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A nuclear plant in Grohnde, Germany, which was shut in late 2021 as part of the country's exit from the technology. Nuclear power has been included in the EU's green finance taxonomy.
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Plans by the European Union to classify nuclear power and natural gas as "green" investments have divided energy experts, environmental groups and EU members, with some fearing a dilution of sustainability guidance.
Late on Dec. 31, the European Commission confirmed both nuclear and gas would be included in the long-awaited draft of its sustainable finance legislation, a checklist for climate-friendly investments aimed at preventing greenwashing and supporting the EU's pursuit of net-zero by 2050.
Nuclear, which is included subject to conditions around toxic waste, divides opinion in the EU, with France staunchly pro-nuclear and the likes of Germany phasing out the technology. Meanwhile, the inclusion of natural gas in the taxonomy is dependent on strict emissions thresholds.
"Taking account of scientific advice and current technological progress, as well as varying transition challenges across member states, the commission considers there is a role for natural gas and nuclear as a means to facilitate the transition toward a predominantly renewable-based future," the commission said in a Jan. 1 press release explaining its decision.
While the conditions set out in the rulebook will force companies to invest in emissions reductions, including gas and nuclear weakens the taxonomy's usefulness as a guide for sustainability-minded investors, according to Murielle Gagnebin, energy policy project manager at think-tank Agora Energiewende. "The more you include the less useful all of the work has been," Gagnebin said. "In the end it's about trust in this system."
Green Party politicians in the European Parliament criticized the decision, arguing it dilutes the meaning of the rulebook and causes confusion over what it means to be sustainable. "With this proposal [EC President] Ursula von der Leyen is destroying the credibility of the European sustainability label for financial investments. Including nuclear and gas in the taxonomy is like labeling eggs from battery farming as organic," Michael Bloss, climate policy spokesperson for the Green Party in the European Parliament, said in a statement.
"The commission is shooting itself and its green transformation in the foot," Bloss said. "Instead of channeling investments into solar and wind, costly old business models can now be continued under false pretenses."
Politics and provocation
EU member states and the EU Parliament have to approve the law but the required 20 vetoes out of 27 member states are unlikely to emerge, meaning the taxonomy is expected to pass as proposed.
Germany has decided to end nuclear power generation but will need further gas capacity to bridge the transition away from coal, while neighbor France has launched a €30 billion energy investment strategy leaning heavily on more nuclear. The French plan, involving renewing aging plants and building new ones, would have faced significant political pushback from fellow EU member states without inclusion in the taxonomy, according to Patricio Alvarez, utilities analyst at Bloomberg Intelligence.
New German Chancellor Olaf Scholz has not resisted nuclear's inclusion in the taxonomy, in what is likely a bid to maintain good relations with French President Emmanuel Macron. By securing nuclear's role in the taxonomy, Macron also scored political points at home ahead of France's upcoming elections, Gagnebin noted. "Of course there is an element of industrial politics. There is an entire value chain attached," Gagnebin said.
According to Gagnebin, nuclear's large up-front investment costs will always require substantial state funding, but for nuclear powerhouses like Electricité de France SA the taxonomy now maximizes access to cheaper finance on the market. "With these large financing costs even small percentage points make a difference," Gagnebin said.
Anti-nuclear Austria and Luxembourg have declared plans to sue the commission over the inclusion of nuclear if the taxonomy is implemented as proposed. "The timing of the publication alone shows that [the commission] is not convinced of its plans," Leonore Gewessler, Austria's environment minister, said on Twitter. Luxembourg's Energy Minister Claude Turmes said the commission's "hush hush operation" — releasing the draft text on New Year's Eve — was "a provocation."
Gas outlook
While the taxonomy is a guidebook, investments in gas and nuclear would have remained possible regardless of their inclusion, and projects with profitable business models would have continued to receive funding. Conditions for gas are stricter than for nuclear, although it remains to be seen how they are implemented in member states.
Nuclear projects permitted until 2045 will be classified as green, on the condition that countries can safely dispose of the toxic waste and do not create significant harm to the environment. Meanwhile, gas is only included until 2030 and emissions thresholds are also in place. Direct greenhouse gas emissions need to be below 270g of CO2 equivalent per kWh of energy output, or annual emissions can not exceed 550kg CO2e/kW of energy output over 20 years. Gas will be considered sustainable if it replaces coal power, and operators need to demonstrate that co-firing of low-carbon gases will be possible and plans are in place to use at least 30% of them from 2026.
"I wouldn't consider the inclusion of natural gas as game-changing, as many analysts already envisioned peak demand by 2035," Bloomberg's Alvarez said in a Jan. 5 email. "Utilities with significant exposure to natural gas via generation, storage and distribution such as Fortum Oyj's Uniper SE, RWE AG and Snam SpA may see improving investment fundamentals midterm but their strategies would continue to view natural gas as a transition fuel."
One of Germany's gas giants welcomed the taxonomy decision. "The EU has committed to gas as an energy transition technology with this draft," a Uniper spokesperson said in a Jan. 4 email, adding its flexibility is needed to complement renewables. Given that gas infrastructure can be used for a future hydrogen market, "investments in this area are a real contribution to a CO2 free future," they added.
The taxonomy is also being finalized amid an ongoing energy crisis in Europe, with gas supplies tight and power prices spiraling — an issue Uniper's CFO Tiina Tuomela had predicted to swing the dial in favor of nuclear and gas.
Gagnebin agreed the energy crisis will have been front of mind. "The only way to truly counter those price pressures and dependence is to invest more in renewables," Gagnebin noted, adding it is "easy to push" a narrative for more gas during periods of volatility.