The European Parliament voted July 6 to give natural gas and nuclear power green labels under the EU's sustainable finance taxonomy, as support for the technologies in the energy transition trumped concerns of greenwashing and diluting climate ambitions.
Of 639 members of the European Parliament, or MEPs, who cast a vote, 328 voted against an objection to the European Commission's plan to include the technologies in the taxonomy, while 278 voted in favor and 33 abstained. The bill could have only been stopped by an absolute majority.
The decision will broaden the pool of capital available for new nuclear and gas projects, which will be classified as environmental, social and governance investments under certain conditions from January 2023, assuming the Council of Europe approves the legislation.
Gas will be included until 2030 and must adhere to certain emissions thresholds. It will be considered sustainable if it replaces coal generation, and operators must demonstrate that they can switch to low-carbon fuels from 2035. Nuclear power plants need to abide by standards, including safe waste disposal, and will be in the guidebook until 2045.
Despite the supportive vote, the two technologies still face several key challenges. Gas continues to grapple with price and supply risks, while nuclear projects have struggled with delays and ballooning costs. Nuclear advocates hope the outcome of the EU vote will reduce the technology's cost of capital, which is crucial to finance the next wave of multibillion-euro reactors.
"[While] the European ratification may help asset managers' and lenders' investment decisions, how these challenges play out in the medium-term from a business and operational perspective will signal how these technologies will develop and at what pace," Antonio Totaro, senior director at Fitch Ratings, said in an email statement July 6.
The vote's outcome is good news for France and its state-controlled nuclear operator, Electricité de France SA, which "has an ambitious plan of development in the nuclear industry, both in France and abroad, and could benefit from the inclusion of the nuclear technology into the taxonomy, especially considering the heavily capital intensive nature of the nuclear industry," Totaro said.
Gas, meanwhile, has seen its role as a transition fuel questioned in the aftermath of Russia's invasion of Ukraine. The EU plans to stop consuming Russian gas by 2027, and gas prices continue to spiral in anticipation of further supply cuts.
The Institutional Investors Group on Climate Change, or IIGCC, a group of 370 investors with €50 trillion of assets under management, is among those to have already come out against including gas in the taxonomy.
"Whilst there may be a legitimate role for natural gas as a 'bridge' during the energy transition, this should not be interpreted as gas equating to green," IIGCC CEO Stephanie Pfeifer said in an email statement after the vote.
Pfeifer said the decision sends mixed messages and weakens the signal to channel capital toward investments that restrict the increase in global temperature to 1.5 degrees C as set by the Paris Agreement on climate change.
"The vote has been a missed opportunity for the EU to continue to show global leadership on climate change," Pfeifer said.
'Dark day' or 'good day'?
Reactions from parliamentarians ranged from relief to exasperation to the vote's results, which onlookers had always expected to be close.
"Today is a dark day for the climate and the energy transition," said Bas Eickhout, vice president of the EU Environment, Public Health and Food Safety Committee and European Parliament rapporteur for the taxonomy regulation.
"We are sending a disastrous signal to investors and the rest of the world that the EU now recognizes fossil gas and nuclear as sustainable investments," Eickhout said. "By clearing the way for this delegated act, the EU will have unreliable and greenwashed conditions for green investments in the energy sector."
In June, 76 MEPs across two committees voted to adopt an objection to the commission's plan to include the technologies in the rulebook.
Overall, more support for a veto came from green and left-wing groups in Parliament, but differences in opinion were also driven by national energy policies. Finland, for instance, has chosen nuclear as a tool for decarbonizing its power mix and recently connected a new reactor.
"My position is clear. Emissions reductions according to the Paris Climate Agreement cannot be achieved without the use of nuclear energy as an intermediate form of energy," Eero Heinäluoma, a Finnish social democratic MEP, said in a statement this week, adding that he will not veto the bill.
German MEP Christian Ehler welcomed the outcome, arguing that transitional gas infrastructure investments will be needed to support future hydrogen-powered energy systems. "This is a good day for Europe. The opponents to the delegated act did not manage to push their ideological convictions into our common European plans," the MEP said.
Commonality in Europe's vision of the future of energy has its limits. Austria and Luxembourg, two staunchly anti-nuclear EU members, said July 6 they will press ahead with legal action against the delegated act.
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