Brussels offers EU countries greater say on green finance taxonomy

News from Brussels

Source: Euractiv, 2021-06-01

The European Commission has offered EU Member States a greater role in deciding which technologies can be considered a sustainable investment in Europe after narrowly escaping a humiliating defeat in 2020 over draft labelling rules for gas under its green finance taxonomy.

The EU executive unveiled a first batch of sustainable finance implementing rules on 21 April, spelling out detailed emission thresholds that companies need to comply with in order to win a climate-friendly investment label in Europe.

It covers 13 sectors, including renewable energy, transport, forestry, manufacturing, buildings, insurance and even the arts, which together account for nearly 80% of EU greenhouse gas emissions, the European Commission said.

The proposal was initially meant for publication before 31 December, but was delayed after a group of 10 EU Member States threatened to veto it over concerns that natural gas had been denied “transition” fuel status in the draft guidelines.

The Commission seems to have taken that criticism on board, saying EU countries will be consulted more closely from now on. A proposed investment classification for gas and nuclear, the two most controversial aspects of the taxonomy, is still pending, and is expected to benefit from the Commission’s new approach.

“The basic ideas still need more discussion in the political process,” said Nathan Fabian, Chair of the Platform on Sustainable Finance, a European Commission expert group advising the EU on its green finance rules.

Last week, the European Commission wrote to the platform members in response to a request for greater clarity about how emission thresholds are set under the taxonomy.

The proposal, seen by EURACTIV, involves giving EU countries a greater role in developing criteria defining which activities can be considered environmentally sustainable. It also envisages giving a greater say for the European Parliament, if it expresses interest in the idea.

“One of the things that the Commission proposes is that there is a deeper technical exchange between the platform and the Member States” so that there is “much more exchange” of evidence before proposals reach the final political negotiation stages, Fabian told EURACTIV.

“Member States will be able to express some of the economic transition challenges they are facing” and “advise on how the framework can support them,” he explained, saying this will be done by “deepening the role of the Member States expert group,” which already exists.

The EU’s green finance rules have become mired in lobbying and disputes between Member States, who disagree on whether natural gas, bioenergy and forestry deserve a green label.

While EU Member States are likely to welcome the proposal, it is not clear whether it will be seen favourably by the European Parliament or civil society members of the platform, who have criticised the politicisation of the decision-making process.

In April 2021, environmental NGOs suspended their participation in the Commission’s green finance group in protest against forestry and biomass rules in the taxonomy, which they claimed had “been strongly influenced by unbalanced lobbying by Finland and Sweden” and was “at odds with environmental science.”

Fabian acknowledged that the proposal will give EU Member States more say in the decision-making process but that their contributions will need to be evidence-based, reinforcing the scientific character of the platform.

“We’re not discounting the risk at all, but we’re trying to manage it with internal processes and requirements on evidence,” he told EURACTIV. “I think we’re going into this with our eyes wide open,” he said, adding that the goal of the proposal is to reconfirm the platform’s science-based approach.

A first example of that, he said, is the work which is currently ongoing to define a “social taxonomy.” Those proposals will be tabled in July 2021, alongside new categories defining “significantly harmful” economic activities as well as those with “no significant impact” on the environment.

“For example, some economic activities are highly unlikely to ever be improved and be sustainable,” Fabian pointed out, saying “coal energy is one of those.”

But other technologies such as gas can be significantly improved if the right incentives are provided, he added.

“The idea that gas is a transitional category, does not hold. Gas is not a transitional technology, and unabated gas is unsustainable,” he said. “But if gas-fired energy uses both fuel blending and CCS, then we should be looking at the environmental performance of that,” he said.

“So there is this idea of moving out of significant harm” and “we’re trying to identify this idea of improvement.”

It is unclear yet whether these proposals will be sufficient to convince environmental NGOs to re-join the platform. Contacted by EURACTIV, WWF said it was unable to comment on the proposal until it is made public.

But Sandrine Dixson-Declève, President of the Club of Rome and one of the advisers sitting on the Commission’s expert group on sustainable finance, told EURACTIV she felt reassured.

“I am pleased with the new governance proposal and would also like to thank the European Commission for taking the concerns expressed by Nathan as chair of the platform as well as myself on many occasions regarding ensuring stronger governance principles,” she said.

“Ensuring a more balanced exchange between the platform experts and the Member States as well as the European Parliament, from the outset of the process is fundamental if we want to try to move together in sync towards an ambitious taxonomy,” she added.

Greater consultation with Member States will also prevent science-based recommendations to be superseded by “political bartering,” she said, adding that this was the case for sectors such as forestry and biomass.

Earlier in 2021, Fabian also warned about the risk of political pressure on the Commission’s sustainable finance group, which he chairs.

“My hope is that the NGOs see these as the right type of reforms” and re-join the platform, he told EURACTIV. “Ultimately whether they return is a matter for them, and I don’t want to pre-empt their decision.”

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