The European Commission is facing political and scientific opposition to its decision to delay part of its historic investor classification system in an attempt to resolve a dispute over the labeling of energy sources such as natural gas and nuclear.
Brussels published a new draft of its proposals on Wednesday on the classification of industries that generate 80 percent of emissions in Europe. The green labeling system, known as the sustainable finance taxonomy, will cover 40 percent of the EU’s economy.
Technologies such as gas and nuclear energy, however, are not included in the text, for which Brussels will propose a separate classification system after the summer.
The slowdown and uptake of forestry and bioenergy as forms of green economic activity were harshly criticized by expert groups, leading to a shutdown of environmental NGOs and consumer organizations involved in the two-year consultation process.
Mairead McGuinness, EU financial services commissioner, said the committee had tried to balance science on climate change with “the real world” and insisted that the rules would constantly evolve along with the scientific evidence.
After meeting with McGuinness, groups such as Transport & Environment, WWF and the European Consumer Group said they were leaving the EU platform for sustainable finance in protest.
“The taxonomy law had to be the gold standard for sustainable financing. But the result is the greenwashing of dirty freighters, gas buses and logging and burning trees, ”says Luca Bonaccorsi, director of sustainable finance at Transport & Environment.
Sandrine Dixson-Declève, co-chair of the Club of Rome and member of the EU expert group, said: “Unfortunately, this process got out of hand due to intense pressure from national interests, including Member State governments and MEPs. “
The taxonomy is designed as a science-led exercise to guide investors and make the EU the first major regulator to set the rules for what counts as a truly green investment.
But the project has been beset 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 lower-emission technologies, such as natural gas.
Germany and countries in Eastern Europe see gas as a critical part of their transition from fossil fuels, enabling the EU to meet its emissions targets by 2030. France and the Czech Republic have also demanded that nuclear technology not be penalized under the system.
The decision to postpone whether gas and nuclear should be included is intended 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 the measures.
Brussels plans to issue a separate legal document on the treatment of transition technologies such as natural gas later this year. The committee will consider “the merits of a sunset clause” to restrict its use, the draft said.
Valdis Dombrovskis, executive vice-chair of the commission, said gas would be subject to “strict legal limits” in accordance with scientific advice on emissions.
“More gas is needed. There are pretty clear limitations in the taxonomy, so we need to find a way forward while recognizing the role of gas in switching from oil and coal, ”he said.
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Six EU countries, including Poland, Bulgaria and the Czech Republic, signed a joint letter to the committee on Tuesday saying they oppose the elimination of nuclear energy and gas from the proposals and demanded that they be included in the main taxonomy document.
“It would be wrong to clearly label nuclear power and gas as not green for a transition period and it will significantly harm countries with a large share of industry in their economies,” the letter said.
Countries such as Finland and Sweden have pushed for recognition of forestry, which is an important source of their bioenergy 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 Association. “As it stands now, the taxonomy will become little more than a greenwashing tool.”
Christian Kopf, head of fixed income at Union Investment, said asset managers wanted clarity about the taxonomy when developing ESG investment products. “It is important that the credibility of the taxonomy is maintained and that lobbying by industry groups is limited,” he said, adding that EU rules were increasingly seen as a global norm.
Eoin Murray, chief of international investment at Federated Hermes, said the taxonomy “could have been a legislative milestone,” but instead “feels like a missed opportunity.”
The taxonomy’s publication came on the same day that EU negotiators agreed on a climate law to cut the bloc’s emissions by 55 percent by 2030 – a milestone that will help the EU present a united front on the US-led global climate summit on Thursday. .
Additional reporting by Joshua Oliver
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