Nuclear power and natural gas in the EU taxonomy: what is it about?
- Feb 2, 2022 2:49 pm GMT
The potential inclusion of nuclear power and natural gas in the EU taxonomy has once again opened up the rifts in European energy and climate policy. What exactly does the EU taxonomy regulate and what conditions are attached to classifying the two technologies as sustainable? In this post, we categorize the discussions surrounding the EU taxonomy.
The EU taxonomy briefly explained
Large investors, banks and insurance companies in particular, and increasingly also other companies, are subject to public reporting requirements on their sustainability-related activities. The idea behind it: The EU taxonomy creates incentives for a sustainable restructuring of the economy.
Six environmental goals in the focus of the EU taxonomy
For several years, actors from various working groups and institutions at EU level have been developing the EU taxonomy. These include, for example, the EU Joint Research Center , the Technical Expert Group and the Sustainable Finance Platform . In general, activities must be aligned with the six environmental goals of the EU in order to be included in the taxonomy. These goals are:
- climate protection,
- adaptation to climate change,
- sustainable use and protection of water and marine resources,
- transition to a circular economy,
- Prevention and reduction of environmental pollution and
- Protection and restoration of biodiversity and ecosystems.
Thus, the inclusion of a technology in the EU taxonomy is an opportunity for financiers and companies to be able to declare financing or economic activity in the relevant area as sustainable. This may be linked to better private financing conditions.
Above all, however, the taxonomy has a signaling and orientation effect. Under no circumstances does the taxonomy imply general government or EU-wide funding or subsidies for the included technologies.
What's the deal with the inclusion of nuclear power and natural gas?
On December 31, 2021, the EU Commission sent a draft regulation to the governments of the member states. In this draft, the Commission also included the long-controversial technologies of nuclear power and natural gas. A version of the proposals can be found here .
France has campaigned specifically for the inclusion of nuclear power, also so that the French energy group EDF can invest in its power plants. Meanwhile, at the German level (depending on party affiliation), the inclusion of gas-fired power plants is preferred. However, the traffic light coalition does not agree on this. Federal Minister for Economics and Climate Robert Habeck also rejects the current proposal. The inclusion of the two forms of energy is also seen by many as a compromise between France and Germany.
Taxonomy and the power generation structure at EU level
In order to classify the discussion about the taxonomy in terms of the energy industry, we now look at the electricity generation structure at EU level. Figure 1 shows the European electricity mix for 2021 (source: Energy Charts ).
It is therefore not surprising that at the EU level the currently still most productive technologies in the respective countries are favored. The classification of nuclear power and natural gas in the EU taxonomy would be subject to conditions.
The regulations on nuclear power
At the European level, it must be noted that many countries were already using nuclear power to reduce greenhouse gases before the taxonomy. The expansion is not only planned or under consideration in France, but also in Romania, Bulgaria, the Netherlands, Poland and Estonia.
Figure 2 shows the share of power generation from nuclear power in the 13 EU countries with nuclear power plants in 2020. The high share of over 30 percent in many EU member states is clearly visible (source: EU Commission ).
According to the EU Commission's draft, nuclear power plants should only be sustainable if they:
- correspond to the latest technical standards,
- have received a building permit until 2045,
- a fund for the disposal of radioactive materials and
- be able to show a recovery fund.
A detailed plan for final disposal is only required for nuclear power plants whose operating life is extended after 2025 (source: Montel ).
What applies to gas power plants?
About 17 percent of European electricity is generated from natural gas. Here, too, the differences between the countries are large. Gas-fired power plants in Belgium, Greece, Ireland, Italy, Latvia, Lithuania, Portugal and the Netherlands account for a particularly high proportion of electricity generation – i.e. primarily in countries that do not have a high level of nuclear power generation.
Figure 3 makes this clear. It shows the share of electricity from gas-fired power plants in the 13 countries with the highest shares in 2020 (source: CREA ). In Germany, too, generation in gas-fired power plants could increase following the phase-out of nuclear power and an accelerated phase-out of coal.
In general, gas-fired power plants must have greenhouse gas emissions of less than 100 g CO 2 /kWh. This limit can probably only be reached if CO 2 is captured and stored.
Exceptions for gas power plants with planning permission until 2030
For gas-fired power plants that receive a building permit by December 31, 2030, less restrictive regulations apply in order to be classified as sustainable. There are still two options for gas-fired power plants:
In the first way , the direct greenhouse gas emissions must be below 270 g CO 2 /kWh for energy production. Highly efficient combined heat and power plants can meet this requirement. In normal gas and steam power plants, the value is generally between 300 and 350 g CO 2 /kWh.
The second possibility is that the power plants may not emit more than an average of 550 kg CO 2 /kW per year for 20 years. This would mean that the power plants would have to reduce the number of operating hours per year. And they should only produce electricity during periods of high load or when there is little generation from renewable energies.
Irrespective of the above two possibilities, new gas-fired power plants that receive a permit by the end of December 2030 must demonstrate that
- the electricity generated cannot yet be produced efficiently by renewable energies,
- the gas power plant replaces an existing plant with higher emissions and the reduction in emissions per kWh is at least 55 percent,
- the plant is able to burn low-CO 2 and renewable fuels and the proportion of these fuels will be at least 30 percent from 2026, at least 55 percent from 2030 and even 100 percent from 2036,
- a coal phase-out is planned in the respective country and written down in an official plan.
What happens now?
Environmental organizations and individual countries have already strongly criticized the new regulations. Austria even wants to file a lawsuit against the inclusion of the two energy sources in the EU taxonomy. Players in the energy industry doubt that there are enough low-CO 2 or renewable fuels available for gas-fired power plants (source: Montel ). But large investors and financiers have also attacked the inclusion of gas in the taxonomy via the IIGCC (Institutional Investors Group on Climate Change) in an open letter to the EU (source: Euractiv ).
At the political level, the EU Commission wanted to first consult the draft with the member states by January 12, 2022. MEPs have extended this deadline to 21 January 2022. The Commission will then present the final proposal. The Council of Member States or the EU Parliament have four months to veto the proposal before it becomes binding for all EU countries.
Conditions for a veto
For a veto, however, at least 20 EU countries that represent at least 65 percent of the total population of the EU or at least 353 members of the EU Parliament must vote against the draft. There will not be enough resistance at the state level due to the previous and future dependency on the two energy sources (see Figures 2 and 3).
On the other hand, there is greater resistance in Parliament to the inclusion of nuclear power and natural gas. But given the balance of power, a veto is not the most likely outcome. It has not yet been decided whether the EU taxonomy will also classify nuclear power and natural gas as sustainable activities in the future. However, the use of the two technologies would still be subject to certain conditions.
It remains to be seen whether the taxonomy classification will stimulate private sector investments. Due to the high construction costs and time delays for nuclear power plants and the currently high gas prices, renewable energy could be cheaper and more profitable than the two alternatives.
We recommend our live online training on March 16 and 17, 2022: The European CO 2 market: Insights and outlook
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