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The “sustainable” EU Taxonomy: When the European Union is about to shoot itself in the foot

Published April 26, 2023

The EU Taxonomy became law in July 2020, in an effort to create a clear framework for investors, companies and policymakers to identify economic activities contributing to the European Union’s sustainability objectives. After publishing new amendments recently, the European Commission is calling for feedback - and we’ve got some! Find out what the EU Taxonomy is and what is our take on it.

What is the EU Taxonomy? Importance and objectives of the EU Taxonomy Regulation

In his last book ‘No Miracles Needed,’ the renowned climate scientist Mark Jacobson assures that the technical solutions to fight back the climate change crisis are clear. However, what is also pretty clear is that we need a political miracle. The European Union has definitely been increasingly busy tackling the climate change crisis under the presidency of von der Leyen and since the launch of the European Green Deal in 2019. As an important contribution to the change of regulation needed and the EU carbon-neutral target, the EU Taxonomy became law in July 2020, in an effort to create a clear framework to guide companies and investors towards sustainability to align with the EU's efforts to become carbon-neutral by 2050. Its goal? To establish an exhaustive list and classification of environmentally sustainable economic activities to enable investors to take the environmental factor into consideration for their investment decisions a.k.a shifting money in the right direction. Based on a phased-in approach, firms of a certain size at first (including financial services companies) have to disclose qualitative and quantitative information on their activities to show their contribution to climate change mitigation and adaptation.

However, EU legislators left important points out of the EU Taxonomy to be resolved through delegated acts – amendments to the primary legislation meant for technical issues that are unfortunately not subject to the same degree of ministerial and parliamentary oversight. As companies finish their first annual EU Taxonomy reporting procedures, the European Commission is calling for feedback on the recently published new set of criteria for sustainable economic activities and targeted amendments to the Taxonomy Climate Delegated Act and to the Taxonomy Disclosures Delegated Act. During this four-week consultation period – open until 3rd of May – citizens or organizations are invited to make their voices heard and some have not waited too long. On the 18th of April, Greenpeace and other environmental groups declared taking the European Commission to the European Court of Justice over the decision to label nuclear energy and natural gas as climate-friendly investments in the Taxonomy Delegated Act.

At Tomorrow, we believe in climate law and want to highlight how important and how successful it can be to fight the climate change crisis: that’s why we have sent our feedback on the EU Taxonomy directly to the European Commission. Although according to our current size (under 250 employees) and design of our products, we legally do not have to report under the EU Taxonomy yet, we still aim at participating in the debate, namely because we believe that it is critical to make our voice heard to protect our planet and build a better future for everyone. This regulation touches our purpose itself: we want to make sure that money is shifted in the right direction.

Why we care

Money must be shifted in the right direction

The EU-taxonomy’s raison d’être is to help define under which conditions economic activities are considered sustainable and therefore guide investment decisions towards greener projects or companies. It is therefore crucial that we set the rules of the game in a correct manner. With the addition of controversial sectors such as nuclear, fossil gas or aviation (aircrafts powered by fossil fuel in particular), the rules of the game take a dangerous direction as it allows activities to be classified as sustainable although being fundamentally wrong when it comes to fighting climate change and drastically reducing emissions. The risk is obviously to allow existing climate-damaging industries to keep operating and receive funding.  

It is meant to be a blueprint for a social EU Taxonomy 

At the moment, the Taxonomy Regulation only covers environmentally sustainable activities although addressing social and governance areas via minimum safeguards (mostly UN Guiding Principles and OECD Guidelines). A social EU Taxonomy is in the planning as well since 2021 with a clear focus on currently missing topics in the Taxonomy such as human rights, access to healthcare, governance, equality, non-discrimination or decent employment. This is meant to become a powerful tool to fill the need for socially inclusive measures to accompany green transition and create investments in a just transition. As the first born, the green Taxonomy sets the pace, scope and tone that will be used for the social one. We should therefore make sure that it is strict and exhaustive enough to be a successful blueprint for the social Taxonomy.

Because we believe in influencing climate law and policy making 

Since 2020, more than 500 legal procedures linked to climate change have been launched according to the Grantham Research Institute on Climate Change from the London School of Economics. From actually stopping companies such as ExxonMobil in Alaska to citizen groups such as the one led by Ku in Hawaii, citizens and organizations can have a bigger impact by coming together and holding governments or corporations accountable for their decision-making’s influence on climate change. Of course influencing climate policy making can be done in different manners and taking legal action against governments seems to be the most bellicose one. However, giving feedback and coming up with proposals to influence climate-law also pays off: for example Clean Air Task Force (an organization supported through Tomorrow Zero accounts) focuses their action on drafting programs and strategies to make the EU reduce methane emissions, adopt zero-carbon fuels or develop the relevant infrastructure for carbon capture and storage. Thanks to their active contributions, the EU has made progress on methane strategies. Today, citizens and organizations are being asked for feedback on the EU Taxonomy and have a chance to be heard.

Critic and challenges of the EU Taxonomy and its amendments

It completely discredits the purpose and integrity of the EU Taxonomy 

The aim of the EU Taxonomy is so aligned with Tomorrow’s purpose and product offering that we cannot let it go soft. Opening the door to controversial sectors will undermine the integrity and effectiveness of the EU Taxonomy as well as possibly set the wrong blueprint for further regulation such as the upcoming social Taxonomy.

More than that, the current proposed amendments are not strict enough: not only do they allow controversial activities to continue operating but also do they still give these controversial activities generous thresholds - basically completely jeopardizing the EU climate neutrality target by 2050. For example, when looking at the sustainability criteria associated with fossil fuel gas or nuclear, the thresholds proposed to comply seem way too generous and would indeed make the EU commitment to carbon neutrality fail. The current Taxonomy sustainable contribution criteria for nuclear energy allows for a maximum 100 g CO₂e/kWh per energy produced while according to the Umweltbundesamt, nuclear emitted already on average 117 g CO₂e/kWh in 2020. Same goes for the thresholds for fossil fuel gasses. The thresholds are so close to the status quo that it cannot push us realistically towards net-zero. It also obviously diverts attention and money from other sources of energy with much lower footprints i.e photovoltaics which produce about 33 g CO₂e/kWh or wind farms producing about 7 to 9 g CO₂e/kWh.

It’s basically greenwashing for fossil gas and nuclear energy

Although the EU has just published a draft to address greenwashing claims made by companies, it looks like greenwashing could happen based on their own policy making.

To us, the inclusion and therefore sustainable activity labeling of natural gas, nuclear power generation but also to some extent of aviation and maritime activities in the EU Taxonomy is not acceptable. And we are not the only party to complain. The EU is currently facing several lawsuits from Greenpeace and four other groups such as ClientEarth and WWF, precisely on the grounds of excluding gas and nuclear from the newly drafted amendments. Austria already filed a legal challenge to the EU last October pointing exactly to this same issue.

Fossil gas and nuclear are designated as bridge technologies in the Taxonomy to help reach Europe’s carbon neutrality by 2050. However, we also see these additions as a violation of the EU climate laws and a dangerous opening for greenwashing as well as a risk of diverting investments away from renewable energy.

Nuclear energy is not clean, not cheap and not a secure source of energy and too slow to stop climate change (see Greenpeace for more info). It seems pretty obvious that, the construction of further nuclear plants - which usually takes one to two decades to build in Europe*- will distract the efforts to develop further renewables, move away from coal and generate pollution as well as potential accidents. It cannot be considered a transition energy source and generates dangerous waste. Nuclear plants are also not flexible enough to complement renewables in times of energy peaks. It takes a long time to switch the plants on and off and we won’t even be able to react to short term energy demand changes.

Labeling fossil gas as ‘sustainable’ seems also absurd. Spain, Denmark and other member states had argued it was not credible to label gas, a CO₂-emitting fossil fuel, as climate-friendly. It goes against the EU’s own scientific advice and fundamentally undermines the credibility of the EU’s climate action.

In addition, the aviation sector pushed to have new ‘efficient’ aircraft powered by fossil fuels classified as a green investment. According to Transport & Environment (T&E), “more than 90% of Airbus’ order book could be considered green, while nearly a third of low-cost giant Ryanair’s future fleet would pass the threshold under the EU Taxonomy”. Millions of euros could therefore be channeled towards some of Europe’s biggest polluters, of course labeled as “sustainable”. T&E also highlighted the loophole for LNG-powered containers and cruise ships: they technically emit less CO₂ than traditional fuels, allowing their inclusion in the Taxonomy, but the EU’s criteria ignore methane slips and downstream emissions from LNG, which often make them worse for the climate than the traditional fuels they replace. This provides no incentive for the shipping industry to invest in sustainable shipping fuels as they will continue to benefit from green financing for ships fully powered by fossil fuels.

What can and should be done for a better tomorrow 

Although one could understand the aim of the Taxonomy as a way to provide guidance on what activities are the most sustainable - across pretty much all sectors - this important regulation should never put in danger the EU carbon neutrality target but instead push heavily industry players towards it. Here is part of what we think should be done.

Remove fossil fuel gas and nuclear energy 

Certain sectors such as gas and nuclear should not be included in the Taxonomy at all even if we could identify more sustainable activities within them. We expect stricter rules when it comes to aviation and maritime activities because we cannot allow industries and their respective products and services to be labeled as “sustainable” only because they comply with a “loose” criteria. This would allow investments to keep coming to such climate-damaging activities without forcing them to further improve their climate balance.

Give more guidance and support to companies on their journey

To be Taxonomy aligned will be a journey for many players. The EU should also make sure the right tools and programs are in place to strengthen adoption. Requirements for non-sustainable sectors to implement the criteria would also be welcomed.

Make your voice heard!

We are lucky enough to live in a pluri-states democracy and we should always use the chance to make our voices heard. We encourage our community to join us in giving feedback to the European Commission right here. Let’s make our voices heard and carry through with the European Green Deal.

We can also recommend having a look at Taxonomy alternatives that are being built as a criticism such as Greenwashed.net.