30 october 2019

Gas industry storms into EU green finance taxonomy debate

Industry executives argue fossil gas should be considered green when it displaces coal in power generation, sparking fresh controversy around an upcoming EU sustainable finance taxonomy aimed at rewarding investments in clean technologies.

By Frédéric Simon |, Oct 16, 2019 (updated: Oct 30, 2019)

Two weeks ago, the EU’s 28 national representatives voted to reinstate nuclear power as a clean source of energy under a proposed green finance classification scheme currently under discussion at EU level.

The vote caused consternation in Austria, Germany, and Luxembourg, which had earlier issued a joint statement to oppose the inclusion of nuclear in the EU’s sustainable finance taxonomy.

EU ministers have decided not to exclude nuclear projects from a sustainable finance classification scheme, despite opposition from Germany, Austria, Luxembourg and the European Parliament.

Now, gas industry executives are also lining up to claim their place in the sun.

The EU’s green finance taxonomy “suffers from teething problems which urgently need to be corrected,” says Didier Holleaux, executive vice-president in charge of gas at ENGIE, the French energy company.

“The most illustrative example is coal-fired power plants,” Holleaux said, making the point that converting those plants to natural gas today can considerably reduce their carbon footprint in the short term, even though other technologies will be needed in the future to bring emissions down to zero.

“I’m not saying that natural gas is green,” Holleaux said. “But I do hold the view that replacing an old very polluting installation with a new natural gas one is green. And I think replacing a diesel truck with an LNG truck is green,” he told EURACTIV.

Holleaux’s comment touches upon a central question in the energy transition – whether a clean break from fossil fuels is at all possible and whether “bridge fuels” like gas should be promoted in the transition to a 100% renewable energy system.

“I recognise it’s not easy. But if the taxonomy does not take this into account, it risks becoming counterproductive” and push some industries to stick with coal, Holleaux warned. Indeed, renewable electricity is “totally out of price” and unsuitable for process industries such as cement or steelmaking, which need high-temperature heat for their manufacturing processes, he said.

“We arrive at solutions where, basically, we would end up being forced to generate heat with renewable electricity,” Holleaux pointed out, saying “this is not the best way to use electricity.”

What’s green and what’s not

The EU Taxonomy is a draft list of economic activities that is currently being drawn up at European level in order to channel private investments into clean technologies.

Annual investments in the range of €175 to €290 billion a year will be needed to move to a zero-carbon economy by 2050, according to the EU’s Technical Expert Group on Sustainable Finance, appointed by the European Commission last year to produce a first draft of the taxonomy.

The taxonomy will provide investors, pension funds and private equity firms with “a common definition of what is green and what is not” in order to channel more capital into sustainable businesses and prevent “green-washing,” the European Commission said last year when it tabled the proposed new taxonomy regulation.

EU tables ground-breaking ‘low-carbon benchmark’ for green finance

The European Commission presented on Thursday (24 May) a set of proposals aimed at boosting private investment in low-carbon technologies like renewable energies while increasing transparency in sustainable finance to avoid green-washing.

To qualify, an economic activity needs to make “a significant contribution to at least one” of six pre-defined environmental objectives, such as climate change mitigation or adaptation, water preservation, pollution prevention, and recycling. In addition, any technology automatically disqualifies if it does “significant harm” to any one of the other environmental objectives.

However, Holleaux argues that an economic activity cannot be defined as green “in absolute terms” but only in relation to a starting point, which varies depending on the local circumstances and geography.

“Unfortunately, reality is more complex,” Holleaux said, warning against the “perverse effect” of aiming for 100% renewable electricity immediately. “A lot more nuance is required” in the EU taxonomy, otherwise some heavy-polluting industries will be rewarded for sticking to coal, he insisted.

Environmental groups, for their part, have called on policymakers to promote only “fully sustainable economic activities” in the EU taxonomy and exclude everything else – starting with fossil gas and nuclear power.

In a joint statement, a coalition of green NGOs called for natural gas to be entirely excluded from the taxonomy, saying the current emission threshold identified by the Commission’s Technical Expert Group (TEG) should be lowered in order to exclude gas with Carbon Capture and Storage (CCS).

“More generally for the power sector, we recommend reducing the Emissions Performance Standard from 100gCO2/kWh to eg 50gCO2/kWh,” the coalition said in a joint statement, a threshold that would de facto exclude gas with CCS.

Moreover, the European Investment Bank has recently announced the exclusion of fossil fuels from its draft energy lending policy, with some exceptions, the NGOs said. “The taxonomy should continue on this trajectory and exclude fossil fuels completely.”


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