Nuclear power and natural gas get EU backing as ‘green’ investments

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BRUSSELS — Dismissing accusations of greenwashing, the European Union will press ahead with a controversial proposal to label certain investments in nuclear power and natural gas as sustainable over the next few years despite strong opposition from some bloc member states, environmental groups and investors.

The proposal to expand what can be called a sustainable energy source has revealed deep divides between countries that rely on different technologies and comes amid soaring electricity prices. Nuclear and natural gas are just two prominent elements of a plan that will affect a range of industries – from forestry to manufacturing and transportation – and aims to change the way companies and investment funds investment address sustainable investing.

The European Commission, the executive arm of the EU, published a revised version of its proposal on Wednesday, which includes adjustments to the criteria for labeling nuclear and natural gas as sustainable and changes intended to strengthen disclosure requirements for businesses.

“Today is a means to an end,” EU Financial Services Commissioner Mairead McGuinness told a news conference announcing the plan. She said the proposal that sets out the conditions for including nuclear and natural gas as sustainable investments “may be flawed, but it’s a real solution. This brings us closer to our ultimate goal of carbon neutrality. »

The proposal, which was first published on New Year’s Eve, is part of the EU’s ‘green taxonomy’, a detailed breakdown of what regulators believe should count as a sustainable investment. The aim is to channel more capital into projects and activities that have been verified to be sustainable and to avoid greenwashing, where companies exaggerate their sustainability credentials.

“People need a reference, to say ‘I can hang my hat on something,’ and I think that’s where taxonomy comes in,” said law firm partner Shashank Krishna. Baker Botts, specializing in sustainable energy investments. “Depending on how this whole gas versus nuclear debate evolves, it could actually become, by default, the global benchmark.”

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The proposal adopted by the European Commission on Wednesday has a good chance of becoming law. Member countries and the European Parliament have up to six months to scrutinize the plan, during which time they could vote against it, but the threshold for blocking it is high. Austria and Luxembourg have also recently threatened to sue the commission if the plan is adopted in draft form. It is unclear whether such a lawsuit will continue.

Bas Eickhout, a Green member of the European Parliament from the Netherlands, said the plan to include nuclear and natural gas in the taxonomy amounted to greenwashing and undermined the EU’s credibility in the fight against climate change. climate change. The conditions proposed to include these energy sources are too weak, he said, and insufficient to address concerns about the safe storage of nuclear waste.

Currently, the cornerstone of the EU’s efforts to divert capital from polluting companies to cleaner energy sources is its carbon trading market. Utilities, steel mills, oil refiners and other industries are required to have permits to cover their greenhouse gas emissions.

The price hit a record high of more than 94 euros per metric ton of carbon dioxide on Wednesday, extending a month-long spike. High gas prices have supported the carbon market by encouraging power plants to burn coal, which emits more CO2 than natural gas and thus leads utilities to buy more allowances. The EU is reducing the supply of allowances over time, which traders say will support prices.

The EU taxonomy does not directly affect energy investments as a whole, but only if they can be labeled as ‘green’. Each country can continue to make its own decisions about the energy sources it uses. Yet climate activists and some investors say that if nuclear power and natural gas projects are designated as potentially environmentally friendly, these projects could divert funding from less harmful investments in sustainable renewable energy.

The inclusion of nuclear and natural gas was disputed by environmentalists and some investors, who warned that the decision risked undermining the integrity and usefulness of the taxonomy. The Sustainable Finance Platform, an advisory group to the Commission, said last month that the plan proposed by the European Commission on December 31 was “unsuitable for financial markets”.

The Institutional Climate Change Investors Group, whose members manage around 50 trillion euros in assets, the equivalent of around $56 trillion, called last month for natural gas to be withdrawn from the list of sustainable investments. He said the current criteria “impede our members’ ability to align their portfolios to net zero carbon emissions” and undermine the taxonomy’s goal.

Some critics warn that the inclusion of gas and nuclear could undermine the taxonomy’s authority if some EU member countries and investors choose not to accept its designations. European Investment Bank President Werner Hoyer suggested last week that the bank, an EU institution, might not use the green label for nuclear and natural gas.

Some portfolio managers of sustainable funds have said they too might refrain from using certain aspects of the taxonomy, given the political debate.

“We want to make sure that whatever they come up with is accepted by multiple parties and therefore likely to last a long time, because these are long-term investments we need to make,” said Matt Breidert, senior portfolio manager at the firm. sustainable investment company Ecofin, which manages approximately $2 billion in assets.

Including nuclear and natural gas investments in the taxonomy could make funding for such projects a bit cheaper, said Georg Zachmann, senior researcher at Brussels think tank Bruegel. But even if these projects were excluded, that would not prevent them from being built or operating. A broader impact, he said, is that the controversy over categorizing nuclear as a green investment could give investors a better sense of public opinion.

The debate now taking place “will reveal more clearly what the preferences of the European population are on certain technologies, and this will guide investors to understand where they can put their money and what could risk a backlash in the future”, said said Mr. Zachmann. .

Corrections & Amplifications
The Institutional Investors Group on Climate Change said in January that natural gas should be removed from the list of sustainable investments. An earlier version of this article incorrectly stated that the comment was made this month. (Corrected February 2)

Write to Kim Mackrael at kim.mackrael@wsj.com and Daniel Michaels at daniel.michaels@wsj.com

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