Establish a classification system for economic activities to determine whether they can be considered environmentally sustainable.
This is the whole idea of green taxonomy, a pillar of the European plan on sustainable finance.
Economic activities can be included if they contribute substantially to one of the six environmental objectives selected, without causing significant damage to the other five.
The first part of this taxonomy comes into force on January 1, 2022.
Brussels will use this tool to direct financial flows towards the activities of this taxonomy.
This can also be done by States, companies and funds.
That is why all activities want to be there.
Including nuclear power, so dear to France.
How far will France go to defend nuclear power?
Part of the answer can be found in the European green taxonomy, a classification of economic activities considered as sustainable and towards which Brussels wants to encourage investors to go.
The second delegated act of this future EU tool should be adopted on Wednesday 22 December.
Said thus, the file seems technical.
“It was originally, primarily of interest to the world of finance and then business,” confirms Jean-Yves Wilmotte, head of finance practice at Carbon 4, a consulting firm specializing in carbon strategy.
But in recent months it has taken on a highly political and highly confrontational turn.
Overview of the main issues.
What is the EU trying to do with this green taxonomy?
This is one of the pillars of the European Commission's action plan for sustainable finance presented in March 2018, recalls Jean-Yves Wilmotte. The idea? Establish a classification system for economic activities to determine whether they can be considered environmentally sustainable. A first issue is that of transparency. "The main economic actors, financial as non-financial, will have to declare what portion of their activities or their financial assets is compatible with this European taxonomy", indicates Paul Schreiber, campaign manager of Reclaim Finance, NGO which pushes to put finance in the spotlight. climate service.
But with this taxonomy, the EU is aiming further, by seeking above all to redirect capital flows towards green finance, one of the conditions for achieving carbon neutrality in 2050. Jean-Yves Wilmotte then speaks of this classification as a tool "which can be associated with various mechanisms to encourage sustainable investments".
The “European green bound standard” is one example.
This is a standard that Brussels wishes to develop to increase the environmental ambitions of the “green bond” market, the debt securities issued by private or public actors to finance projects.
Bond issuers wishing to use this standard will have to prove that the investments they are planning are in line with the green taxonomy.
How does this taxonomy work?
A group of technical experts (the TEG) worked for almost two years on this issue, before submitting its final report in March 2020. The proposed regulation is based on six environmental objectives. “Two climatic conditions, namely adaptation to climate change and its mitigation [reducing greenhouse gas emissions], begins Jean-Yves Wilmotte. And four others which relate to other environmental issues [transition to a circular economy, prevention and reduction of pollution, protection of ecosystems, etc.] * ”
Economic activities may be included in the taxonomy if they contribute substantially to one of its six objectives without causing significant harm to the other five and respecting minimum social guarantees. These three conditions are evaluated on the basis of multiple technical criteria. Practices used, standards to be respected, emission thresholds not to be exceeded… "In the energy sector, only activities emitting less than 100g of CO2 per kWh can be included in the taxonomy", illustrates Paul Schreiber.
Did you say gas plant?
"It will not be easy for companies to show that they deserve to be in this taxonomy," concedes Jean-Yves Wilmotte.
But this complexity makes it possible to push the analysis at the level of activities, and not only of their sectors.
»Thus, although low carbon, renewable energy projects may not appear in the taxonomy if they are detrimental to one of the other five objectives.
Where is this green taxonomy today?
Voted in June 2020 by the European Parliament, it must enter into force in two stages.
First partially on January 1, 2022, then fully at the beginning of 2023. Once this framework has been established, "this regulation remains to be concretely translated into technical criteria", explains Paul Schreiber.
This is the whole purpose of delegated acts, the equivalent of decrees in France. In April 2021, the European Commission published a first one detailing the technical criteria used to classify the activities that will enter the climate section of the taxonomy. Either those that contribute to mitigation or adaptation **. It is this first part which should come into force in a few days, and on which companies will have to start to do the “reporting” of their activities.
More than 70 activities appear in it, from the energy, transport, forestry and construction sectors… “But not natural gas nor nuclear power, points out Nicolas Nace,“ energy transition ”campaign manager at Greenpeace France . The first, a fossil fuel, was ruled out because it exceeds the threshold of 100 g of C02 emitted per Kwh. As for the atom, the experts advised not to include it because they could not demonstrate that this energy does not harm the other environmental objectives of the taxonomy. "
Big anger of ten Eastern European countries, who want to see natural gas appear at least as transitional energy (one of the three levels of taxonomy) **, because it allows to get rid of coal.
France is also very angry, which demands the integration of nuclear energy among sustainable energies.
“Brussels has decided to deal with these two thorny subjects in a separate delegated act,” continues Paul Schreiber.
With no opposition from the Council of the EU and the European Parliament, the first delegated act was adopted on 9 December.
And the second, the most conflictual therefore, could be next Wednesday.
"
Why does France want nuclear power to be in the taxonomy at all costs?
"The entry into force of this green taxonomy does not mean that investing in activities that are not part of it will become prohibited," insists Jean-Yves Wilmotte. This taxonomy is very selective. Barely 2% of the European economy is aligned with its criteria. It wouldn't make sense. The fear is much more that of a rise in power of this tool and the uses that will be made of it. "The EU could decide to direct an increasingly important part of its funds towards taxonomic activities", imagines Paul Schreiber. Above all, "other economic actors could use it to develop their investment policies," adds the head of Carbone 4. Countries, investment funds, companies. "
This is why the 27 EU states are each keen to push their pawns ****.
And the Elysee does it bluntly on nuclear power.
“In recent months, Emmanuel Macron has threatened to block this file if it was not part of it.
Neither did he hide his strategy of forming an alliance with the countries which defend natural gas to push their respective claims, ”deplores Nicolas Nace.
This strategy puts Olaf Scholz, the new German Chancellor, in a difficult position.
“Germany is against the inclusion of nuclear power and has long been ambiguous about gas,” continues the Greenpeace campaigner.
The presence of the Greens in the new ruling coalition should push Berlin to oppose this inclusion of natural gas more firmly.
"
A distant outcome?
Macron and Scholz were able to broach the subject during their first interview, on December 10.
“There is still no agreement, but the new chancellor has clearly said that he will not enter into open conflict with France on this taxonomy,” says Paul Schreiber.
From there to say that an exit is near?
“Austria has assured that it would take legal action if nuclear power was included in the taxonomy,” he continues.
And similar procedures could be launched on gas if it is included as well, which would clearly be contrary to the opinion of the expert group.
"
In short, we have not finished talking about green taxonomy.
All the more so since the delegated acts will still have to be produced which will make it possible to identify all the other activities that contribute to each of the other four objectives.
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* In detail, the four objectives are "sustainable use and protection of water and marine resources", "the transition to a circular economy, prevention and recycling of waste", "prevention and reduction of pollution", "protection healthy ecosystems ”.
** The activities classified in the taxonomy are classified in three levels.
Activities that are already sustainable, those that are not sustainable in themselves but allow other activities to contribute substantially to one of the other six objectives of the taxonomy (the production of electric batteries, for example), and those of transition, for which there is no low-carbon replacement solution, but whose greenhouse gas emissions correspond to the best performance in the sector.
*** While not causing significant prejudice to the other four objectives.
**** The hot topics are not limited to nuclear and gas.
"The Nordic countries have also exerted pressure to relax the rules on sustainable forest management, in order to make it easier to include projects for the production of energy from this biomass in the taxonomy", gives Paul Schreiber as another example.
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