One of these tools is the EU green taxonomy – a framework, released in its first iteration a year ago, that defines business activities that will avoid carbon and will help us move to the net-zero economies we have committed to become.
Investors are expected to channel investments from brown to green, and the taxonomy’s official aim is to support this while limiting the risk of greenwashing.
Europe is experiencing a deepening gas crisis, and the reliance on Russian piped gas considering its invasion of Ukraine is causing additional concerns. To this backdrop, there is another energy debate going on. This month, the EU has announced an amendment to the EU green taxonomy, introducing nuclear energy and natural gas as green transition activities. This has caused for significant, but not uniform, push-back.
An (electric) power battle has also emerged between Germany and France: the former who has pledged to shut off all nuclear power by 2022 over concerns with toxic waste, and the latter who depends on nuclear for 70% of electricity grid supply. France, like other EU countries, backs the nuclear inclusion to the taxonomy based on its significant CO2 saving versus fossil alternatives.
We believe the inclusion of natural gas is also very contentious. On one hand, natural gas-powered electricity is about half as polluting than thermal coal, and it provides a steady baseload power versus the more volatile renewable energy sources (solar, wind specifically).
On the other hand, it is only a transition solution for the near-term until we have built out enough renewables and utility-scale storage to power our grids fully “green”.
Including gas in the EU green taxonomy immediately hampers the ambition of it and risks directing new capital flows into carbon-intensive energy generation over renewables. It also reduces the usefulness of the taxonomy for end investor reporting that may want to invest in material green solutions.
Energy transition cannot happen overnight. Whilst there is a geography-dependent need to move out of the worst polluting sources to natural gas temporarily, green policy (and investment) frameworks need to set higher ambitions in line with the urgency of our climate crisis. It is usually the case that action lags ambition, so we must start by aiming high.
EQ continues to favour those companies with material green solutions, ahead of the decarbonisation trend.