The taxonomy and the EU’s new Sustainability Strategy

EU pushes on with inclusion of gas in taxonomy, despite IEA ruling, and extends deadline for SMEs

The European Commission has confirmed that it will seek to fit gas into its landmark green taxonomy, despite the International Energy Agency’s (IEA) recent statement that investments in new fossil fuel projects will need to cease immediately if the world is to limit global warming to 1.5 °C.

In its latest Sustainability Strategy, published yesterday, the Commission said it would “adopt a complementary Climate Taxonomy Delegated Act covering activities not yet covered in the first EU Taxonomy Climate Delegated Act”. 

As well as agriculture, the new Act will cover nuclear and natural gas. In a statement that is likely to cause further confusion for users of the taxonomy, the Commission noted that natural gas must fall “within the limits” of the framework’s existing ‘transitional’ category – which was created exclusively for sectors without green alternatives, such as steel and cement. 

Gas has been the subject of fierce political wrangling in the taxonomy negotiations over recent months, with Germany and a number of Eastern European member states arguing that it is a necessary decarbonisation technology. To avoid having its entire climate rulebook vetoed by the European Parliament or European Council, the Commission decided not to address gas and nuclear in its Delegated Act on the taxonomy’s climate mitigation and adaptation activities, published in April, and promised to revisit the controversial technologies later in the year. 

Since then, the IEA has announced that new fossil investments are incompatible with reaching Net Zero by 2050, and, during its overhaul of the Renewable Energy Directive, the EU found that gas consumption must be significantly reduced in the bloc by 2030. 

Yesterday’s report, however, said that ‘sunset clauses’ to limit the length of time gas and nuclear will be eligible under the taxonomy will be considered. The Delegated Act will be adopted “as soon as possible” after the summer.  

The Commission will also consider tabling an entirely new legislative proposal, which would create rules for financing “certain economic activities, primarily in the energy sector, including gas, that contribute to reducing greenhouse gas emissions in a way that supports the transition towards climate neutrality throughout the current decade”. 

As well as publishing its new Sustainability Strategy, the Commission yesterday adopted rules on what information companies must report, and how, under the taxonomy regulation – known as the ‘Article 8’ Delegated Act. 

“There are some good things in that proposal,” says Sebastien Gordinot, an Economist at environmental NGO WWF’s European Policy Office. “For example, it requires the use of a standardised template for disclosure, which will streamline reporting and make it much easier to assess and compare the information given.” 

But he describes the Commission’s plan to extend the deadline for small- and medium-sized companies (SMEs) to comply with the taxonomy regulation to mid-2024 as “too late”. 

“It’s harder for SMEs to report, but the solution is to support them more, not to sideline them,” he argues, adding that SMEs could miss out on investment if they’re not providing sustainability data to investors: “SMEs will generate a lot of the innovation we need to decarbonise, so they need to be featured more prominently in this agenda,” he said. 

The Commission also confirmed yesterday that it will adopt another Delegated Act covering the taxonomy’s remaining environmental objectives – water, biodiversity, pollution and the circular economy – in the first half of next year, as well as technical screening criteria for additional climate-related activities. 

It reiterated its intention to publish a report by the end of the year on how to extend the taxonomy to cover ‘neutral’ and ‘harmful’ activities. In the meantime, recommendations on options to extend the existing taxonomy to “recognise economic activities performing at an intermediate level” are due to be published next week by the Commission’s advisory body, the Platform on Sustainable Finance.