Published on 26 April 2021

SUSTAINABLE FINANCE

Adoption of the EU Taxonomy Delegated Act: a move by the European Commission to avoid rejection in the European Parliament

The European Commission recently adopted the EU Taxonomy Climate Delegated Act. Drafting the text required several months of work, and during that time, pressure from various industries and member states continued to intensify. Ultimately, the text excludes natural gas and nuclear power from the EU Taxonomy - to allow for further discussion - and introduces loose criteria on forest management.

Taxonomy

@Novethic

The European Commission unveiled the EU Taxonomy Climate Delegated Act, which will make a significant contribution to the EU’s climate change mitigation goal. The delegated act is a legally binding act that implements laws adopted by the European Union. It is both an administrative document since it establishes the rules for companies’ green activities and sustainable financial products (which are subject to reporting obligations), as well as a highly political document that is widely discussed by both industrial lobbies and European politicians. Published on April 21st, the delegated act proved to be a compromise aimed at consensus, to minimize the risk of rejection by MEPs.

The Commission first decided on the energy sector. The European Commission’s  DG FISMA – the body in charge of the financial stability of financial services and capital markets - chose to put aside the greatly contested subject of natural gas and nuclear power. This matter will be treated separately. "The Commission intends to put forward a separate legislative proposal in Q4 2021, specifically covering how certain economic activities, primarily in the energy sector, contribute to decarbonization", wrote the European Commission in the draft statement of the delegated act.

A first draft of the delegated act, which was revealed in the press but never confirmed by the Commission, nevertheless included gas under certain conditions. This revived French enthusiasm over the possibility of including nuclear energy in green activities. The heated debate prompted members of the European Platform on Sustainable Finance to threaten resignation if the EU Taxonomy did not respect scientific facts.

In an interview with Euractiv, Pascal Canfin, MEP for the Renew group, justified the European Commission’s decision. Canfin stated, "In my opinion, gas and nuclear power must be treated together because politically they are linked to the same question. And that question is, under what conditions can these two technologies be useful in the ecological transition”?

Forests: another point of contention

Sustainable forest management is another point of contention for the EU Taxonomy. The initial draft provided strict criteria to ensure that loggers provide proof that their forests can act as carbon sinks over 20 years. Faced with an outcry from Nordic countries, where the forestry industry is particularly developed, the European Commission revised its criteria. Forest operators will now have 30 years, or until 2050, to prove the climate benefit of their management. This is a deadline that is too far off for NGOs, especially if carbon benefits are modest.

These reporting obligations will also be required for forests as soon as they exceed 13 hectares, which is a victory for several NGOs, including the WWF and ClientEarth. However, NGOs signed a joint letter to the European Commission to express their disagreement on this point and ask that the issue of agroforestry be removed from the EU Taxonomy and dealt with at a later date - which is the case for agriculture as it did not appear on the final version of the delegated act. NGOs also criticize the loose criteria around certain forest biomass combustion practices.

Casting aside energy and retreating on forests gives the impression that the European Commission made strategic choices to ensure that the text is not rejected by the European Parliament. Canfin estimates that "in the East, it [the delegated act] is already facing enormous opposition from countries like Poland and the Czech Republic, specifically on energy. If it also loses the support of Nordic countries, it loses its majority on the EU Taxonomy at the European Council”. 

Arnaud Dumas


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