17.01.2022 | Where do the EU's green billions end up?

Sustainable Finance: Nuclear power & natural gas = "green"?

Eberhard Röhm-Malcotti

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With the European Green Deal, the EU has set itself the goal of becoming the world's first climate-neutral continent by 2050. The substantial financial resources required for this are to be provided both by subsidies and by private investors. With its Sustainable Finance Strategy, the EU wants to create an attractive framework for green investments. The core element is the EU's Taxonomy Regulation; it defines "sustainable economic activities" - i.e. what is green and should therefore be privileged. The question of whether electricity generation from nuclear power or from natural gas is green has been the subject of intensive discussions in Brussels for months.

What happened so far?

On Friday 31 December 2021, the last day of the year, the European Commission sent a draft delegated act to the EU member states that would classify nuclear and natural gas power generation as green - under certain conditions. This would allow money from financial products marketed as green to be used, for example, for the construction of nuclear power plants or gas-fired power plants. A draft of the delegated act has been leaked to the press.

Nuclear power

According to the draft delegated act, investments in the construction of new nuclear power plants could be considered green, provided, among other things, that the safe disposal of radioactive waste is ensured and that the necessary final repository is in operation by 2050 at the latest; final disposal must take place in the EU. However, this is only transitional: The new nuclear power plants must be licensed before 2045. In addition to investments for the construction of new nuclear power plants, investments to finance lifetime extensions can also be classified as green, provided that the highest safety standards are achieved in the process. To the detriment of nuclear power, investments in the nuclear fuel cycle are not considered green; the good news for the nuclear industry is, that the production of hydrogen from new nuclear power plants would be considered as green. The latter could mean a paradigm shift for hydrogen production in the EU. Nuclear power is subject to the general EU taxonomy emission performance standard of 100gCO2e/kWh.

Natural gas

Gas-fired power plants can exceed the general emission limit of 100gCO2e/kWh according to the draft delegated act and still be designated as green under the EU taxonomy, provided they are licensed before 2031 and comply with the following alternative emission limits:

  • Maximum 270 gCO2e/kWh - provided the gas-fired power plant replaces a more polluting fossil fuel power plant and this reduces emissions by at least 55%/kWh.
  • A maximum of 550 kg CO2e/kW/year - averaged over a period of 20 years.

Further requirements concern, for example, the extent of the methane emissions caused or the use of renewable and low-carbon molecules (biogas, hydrogen): as of 2026, at least 30% of the molecules used must be renewable or low-carbon, and from 2036 their share must be 100%.

According to estimates by the gas industry, the demanding targets for gas-fired power plants can only be achieved if the gas-fired power plants are operated with renewable or low-carbon molecules and as combined heat and power (CHP) plants. While this is in line with the European Commission's goals of decarbonising the gas sector on the one hand and increasing the share of renewables in the building sector on the other, it is questionable whether sufficient green or low-carbon molecules, e.g. hydrogen, will already be available by 2026.

Who wants what?

While environmental protection associations and, to some extent, representatives of the (sustainable) financial services industry accuse the European Commission of undermining the credibility of the EU's sustainability strategy by including nuclear power and natural gas and fundamentally reject the delegated act, it is welcomed by at least some of the EU member states. France's President Macron, in particular, has clearly positioned himself in favour of the expansion of nuclear power: According to him only with nuclear power can the fight against climate change be won, a reliable energy supply be ensured and low electricity prices for households and industry be achieved. France holds the 6-month EU Council Presidency since the beginning of this year and will try to use it in its favour: For example, investments in green technologies could be exempted from the Euro stability criteria in the future. Then, in addition to private green capital, EU and national subsidies would be available to build the nuclear power plants announced by President Macron in France. This approach is supported by the Central European member states, which consider replacing coal-fired power generation partly with nuclear power and mainly with natural gas; to a limited extent, this also applies to Italy. Germany is caught an awkward position: after the phase-out of nuclear power - which will be completed by the end of this year - the "traffic light" coalition now also wants to phase out coal-fired power generation more quickly, ideally as early as 2030 instead of 2038. According to the coalition partners SPD and FDP, gas-fired power plants are needed for this; the Greens are opposed to this - or at least to their classification as green technology; a face-saving way-out might be abstaining from the vote in the Council. It remains to be seen whether Austria and Luxembourg will carry out their threat and, if necessary, appeal against the delegated act before the European Court of Justice.

What happens next?

The EU member states and selected experts can submit proposals for amendments to the delegated act until 21 January 2022. The European Commission is expected to publish the final version of the delegated act at the end of January or beginning of February 2022. It will enter into force if neither the European Parliament nor the Council - the body of EU member states - vetoes it. They have 4 months to do so - extendable by another 2 months. In the Council, a veto would require a so-called "reinforced qualified majority", i.e. at least 20 member states (out of 27) representing at least 65% of the EU population would have to reject the proposal; in the European Parliament, on the other hand, a simple majority, i.e. 353 votes in plenary, would be sufficient. Accordingly, the EU member states are currently trying to introduce their desired changes by intensive lobbying of the European Commission.

The delegated act would apply from January 2023. 

Delegated Act

In a delegated act, the European Commission is mandated by the European Parliament and EU member states to adopt legal acts in the form of an EU Regulation that serve to amend or supplement non-essential aspects of EU law, similar to an administrative regulation. Often, however, politically sensitive regulatory content - where no agreement can be found in the EU's ordinary legislative procedure - is outsourced to this so-called comitology procedure, as it takes place behind closed doors.

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