EU Taxonomy | Nuclear and gas energy activities can be environmentally sustainable

According to a Complementary Climate Delegated Act presented by the European Commission on 2 February 2022, nuclear and gas energy activities may qualify as green activities under the EU Taxonomy.

This newsletter provides a brief overview of the Complementary Climate Delegated Act with a focus on gas energy activities and carbon capture and storage as an abatement technology. The European Commission is clear that the criteria for both nuclear and gas energy activities to be considered as taxonomy-aligned economic activity are strict, as is the case for other energy activities. Carbon capture is recognised as an abatement technology enabling gas energy activities to reduce their GHG emissions and hence comply with the emission threshold.

The proposed amendments to the Regulation (EU) 2021/2178 (the “Disclosure Regulation”) specifying the reporting requirements are not discussed in this newsletter. More information and link to the proposed Act and Annexes can be found on European Commission’s homepage here. 

Eligible gas energy activities and technical screening criteria

The draft Complementary Climate Delegated Act that was approved in principle by the European Commission proposes to amend Regulation (EU) 2021/2139 (the “Screening Regulation”) by way of including six new activities in the Screening Regulation Annex I related to climate change mitigation and Annex II related to climate change adaption respectively. Activities related to gas energy to be included in the Screening Regulation are:

  1. Electricity generation from fossil gaseous fuels
  2. High-efficiency co-generation of heat/cool and power from fossil gaseous fuels
  3. Production of heat/cool from fossil gaseous fuels in an efficient district heating and cooling system

The activities falling within the descriptions set out in the Screening Regulation must comply with additional criteria to be considered as Taxonomy-aligned and thus environmentally sustainable. The so-called technical screening criteria define the specific requirements the activities need to fulfil in order to be considered to contribute substantially to an environmental objective and to ensure that they do no harm to other environmental objectives as set out by the EU Taxonomy.

Gas energy activities must comply with either alternative 1 (a) or 1 (b) in the relevant section of the Complementary Climate Delegated Act in order to meet the substantial contribution criteria for climate change mitigation (see relevant sections 4.29, 4.30 or 4.31 in Annex I). Alternative 1 (a) requires that life cycle GHG emissions are lower than 100 g CO2e/kWh. Alternative 1 (b) allows for a higher GHG emissions threshold of 270 g CO2e/kWh. Alternative 1 (b) is temporary and only available to facilities for which the construction permit is granted by 31 December 2030. In addition, alternative (b) contains a set of seven cumulative criteria which must be complied with. The activity must, inter alia, replace an existing high emitting activity that uses solid or liquid fossil fuels, be itself unreplaceable by renewables, and result in a reduction of at least 55% GHG over the lifetime of the newly installed facility. Compliance with the substantial contribution criteria is subject to verification by an independent third party.

In order to qualify as an environmentally sustainable activity, gas energy will thus need to meet specific GHG emission thresholds according to both alternative (a) and (b). Activities that are initially not able to reach such thresholds may make use of abatement technologies to reduce their GHG emissions. Where activities involve any form of abatement, including carbon capture or use of renewable or low-carbon gases, it is a requirement under the substantial contribution criterion that the abatement activity in question complies with the technical screening in the same Annex where applicable.

Gas energy activities that fulfil the conditions of alternative 1 (a) set out above, are also eligible under Annex II as activities that contribute to climate change adaptation to the extent that further conditions are met.

For more information on the technical screening criteria to be fulfilled by the activities in order to qualify as Taxonomy-aligned and thus environmentally sustainable, see Annex I and Annex II here. 

Gas energy activities considered by the Commission to contribute to climate change mitigation

Even though the gas energy activities in themselves do not reach the substantial contribution level required to meet the climate goal set out in the Paris Agreement, the European Commission has assessed that these activities facilitate the transition away from more harmful energy sources such as coal towards a mostly renewables-based future. By facilitating the transition, the proposed gas energy activities contribute to climate change mitigation (Screening Regulation Annex I). These activities fall within the category transitional activities, which are economic activities “for which there is no technologically and economically feasible low-carbon alternative”, cf. Taxonomy Regulation Article 10 (2).  The reason for including such energy technology in the Screening Regulation is that they are part of an energy system in transition.

Process going forward

The proposed Complementary Climate Delegated Act will be translated into all official EU languages and thereafter sent to the European Parliament and the Council (the co-legislators) for scrutiny. The co-legislators will have four months to scrutinise the proposal, with the possibility for two additional months upon request. The co-legislators must either object, or approve the proposal, and has no possibility to make or propose amendments. The threshold for objection is high and with reference to the Commissions Register of delegated acts the co-legislators have at the time of writing only raised an objection on 19 occasions. If there are no objections, the Complementary Climate Delegated Act will enter into force and apply as of 1 January 2023.

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