Shortly before a dinner guest around our New Year’s Eve table asked me whether it will really be possible to satisfy all our future energy needs with electricity from renewable sources, the European Commission slipped through its controversial proposal for what constitutes green investment.
In the Commission’s draft addition to the green taxonomy, fossil gas and nuclear energy would be labelled as sustainable under certain conditions in the transition to net-zero emissions. Did the Commission hope that this proposal would fly under the radar of New Year’s hangovers and people would be too blurry visioned to notice the ludicrousness of this proposal?
As we need to complete the transition to a fully renewable energy future sooner rather than later, defining new investments in gas and nuclear as sustainable seems like a bad joke. As I explained to my dinner guest, several studies show that, by 2030, Europe can entirely be powered by renewable sources if the technologies are deployed rapidly and the infrastructure upgraded. This means that all available policy instruments (and financial resources) must be harnessed towards this end. Continuing to invest money in nuclear and gas will delay rather than facilitate the green transition.
EU member states did not waste many January days before taking issue with the Commission’s proposal. Spain, Austria, Luxembourg and Denmark took a principled stance with a joint letter which expresses “grave concerns” about the sustainable classification of both fossil gas and nuclear energy. The new German government, which is poised to continue Germany’s exit from nuclear energy, opposed giving nuclear a green stamp while simultaneously demanding that investment rules for gas be loosened. The Commission’s external taxonomy advisers themselves tore the taxonomy proposal on gas and nuclear apart in a 44-page report. These voices of dissent are so far insufficient in light of the heightened majority requirements for the proposal at the Council. Some hope rests with Austria’s vow to take the draft taxonomy to the EU’s Court of Justice and with the demand of the chairs of the European Parliament’s environment and energy committees for a consultation open to the public, as well as a new environmental impact assessment of the proposal.
Of course, the inclusion of gas and nuclear in the green taxonomy contradicts the very idea of sustainability. Even worse, these investments would lock in the use of these polluting energy sources and divert much-needed public funds from renewable energy facilities and investments in energy savings. However, there is a more fundamental question about the rationale and effect of the green taxonomy.
The green taxonomy only exercises an indirect influence on private investors. It provides guidance on what is green enough now to invest in. It does not tell them which sectors and companies are on the way to becoming green enough to merit continuing investment. As such, it is not a direct incentive for the decarbonisation of particular economic activities. If nuclear and gas remain profitable (which is not a given for nuclear without public support), the private sector will continue to invest in it. Only overall shrinking investment, both public and private, would be a hopeful enough prospect.
If private investment were to replace public investment in fossil fuels because of the EU taxonomy, this could even reframe the notion of carbon leakage. Although carbon leakage is commonly (although historically not correctly) considered a risk of carbon pricing, here carbon pricing might actually be the antidote to ‘green leakage’ by slowing or discouraging the shift of investment in gas from the public purse to private capital. In other words, carbon pricing, especially if applied to entire sectors and ideally globally, would make investing in dirty energy sources unprofitable. Dirty industries don’t voluntarily clean up their acts. Making them pay for the true environmental cost of their pollution would force them to walk a more sustainable path.
This is why it is imperative that the EU gets its carbon pricing policies and strategies right. The year has got off to a busy start with the publication of the draft reports by MEPs Peter Liese and Mohammed Chahim, respectively on the European Commission’s proposals for the overhaul of the EU’s Emissions Trading System and the establishment of an EU Carbon Border Adjustment Mechanism. The amendment game in the European Parliament is on. The stakes are high and the interests divergent.
More generally, corporate climate plans require scrutiny so as to ensure that investors and consumers can see which companies are truly cleaning up their operations and which are simply greenwashing their images. The first-ever Corporate Climate Responsibility Monitor, a joint initiative between NewClimate Institute and Carbon Market Watch is due out soon (check our website on 7 February). It assesses the transparency and integrity of the emission reduction and net-zero targets of major corporations, including many household names. The findings are sobering.
At Carbon Market Watch, we are ready to fight tooth and nail (armed with reason and empathy) to defend the interests of the climate for the sake of humanity. “Look up” and be with us.
Happy new year.
This month’s content
- EU must stop subsidising polluters with hundreds of billions in free emissions allowances, green groups demand
- How to make the EU’s carbon border tax effective and fair
- A sustainable carbons cycle or a vicious emissions cycle?
- Unsustainable business cycles trump sustainable carbon cycles in EU’s CO2 removals strategy
- A brief explanation of the Carbon Border Adjustment Mechanism (CBAM)
- FAQ: Deciphering Article 6 of the Paris Agreement
- Amplifier la dynamique des marchés internationaux du carbone en Afrique