Notations carried (Thomas Gillet) | The European Commission has started consultations on a draft text to label nuclear as a ‘green’ energy source under the EU’s taxonomy for environmentally sustainable activities. If the proposal is approved by the European Parliament and the Council, it would have positive credit implications for France (AA/Stable) given the importance of nuclear power in the energy mix, the climate plan and the country’s energy independence.
EU taxonomy is a key pillar of the EU’s strategy to achieve its 2030 climate and energy targets under the European Green Deal. This aims to establish a classification system for environmentally sustainable economic activities and stepping up “green” investments.
France’s position on nuclear power wins in presidential election while the climate transition is gaining more and more importance in the public debate and the recent surge in energy prices raises the question of energy independence. We see a clear divide between the candidates. Those on the left of the political spectrum advocate the abandonment of nuclear energy while those on the right push for renewed investment in the sector.
France is the first producer of nuclear electricity in the EU. Dependence on atomic energy explains why France also has the lowest per capita emissions of advanced economies according to the International Energy Agency. NOTThe production of nuclear electricity from the 56 French reactors is essential to the national production of electricity and to the total energy supply. It represented 42% of France’s total energy supply and 66% of its total electricity production in 2020, compared to 14% and 26% respectively in the EU (Figure 1).
Most important, nuclear power is called upon to play a crucial role in France’s energy transition. The National Low-Carbon Strategy (National Low Carbon Strategy) relies on decarbonized electricity to help carbon-intensive sectors such as industry, transport or buildings to reduce CO2 emissions through electrification. France has legislated a reduction in nuclear’s share of electricity supply to 50% by 2035, but it is likely to remain a major energy source.
Nevertheless, France will have to mobilize substantial investments in nuclear power to meet its climate commitments. Several reactors are due to close in the coming years and others will require renovation work to extend their lifespan, the average age of the nuclear fleet being 35 years. President Emanuel Macron announced in October 2021 that France would invest 1 billion euros in small modular reactors as part of the France 2030 investment plan. France devoted half of public expenditure on energy R&D to nuclear energy in 2020.
Labeling nuclear activities as “sustainable” according to the EU taxonomy would be positive for France. This move would support public finances, as the government could potentially fund nuclear spending through green bonds (green oats), benefiting from the growing community of ESG investors. It would also support state-linked strategic entities in the nuclear industry such as EDF (83.5% owned by the French state) and nuclear fuel company Orano (90%). Finally, including nuclear in the taxonomy would ultimately help channel funds into large-scale investment projects and increase financing flexibility as investors’ appetite for sustainable investments grows.