Nuclear & Gas in the EU Taxonomy: integrity safeguarded despite postures and outrages
2 - minute read
The European Commission recently shared the long-awaited draft of the Taxonomy criteria for nuclear and gas with Member States and the Platform on Sustainable Finance. The text leaked. Eligibility and alignment are misunderstood by many observers, especially for fossil gas.
As a reminder, one thing is to be “eligible” or covered by the Taxonomy, another is to be “aligned” (i.e., in compliance with the technical screening criteria, do no significant harm and social safeguards). The alignment of fossil gaseous power generation facilities, in derogation with the technology agnostic threshold of 100g CO2e/kWh, is time-bound and possible only until 2030. Gas upstream activities are out of the scope.
Above all, such alignment is seldomly achievable because of a straitjacket of seven cumulative criteria that are altogether stringent (e.g., intensity threshold out of reach for current technologies, replacement of backward capacity, no capacity rebound effect nor technology lock-in, emission reduction gains). The overwhelming majority of assets would fail to meet the Taxonomy criteria, therefore only allowing a limited and timely role of gas in the transition, in the specific context of coal phase-out.
However, the usability of some criteria is questionable (e.g., the lack of renewable viable substitute), their rationale and instructions for use should be explicitly clarified in methodological appendices, notably the precise role and identity of verifiers. In the end, such “all the boxes checked” gas facilities might be at risk of being economically stranded if the future penetration of low-carbon gases is hampered (the very low load factor ranging between 10%-20% authorized by the Taxonomy criteria, if coupled with surging carbon prices, could wipe out the economic value of gas facilities).
Regarding nuclear activities, R&D, construction, operation, and life extension are eligible (mining, milling and waste management are not eligible, unlike the Russian and Chinese Taxonomies). There is unsurprisingly no debate on nuclear carbon intensity with regards to the technology agnostic threshold and DNSH issues are tackled mostly through existing and enforced Regulations. There are few additional requirements related to financial provisions for waste management and decommissioning, and disposal facility for high-level radioactive waste.
Such eligibility is in line with climate and energy science consensus (IPCC, IEA). It could improve the overall acceptance of new nuclear capacities and life extension financing as well as research in new technologies (related to safety improvement). Such funding effects could materialize through various channels, for both corporates and sovereigns, on one hand through Green Bonds (either ICMA green bonds or EU-GBS, for both sovereigns and corporates), on the other hand through Green Assets Ratios (factoring taxonomy alignment for equity and straight debt instruments, but so only for corporates).
To manage discrepant sensibilities on the two energy sources, in particular among investors, the Commission proposes to revise the EU Taxonomy Article 8 delegated act (“disclosures delegated act”). It would require a % breakdown of Taxonomy alignment KPIs distinguishing gas, nuclear and the rest of taxonomy activities. We foresee that such transparency will prove that the Taxonomy criteria are not lenient on gas with scarce assets aligned. A limited number of actors are exposed to nuclear, therefore the dedicated alignment sub-percentage should also remain low. Several time limits are incorporated (2030 for gas, 2040 for existing nuclear facilities and 2045 for new nuclear plants). The argument saying that nuclear power plants are long to build (>10years) is short-sighted. It ignores that all low-carbon energy sources are needed altogether. We only have a few years window to limit global temperature below 1.5°C or 2°C, but what happens after 2030 does matter.
Overall, we expect this Delegated Act to be adopted, as a reverse majority to blockade it is unlikely. We do not believe that the influence of the EU Taxonomy will vanish because of such inclusion; the current compromise is politically sound and scientifically tolerable in its foreseeable effects (one must remember that Germany has nearly 40 GW of coal capacities to decommission by 2030) and deserves attention to details as to the actual alignment criteria, rather than postures and outrages.
 See on the European Commission’s website “EU Taxonomy: Commission begins expert consultations on Complementary Delegated Act covering certain nuclear and gas activities”, available here. Officially, the Commission shared the draft with the Member States Expert Group on Sustainable Finance and the Platform on Sustainable Finance.
 The carbon intensity of current CCS-free gas-fired power plants range from 350 to 500 kgCO2/MWh , well above the Taxonomy threshold of 270 gCO2e/kWh. See our analysis infra regarding the 550kgCO2e/kW threshold.
 Literally, the text refers to “pre-commercial stages of advanced technologies with minimal waste from the fuel cycle”.
 See our study, Natixis GSH, "The new geography of taxonomies », 4 October 2021, available here.
 The Member State concerned must commit to report to the Commission every five years for each project the adequacy of the accumulated resources for radioactive waste management and nuclear decommissioning; actual progress in the implementation of the plan to have a disposal facility for high-level radioactive waste;
 Sovereign Green Bond Issuers with operating nuclear power plants are for instance France, Spain, Sweden, Hungary, Slovenia, or Netherlands (Germany and Belgium are also Green Bond issuers with nuclear capacities but have committed to phase it out). Poland is a Green Bond issuer and has some nuclear power plants construction plans. For corporates, Green Bond issuers with exposure to nuclear activities are for instance Vattenfall, Iberdrola, Engie and of course EDF.
 Governments are excluded from the Green Asset Ratios (GAR) calculations, see the FAQ: What is the EU Taxonomy Article 8 delegated act and how will it work in practice?, available here. It says “this delegated act excludes sovereign exposures of financial institutions from both the denominator and the numerator of their green ratios”.
 Under Article 8 of the Taxonomy Regulation, investors shall disclose information to the public on how and to what extent their activities are associated with environmentally sustainable economic activities defined by the Taxonomy.
 As of 2019. International Energy Agency, “Germany 2020. Energy Policy Review”, p.169, available here.