Brussels faces backlash over the decision on whether the gas is green

The European Commission is facing a political and scientific backlash over its decision to delay part of its benchmark rating system for investors in an attempt to resolve a dispute over how to label energy sources such as natural gas and nuclear power.

Brussels on Wednesday released a new draft of its proposals on how to classify the industries that generate 80% of emissions in Europe. The eco-labeling system, known as the taxonomy for sustainable funding, will cover 40% of the EU economy.

However, the text leaves out technologies such as gas and nuclear, for which Brussels will propose a separate classification system after the summer.

Expert groups harshly criticized the delay and the inclusion of forestry and bioenergy as forms of green economic activity, leading to an outflow of NGOs and consumer organizations that have participated in the consultation process. two years.

Mairead McGuinness, EU financial services commissioner, said the commission had tried to balance science on climate change with the “real world” and insisted that standards would evolve continuously along with scientific evidence.

After meetings with McGuinness, groups such as Transport & Environment, the World Wildlife Fund and the European Consumer Group said they would abandon the EU’s sustainable funding platform in protest.

“The taxonomy law was supposed to be the gold standard of sustainable finance. But the result has been the ecological washing of dirty cargo ships, gas buses and the felling and burning of trees,” he said. say Luca Bonaccorsi, director of sustainable finance for Transport and the Environment.

Sandrine Dixson-Declève, co-chair of the Club of Rome and a member of the EU expert group, said: “Unfortunately, this process went out of control due to intense pressure from national interests, including member state governments and MEPs “.

The taxonomy was designed as a science-led exercise to guide investors and make the EU the first major regulator to set the rules for what is considered a truly green investment.

But the project has been like this besieged by delays and political controversies. Earlier this year, some EU governments threatened to veto the draft rules unless the commission gave more favorable treatment to low-emission technologies, such as natural gas.

Germany and Eastern European countries see gas as a crucial part of their transition from fossil fuels, which will help the EU meet its emissions targets by 2030. France and the Czech Republic have also demanded that nuclear technology not be penalized with the system.

The decision to postpone the question of whether gas and nuclear power should be included is designed to avoid a political backlash from governments and MEPs who have the power to reject the text if they can find a qualified majority to oppose it. measures.

Brussels plans to issue a separate legal document dealing with the treatment of transition technologies such as natural gas later this year. The commission will consider “the merits of a sunset clause” to limit its use, the draft text said.

Valdis Dombrovskis, executive vice chairman of the commission, said the gas would be subject to “strict legal limits” according to scientific advice on emissions.

“More work is needed on gas. There are pretty clear limitations in the taxonomy, so we need to find a way to continue recognizing the role of gas in changing oil and coal, ”he said.

Six EU countries, including Poland, Bulgaria and the Czech Republic, on Tuesday signed a joint letter to the commission saying they opposed the withdrawal of nuclear and gas from the proposals and demanded their inclusion in the main taxonomy document.

“It would be wrong to mark the core and gas during a transition period clearly as non-green and it would substantially harm countries with a strong share of industry in their economy,” the letter said.

Countries such as Finland and Sweden have boosted the recognition of forestry, which is an important source of their bioenergetic fuels.

“The proposed rules for sectors such as forestry and bioenergy will actively mislead people into making unsustainable investments,” said Monique Goyens, head of the European Consumer Organization. “As it stands, the taxonomy is destined to become a greenwashing tool.”

Christian Kopf, head of fixed income at Union Investment, said asset managers wanted to be clear about the taxonomy while developing ESG investment products. “It is important that the credibility of the taxonomy is maintained and that industry groups are limited,” he said, adding that EU standards were increasingly seen as a global standard.

Eoin Murray, head of international investment at Federated Hermes, said the taxonomy “could have been benchmark legislation” but “feels like a missed opportunity”.

The publication of the taxonomy came on the same day that EU negotiators agreed on a climate law to reduce the bloc’s emissions by 55% by 2030, a milestone that will help the EU present a united front at the world summit. on the U.S.-led climate on Thursday. .

Additional reports by Joshua Oliver

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