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The EU executive published the draft implementing rules on 20 November, touting the proposal as “the world’s first-ever ‘green-list’” of economic activities aimed at encouraging private investments in the green economy.
A public consultation on the draft rules – known as delegated acts – closed on 18 December with more than 46,591 answers received and thousands of pages of feedback. As a result, the final proposal, initially due to be published by 1 January, was delayed with no clear indication of when it will come out.
“Colleagues are currently assessing the volume and nature of this feedback,” said Daniel Sheridan Ferrie, the European Commission’s spokesperson for banking, financial services, taxation and customs.
“The aim is to adopt the delegated act as soon as possible given the high number of replies,” he told EURACTIV in emailed comments, refusing to give further detail as to the expected publication date.
The guidelines are aimed at steering private investors towards environmentally sustainable companies, by laying down detailed emissions thresholds defining which economic activity can be considered “sustainable”. Other categories in the taxonomy include “transition” and “enabling” economic activities.
The European Commission hopes this will provide clarity over which firms are truly sustainable and prevent greenwashing by providing investors with clear operational guidance about what is green and what is not.
Gas: a ‘transition fuel’?
But the proposal also caused uproar among eastern and southern EU member states, who complained that natural gas had been denied “transition” fuel status in the draft guidelines, even when it replaces coal in power generation.
Poland in particular “has been critically vocal” about the draft taxonomy delegated act, said an EU diplomat familiar with Warsaw’s position.
On 18 December, the day when the public consultation came to a close, a group of 10 EU countries submitted a “working non-paper” to the European Commission expressing their concerns.
The joint paper “emphasised the need to maintain the possibility of using gas as a transition fuel,” and also insisted on “the possibility of using hydrogen from various energy sources” – not just renewables, the diplomat told EURACTIV.
The paper was signed by Bulgaria, Croatia, Cyprus, Czechia, Greece, Hungary, Malta, Poland, Romania, and Slovakia and sent out to the European Commission one week after an EU summit meeting where heads of states haggled through the night about the bloc’s new climate target for 2030.
It was a bruising summit where leaders from Poland and other eastern EU countries fought tooth and nail to assert their sovereignty in choosing their own energy mix – including natural gas – when meeting the bloc’s new climate goals.
In their conclusions, agreed unanimously after a night of strenuous talks, EU leaders reaffirmed this principle, saying they acknowledge the right of each country “to decide on their energy mix and to choose the most appropriate technologies to achieve collectively the 2030 climate target, including transitional technologies such as gas.”
The explicit mention of gas in the summit’s final communiqué was subsequently picked up by the group of 10 EU countries, who said their demands were “in line with the conclusions of the December European Council,” the diplomat said.
Risk of “green bubble”
Faced with a potential veto from a blocking minority of EU member states, the European Commission was forced to back down.
But the Commission’s woes with the green finance taxonomy did not stop at gas or the 10 signatories of the paper. Almost every EU country or interest group had issues with the draft delegated act, according to a well-positioned source in the European Parliament who keeps a close eye on the dossier.
In Germany, questions were raised in an independent study commissioned by the country’s environment ministry, which concluded that only 1% of blue chip companies listed on the DAX stock exchange would be considered “sustainable” if the Commission’s draft delegated act had been applied in its current form. The percentage rose to 2% for the French CAC 40 and the Euro Stoxx 50 indices.
Without more nuance in the classification of companies, the taxonomy risked creating a “green bubble” that would see investors rushing to buy stocks from a handful of firms considered truly “sustainable” under EU rules, the study suggested.
German diplomats in Brussels insisted that the study was not an official position from the country’s federal government. However, the message was echoed in substance by Yves Mersh, Luxembourg’s representative at the European Central Bank’s executive board.
“There are many industries that are neither clean nor dirty and they also raise funding on the market,” Mersh said in a recent interview, warning about “a certain gap between [the taxonomy’s] envisaged objective and its practical usability”.
“I don’t think we can stop climate change by choking off entire sectors of the economy,” Mersh cautioned, warning about the taxonomy generating “an unsustainable ‘green bubble’ detached from fundamental data”.
The European Commission is now busy reworking its proposal and will present an updated draft to EU national representatives during a meeting of the EU member states expert group (MSEG) on sustainable finance, scheduled for 26 January.
Following that, the final version of the draft delegated act could be published sometime between late January and mid-February, EURACTIV understands. EU countries will then be faced with a binary choice: either they adopt the draft without changes or they reject it as a bloc.
Opposition in Parliament
However, should the European Commission succeed to overcome opposition from member states, it will then have to convince the European Parliament, which also has veto power.
And opposition is already building up in the EU assembly. In October, a cross-party group of 51 MEPs from Eastern EU member states wrote a letter to the Commission, calling for the taxonomy to secure a “transition fuel” status for the most efficient gas technologies.
“Should the technical screening criteria of Taxonomy rule out state-of-the-art gas-fired generation as transitional by setting unfeasible limits, the overall costs of the energy transformation will be increased for those regions, which still need to develop gas today as partial replacement for coal,” the MEPs wrote in the letter, published by Politico.
“Highly efficient gas generation can play an important role in balancing the grid and gas cogeneration plants can improve air quality in cities across EU,” the MEPs said. “We therefore call for the Commission to recognise the significant regional sensitivities across Europe through the delegated acts under the Taxonomy Regulation”.
The 51 signatories included a majority of MEPs from the centre-right European People’s Party (EPP) and the European Conservatives and Reformist (ECR), including senior figures such as former Polish Prime Minister Jerzy Buzek. But it also included socialist MEPs such as former Romanian President Traian Băsescu, and a few centrists such as Ondřej Knotek and Clotilde Armand (Renew).
Elsewhere, criticism came from greens and leftists who argue the draft is too timid, notably when it comes to promoting investments in green agriculture.
The risk, according to one well-placed Parliamentary source, is that the EU assembly also rejects the draft. Between themselves, the two committees in charge of the taxonomy – the environment and economic affairs committees – are close to securing a majority to reject the proposal, the source said.
Seventy-one votes are necessary to pass or reject a proposal and there are already 65 MEPs who expressed themselves against the draft taxonomy delegated act, the source said, suggesting the 71 threshold will be easily reached.
“The worst-case scenario is that the draft delegated acts are rejected,” the source said, warning this would “nix the taxonomy in the bud”.
