China phased out fossil fuel projects and the new catalog of projects approved by green bonds – its equivalent green taxonomy – is now exclude gas, LNG and coal related activities, ”she said.