The European Parliament has voted in favour of classifying fossil gas under the “sustainable” banner for investments in effort to “shift towards a climate-neutral future.”
European Union lawmakers have backed a proposal from the European Commission to consider both nuclear and fossil gas as “sustainable” sources of energy in consideration to investment, and the new rules will go into effect in 2023. An action that has been criticised by scientists and environmental advocates who question if this is “the biggest act of greenwashing in history”.
The commission states that the proposal was put together in order to create a clear definition of ‘sustainable’ within EU Taxonomy, the EU’s investment classification system. This would help to correctly direct investments towards sustainable projects and activities. With the goal to reach the objectives of the European green deal and meet the EU’s climate and energy targets for 2030.
This motive has been questioned by the environmental community, with Greenpeace releasing a statement saying they would take legal action against the European Commission. Ariadna Rodrigo, Greenpeace’s EU sustainable finance campaigner commented “It’s dirty politics, and it’s an outrageous outcome to label gas and nuclear as green and keep more money flowing to Putin’s war chest, but now we will fight this in the courts”.
The commission claims that including electricity generated from natural gas in its green investment guidelines will help the EU meet its 2030 targets for decarbonising power by supporting coal-dependent EU countries to switch to natural gas, lowering their overall emissions. A reduction in emissions would be driven by the fact that natural gas emits around 50% less carbon dioxide than coal.
Under the proposal, only gas power plants that emit less than 270g of CO2 for each kilowatt-hour (kWh) of electricity will be labelled as ‘sustainable’. And firms operating such plants must demonstrate they will completely shift from natural gas to low-carbon fuels or renewables by December 31, 2035. However, it’s worth noting that the rules do not impose legal sanctions on them if they fail to do so.
But, not everybody agrees this is enough. Some experts involved in drafting the technical rules highlight problems with this emission limit, stating: “allowing the operation and construction of new power plants, co-generation or district heating facilities using fossil gas which emit up to 270g CO2e/kWh would seriously jeopardise the possibility for the EU to meet its commitments under the Paris Agreement”. Noting that a significant reduction in the threshold to 100g CO2e/kWh should be applied for energy generation to be compatible with a 1.5 °C pathway.
As for the addition of nuclear as a ‘sustainable’ energy source, it’s somewhat more complicated. According to a report from the Commission’s research unit, greenhouse gas emissions from nuclear plants are comparable to those released by hydropower and wind. This assessment is also shared by the International Energy Agency (IEA) and the United States Department of Energy.
However, critics of nuclear energy argue that the radioactive waste generated in the process is harmful to human health and the environment. There are also those who are concerned about potentially disastrous nuclear accidents, similar to those of Chernobyl in 1986 or Fukushima in 2011, which are still deeply ingrained in memory.
Something everybody can agree on is the inclusion of some clear guidelines when it comes to sustainable investment. ESG investing is on the rise, allowing eco-conscious investors to commit and develop sustainable companies.
However, due to a lack of clarity and consistency between criteria, the system is currently open to abuse, or “greenwashing.” Recent investigations into Goldman Sachs and Deutsh Bank have uncovered allegations that the banks misrepresented the assets they were investing using environmental, social, and governance (ESG) criteria.
By defining and categorizing funds that are sustainable, investment can find its way to the projects that provide the greatest environmental benefit.
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