“Taxonomy” and energy security in Europe

European Commission is preparing an executive’s legislative proposal (taxonomy’s delegated act) for sustainable investment guidelines into nuclear and gas energy projects coped with the EU’s green transition programs. The proposal is about “classifying conditions” (hence, the taxonomy) in accommodating nuclear and gas energy sources in the member states’ recovery and resilience measures. 

One of the main protagonists of the delegated act, the Financial Services Commissioner, M. McGuinness defended the inclusion of nuclear and gas consumption projects in the proposed taxonomy’s act. The taxonomy proposal (which is generally regarded as the EU’s “green rulebook”) is about providing a “green label” in investments to some gas and nuclear projects in the member states.
For example, for the Union’s banking sector the taxonomy idea means that in borrowing about € 60-100 billion per year on the global capital markets the investors shall be assured to get what the taxonomy means, e.g. invest in projects replacing coal in energy production plants while meeting certain emissions conditions and have construction permits granted by 2030.
Some major banks and investors could simply choose to opt out of certain elements of the taxonomy, rather than risk accusations of green washing, said Werner Hoyer, European Investment Bank president. Reference to:
https://www.bloomberg.com/news/articles/2022-01-27/eu-bank-may-avoid-bestowing-green-label-on-gas-nuclear-projects?utm_source.

Controversies and solutions
The College of Commissioners is presently discussing a controversial EU “taxonomy” proposal (expected to be agreed on soon regardless of different positions among the College members), which includes nuclear and gas in the renewable-led energy sources as essential means to ensure European energy transition and meeting EU’s climate-deal targets. Although the Commission has already reviewed its delegated act, it did not significantly change the draft proposal, which the Commission published at the end of 2021.
The Commission’s landmark classification scheme is one of the key files to be adopted by the Union’s legislators in 2022; however, it has faced notable pushback from some of the EU member states and environmental groups. Fully accepting that gas is a fossil fuel, the Commission sees it a much better energy source than the continuing use of coal; besides, nuclear energy is carbon free, as the EU commissioner acknowledged, arguing that the proposal deals with the issue of toxic waste disposal and requires that nuclear sources cause “no significant harm” to the environment. More on climate-energy regulations in: https://www.integrin.dk/2021/12/26/climate-energy-regulation-new-sector-of-the-european-law/

As to the taxonomy’s categories, it is up to investors and the new technologies sectors to use the suggested “taxonomy standards”. The new classification system will most likely be adopted as it is being introduced via a delegated act. The latter represent a “quick mode” to accelerate the adoption of certain Commission’s executive measures; delegated acts are rather rear legal instrument: last time such an act was adopted in April 2021.
The EU Treaties allow the delegated acts to be a valid legislative instrument in the Union’s policy’s implementation. As a result of the new “reverse reinforced qualified majority” rule, it needs at least 20 EU states representing 65 percent of the EU population to voice objections to the proposal to be blocked. The EU’s largest by population members (Germany and France) already supported the proposal; besides, France is in favor of the inclusion of nuclear energy into the taxonomy’s list and Germany is demanding the inclusion of gas sources. Reference to:
https://www.politico.eu/article/eu-commissioner-mcguiness-defends-gas-nuclear-in-green-taxonomy-guidance/

Energy security
Natural gas in the EU-27 is the most used energy source for residential heating, in industrial processes, for producing electricity and various district heating appliances: e.g. consumption in industry sectors and households is about half of the EU total (with about 2.000 TWh), and power/heat and services sector is taking another 1.500 TWh.
Although, potentially there are some areas to reduce gas consumption: e.g. gas-fired power plants might use another sources of power, while corresponding carbon emissions allowances should be available (but their price is expected to be too high), etc.
Doubling the speed of annual solar PV deployment from around 15 TWh to 30 TWh per year might displace only a small fraction of the needed amount, i.e. about 30 TWh of gas. A technically and politically difficult decision to delay the closure of German nuclear power plants (in operation until the end of 2021) could free additionally up to 120 TWh of gas.
Thus, options to reduce gas use in power production, generally, are subject not only to constrain from economic-ecologic considerations; in some regions and at certain times, gas-fired power plants remain the only solution. In the short-term, some gas-fired power plants could run on oil. Therefore, assuming that 10 percent of EU gas-fired power plants can be switched to burning oil, gas demand could be lowered by 90 TWh.
In the industry sector, the only short-term option is reducing energy sources’ demand, including forced measures in non-critical industries to shut down in emergency situations; simultaneously, the reduction of heating in commercial/office buildings and homes could be mandated.
In the residential and services sectors, energy efficiency could massively reduce the reliance on gas as “almost 75% of the building stock is energy inefficient”, argued experts in Bruegel. However, the required investments and physical work are too slow to provide a significant contribution in the near future.
Energy efficiency and conservation is another option in the EU’s energy strategy: i.e. saving energy combined with a changing “behavioral-consumption” campaign and other energy consumption measures could substantially reduce gas usage.
Thus, reducing import capacity in the EU-27 is theoretically possible, but replacing import entirely (both from Russia and other sources) would be not only expensive but also technically impossible. Among “limiting factors” are: global liquefaction capacity constraints, existing EU obligations in present LNG market and commercial opportunity considerations in producing countries in relation to diverting shipments away from Asia.
“The EU would thus need to resort to demand-side measures, which would prove painful for different countries/constituencies. This will raise questions on how to fairly share the burden; difficult and costly decisions would have to be taken to manage the situation in an orderly way”, concluded researchers from Bruegel.
Reference and citation to: https://www.bruegel.org/2022/01/can-europe-survive-painlessly-without-russian-gas/

 

 

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