Nuclear and gas inclusion in the taxonomy creates a “between in and out”

5 - minutes read

 

The vote in the European Parliament was expected to be tight as a cross-party coalition from the left to center-right was opposing the taxonomy complementary delegated act on nuclear and gas activities. A simple majority (354 Members of the EU Parliament) was necessary to blockade the text, but, on July 6th, the opponents to the inclusion of nuclear and gas in the EU taxonomy garnered only 278 votes. The European Council, made up of the 27 EU countries head of states or governements, could have opposed the delegated act until July 11th with a reinforced qualified majority (20 out of 27 Member States representing at least 65% of the EU population) and did not.

Figure 1 - Vote final results on the complementary delegated act on nuclear and gas activities

Source: European Parliament

The complementary delegated act faced fierce opposition on July 5th during debates in Parliament while activists were demonstrating outside. Indeed, what was supposedly a technical text at first steered political calculations. As a result of a compromise made before the invasion of Ukraine to tilt right wing MPs from gas-relying countries to vote in favor of nuclear inclusion, gas and nuclear were tied together in their inclusion in the EU Taxonomy.

Gas inclusion in the complementary delegated act was therefore a political move to help nuclear get through. Yet, there is a growing scientific agreement that nuclear is necessary in reaching net zero by 2050 :

• About 90% of IPCC scenarios limiting global warming to 1.5°C with no or limited overshoot require increased capacity of nuclear power worldwide.[1]
• The IEA recalls that nuclear “is an indispensable part of a cost-effective path to net zero by 2050”.[2]

In contrast, gas does not benefit from support from scientific bodies. However, the voted technical screening criteria are stringent enough, but also deterrent because of their blurness and legal uncertainty, to avoid a blank check for gas power plant alignment. Indeed, seven cumulative criteria need to be met for electricity generation from gaseous fuels to qualify as a “transitional energy”. These criteria are vowed to evolve and become more stringent over time, although displaying several shortcomings [3].

 

A fierce debate for uncertain outcomes

The inclusion of gas and nuclear triggered many reservations in the political and financial spheres. Among them, the fear that the European taxonomy will be discredited by a political inclusion calling into question the scientific nature of the technical screening criteria first established by the Technical Expert Group. The political method (delegated act) and the lack of transparency on the establishment of the technical criteria have tainted the scientific rigour with which technical criteria were first established.
Thus, some investors dissociated themselves from the delegated act creating, de facto, a “multi-speed” taxonomy (see our article on “Changing investors' perceptions on nuclear in the midst of the war in Ukraine and Taxonomy inclusion” available here). This fragmentation can weaken the universalist and scientific character of the EU taxonomy. 

Opposition’s arguments against nuclear and gas inclusion were driven by:

• The fear of an indirect support to gas consumption in a context of supply shortages and war in Ukraine.
• Greenwashing concerns cascading on the whole taxonomy classification rendering it obsolete and setting a bad precedent for other jurisdictions worldwide.
• Do No Significant Harm concerns over nuclear safety and radioactive waste management.
• Nuclear costs (construction, delays, decommissioning) and lead times making the source of energy too slow to provide climate benefits on the path to net zero.

On top of criteria stringency, making it hardly achievable for a gas plant to qualify as transitional and therefore benefiting from eased / "sustainable" funding, the inclusion of nuclear might help reduce gas consumption. Indeed, nuclear inclusion could help facilitate its financing and further reduce gas consumption. The IEA recently demonstrated that 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 (bcm) by 2030. Further extension could lead to a 70 bcm reduction of natural gas demand by 2030.[2] In comparison, Russian gas consumption in the EU amounts to 140 bcm/year.

Other taxonomies in the world such as the Russian and Chinese ones already included nuclear energy (see our study on The New Geography of taxonomies available here). Gas, on the other hand, is less susceptible to be a common ground between taxonomies.

Counter-intuitively, the EU taxonomy might be able to differentiate itself positively on gas inclusion. It brings more nuance to the dark green picture the taxonomy previously drew. It is now creating different levels of contribution to climate change mitigation with soon to be phased out “transitional activities”. It recognizes that the transition to a low carbon economy is not a binary process but rather a long, multi-linear convergent pathway. The same idea is conveyed by the Report of the Platform on Sustainable Finance on an extended taxonomy in March 2022 (see our article on the Extended Taxonomy: acknowledging “in betweenness” to soften elitism, available here).

Many consultations were organized on the DNSH criteria for Nuclear. The Joint Research Center (JRC) was consulted to provide an in-depth technical assessment of the DNSH aspects of nuclear energy. It stated that nuclear energy does not significantly harm other environmental objectives[4]. Then, the experts from the SCHEER reviewed the JRC’s report by providing a positive assessment on it. However, they highlighted uncertainties about the impact of mining outside the European Union, the final storage of nuclear waste and the impact of radioactivity on the environment[5].

Austria and Luxembourg vowed to take the delegated act to the European court of Justice vouching for its cancellation. The court will therefore ask for proofs that the inclusion is derailing Europe from its climate objectives but the net balance in CO2 emissions of the decision to include gas and nuclear is not that straightforward. Since 1971 and until 2020, nuclear allowed to avoid around 66 Gt of CO2 worldwide including about 20 Gt of CO2 in the European Union (IEA).[2]

In this context, the classification system unveiled inconvenient truths, the more renewable, the greater the need for stable electricity sources. While batteries, green hydrogen and other low-carbon technologies providing baseload and dispatchable electricity are not available yet, gas and nuclear must provide energy security and stability to the grid. Gas and nuclear being unavailable for geopolitical reasons, maintenance and/or political choices, coal power plants are being restarted in Germany, the Netherlands, Austria, France and potentially Italy at the expense of EU climate objectives.

The war in Ukraine has highlighted that certain pathways were geopolitically sensitive and that markets should not be held accountable for energy security. In that sense, it is only the beginning of a long political sequence regarding energy sovereignty at both national (energy grids orientation) and EU levels (electricity market reform).

 

Nuclear’s “Renaissance”: inclusion’s worldwide preliminary effects

Markets did not have to wait any longer to observe the consequences of nuclear inclusion in the taxonomy. On July 7th, the day after parliamentary vote, Electricite de France (EDF) announced an update to its green bond framework[6] which is now including nuclear power generation.

On July 12th, the Ontario Power Generation (OPG), a Canadian utility, followed suit. It updated its green bond framework to include nuclear power generation as well. If OPG does not directly mention alignment to the EU taxonomy,  inclusion may have had an influence in this framework update.

Both frameworks were rated medium green by Cicero, concerns over final waste disposal, low probability/high impact risks (weapon proliferation and accidental radiation with regional consequences) made it clear for Cicero that a framework including nuclear power generation could not be rated dark green. Other concerns on the supply chain were evoked regarding human rights in countries where uranium was extracted (Russia and Kazakhstan) as well as uranium extraction presenting risks of environmental and social harm per se.

Germany, once the fiercest opponent to nuclear, is reconsidering nuclear power plant closure in light of potential Russian gas cut-off. The power grid operators were requested another stress test for security of electricity supply in light of higher gas prices, supply outages and a halt in French nuclear reactors.[7] The commanded report should provide more accurate information on the costs and timelines associated with reactors' lifetime extension of the last three standing nuclear reactors of the country.

The global context calls for a nuclear “renewal” as oil & gas dependency for electricity generation is fueling the inflationary spiral, geopolitical imbalances[8] and climate change.