Could IEA’s report tilt EU Parliament’s vote to include nuclear power in the Taxonomy?

4 - minute read

On the brink of a decisive vote in the European Parliament on Nuclear integration in the EU taxonomy, the International Energy Agency published a 95-page report on Nuclear Power and Secure Energy Transitions at the end of June 2022.

The recent surge in oil & gas prices as well as the war in Ukraine have been questioning European countries’ energy mixes and policies (see our article: The clash between sovereignty and sustainability?). Indeed, arbitrages were made between extending nuclear plant lifetimes (Belgium) and using additional fossil fuel-based electricity generation such as coal (Germany, France). Given recent events, the International Energy Agency clarified its position on nuclear power plants: every single low-carbon energy source is needed to reach net zero by 2050. According to the IEA, “extending nuclear plants’ lifetimes is an indispensable part of a cost-effective path to net zero by 2050”. Not using nuclear would harm the collective journey to net zero: “Less nuclear power would make net zero ambitions harder and more expensive”.

Nuclear power generation represented around 10% of electricity produced in 2020. It is the second largest provider of low carbon electricity worldwide behind hydropower. Since 1971 and until 2020, it allowed to avoid around 66Gt of CO2 worldwide including about 20Gt of CO2 in the European Union [1] (IEA).

According to the IEA, extending nuclear power plants’ lifetime is a very cost-effective source of both low carbon electricity (< USD 50/MWh) and greater independence from natural gas. Indeed, decisions made between May 2019 and May 2022 to extend nuclear power plants’ lifetime are responsible for a reduction of gas consumption by about 50 billion cubic meters [2] (bcm) by 2030. Further extension could lead to a 70 bcm reduction of natural gas demand by 2030.

In the Net Zero Scenario (NZE [3]) set by the IEA, nuclear capacity is forecasted to double from 413 GW at the start of 2022 to 812 GW in 2050. Compared to this scenario, if nuclear capacity were to decline to 310 GW by 2050, maintaining electricity security would present additional challenges and entail in higher overall costs with increased investments of about USD 500bn as well as an increase of consumer electricity bills of almost USD 600bn over the period to 2050. Indeed, for every 1 GW reduction in nuclear capacity, 3.5 GW of capacity from other renewable sources [4] would be needed, with increased demand on critical materials for power generation, grid infrastructure and electricity storage.

As for waste and safety concerns, the IEA underlined that the 2011 Fukushima-Daiichi calls for robust and independent regulatory oversight. Indeed, the accident triggered most of the bans on nuclear power and phase out policies worldwide. Yet, shutting down nuclear plants resulted in increased thermal power generation, higher CO2 emissions and higher trade deficits. Interestingly, amid energy security concerns, the tide is turning in Japan which is ready to restart reactors provided they are safe. This trend is observed in other countries where “stress tests were carried out at existing reactors and some were ordered to make safety modifications”.

“Currently, 47% of spent fuel worldwide is stored on site at nuclear power plants”. Long-term solutions such as geological repositories are under development but face fierce opposition locally as citizens are afraid that waste end up contaminating local environments. Three countries already have approved sites (Finland, France and Sweden). “Public acceptance of the long-term storage of high-level waste is key”. [5]

On top of the IEA, IPCC recalls that nuclear is instrumental to limit global warming in most 1.5°C pathways with no or limited overshoot [6]. These two scientific bodies have been providing authoritative scientific statements for decades and are calling for implementation. On the other hand, political preferences and risk appreciation have been delaying change.

The EU Parliament will cast its final vote regarding nuclear inclusion in the taxonomy of sustainable economic activities on July 6th. This vote could have both significant impacts on nuclear activities’ financing, as integrating the EU taxonomy could mechanically increase demand for financial products dedicated to nuclear, potentially increasing bank's Green Asset Ratios (Non-Financial Reporting Directive).

Nuclear power economics hinge heavily on regulatory and political environments which affect its cost structure. An inclusion in the EU taxonomy of sustainable economic activities is a step forward in the recognition of the two benefits of nuclear power: dispatchability and low carbon emissions. On top of power market restructuring, inclusion can help in reducing the technology’s associated cost of capital.

Fierce debate has taken place between proponents of the low carbon technology and opponents who see it as too dangerous because of potential accidents and radioactive waste management. Undoubtedly, IEA’s paper, is timely.

At first technology agnostic, the EU taxonomy made an exception for nuclear activities and went beyond current standards to require stringent and additional technical criteria on safety and waste management. (see our article on Nuclear & Gas in the EU Taxonomy: integrity safeguarded despite postures and outrages).

The war in Ukraine has reshuffled perceptions over both gas and nuclear activities based on sovereignty considerations but the political association tying gas and nuclear together in this decisive vote might be detrimental to the latter. Indeed, the fossil fuel-based source of energy is fueling opposition to the entire complementary delegated act for fear of greenwashing.

The vote in parliament is expected to be tight as a cross-party coalition from the left to center-right is opposing the delegated act. A simple majority (more than 353 Members of Parliament) is necessary to block the text. As a reminder, the economic and environmental committees voted against the inclusion of gas and nuclear on June 14th, sending a strong signal to both the Commission and the Parliament. The motion will be debated on the 5th of July and voted during the plenary session the next day, July 6th.