The EU’s New Green Label for Natural Gas and Nuclear Energy—What are the Implications for COP27 Negotiations?

November 4, 2022

Stevi Leavitt

The geopolitical context effectuated by the Russian invasion of Ukraine complicates the European Parliament’s (EP) July 6, 2022, vote to include natural gas and nuclear energy in the European Union’s (EU) taxonomy for sustainable activities (green taxonomy)—effectively incentivizing private investment in the energy sources. A cross-party coalition formed by lawmakers in the EP attempted to block the natural gas and nuclear energy additions to the green taxonomy, and Ukrainian President Zelensky has made repeated requests for the EU to stop funding the Russian invasion through the purchase of fuels, including natural gas and nuclear. A member of the Ukrainian Parliament, Inna Sovsun, affirmed, “labeling [natural] gas as climate-friendly is [a] departure from the green future and a gift to Putin to pursue war.” However, Ukraine’s vision to strengthen European energy security while the Russian military invasion continues includes providing the EU member-states with nuclear energy to end their reliance on Russian natural gas. In a letter from the Ukrainian Ministry of Energy, just one day before the EP’s vote, German Galushchenko stated that excluding the energy sources in the taxonomy may be “particularly challenging” for Ukraine’s post-war reconstruction.

Despite political tensions, natural gas and nuclear energy will be included in the green taxonomy beginning January 2023, contingent upon certain requirements. To be classified as sustainable, both natural gas and nuclear energy activities must contribute to the transition to climate neutrality; nuclear energy activities must fulfill nuclear and environmental safety requirements; and natural gas activities must contribute to the transition from coal to renewable energy. Viewed as “transitional activities,” the EU has determined the new classifications are “in line with the EU’s climate and environmental objectives” and will “accelerate the shift from more polluting activities, such as coal generation, towards a climate-neutral future.”

While the Glasgow Climate Pact (GCP)—an agreement reached at the 26th session of the Conference of the Parties (COP26)—includes a phasedown of unabated coal power and calls for accelerated action and private sector support to enhance finance mobilization, it also reaffirms the Paris Agreement objective to limit the rise in average global temperature to 1.5 °C and recognizes the need for climate decisions to be based upon the best available science. The science has shown investment in new natural gas and achieving the Paris Agreement objective of limiting the global temperature rise to 1.5 °C cannot coincide. Accordingly, the green taxonomy for natural gas and nuclear energy conflicts with portions of the GCP, as well as with various initiatives launched at COP26. Several EU countries signed the Global Methane Pledge (GMP), a voluntary commitment that seeks to reduce methane emissions in the oil and gas sector with a target of a 30 percent or more reduction from 2020 levels by 2030, and the Beyond Oil & Gas Alliance (BOGA), an international coalition of countries and stakeholders working together to facilitate the phase-out of oil and gas production. In direct conflict with the green taxonomy, the BOGA Declaration affirms, “Continued investment in increasing the production of oil and natural gas encourages the building of infrastructure for supply and consumption, locking-in a high carbon pathway beyond 2050 and thus contributing to dangerous climate change ….”

In addition to the GMP and the BOGA, the Glasgow Financial Alliance for Net Zero (GFANZ) was also launched in the months leading up to COP26. As a coalition of 450 global investors, including several dozen from EU countries, the GFANZ seeks to engage “on corporate and industry action, as well as public policies, to help support a net-zero transition of economic sectors in line with science” by 2050 and to achieve the objective of the Paris Agreement to limit global warming to no more than 1.5 °C. The new vote on the green taxonomy faces opposition among a number of financial institutions due in part to its misalignment with these global climate objectives. The recent vote will cause further market fragmentation among investors. Members of GFANZ and other investors truly seeking to align their portfolios with the Paris Agreement objectives will be unlikely to invest in natural gas nor participate in any investment activities subjecting themselves to a greenwashing label by their clients or the global climate community.

The EU’s recent vote on the green taxonomy is a step backward and will dramatically decrease the pace of the global green transition—calling into question whether limiting the rise in average global temperature to 1.5 °C by 2050 is a realistic goal. As dozens of countries develop their own taxonomies, the EU had an opportunity to demonstrate global, science-based leadership on climate change, yet opted for a trajectory that supports greenwashing and provides inconsistent messaging regarding climate goals, effectively diminishing scientific credibility for its green taxonomy. The recent vote will divert investments away from renewables; increase finance for the environmentally harmful and already well-established natural gas and nuclear energy industries; open the door for subsidizing refineries; exacerbate energy poverty and health risks; and it clashes with EU climate law, as it does not make a substantial contribution to reducing CO2 emissions and does not comply with the EU’s do no significant harm principle due to the lack of a definitive solution for the disposal of nuclear waste. Ultimately, the vote to add natural gas and nuclear energy to the EU’s green taxonomy has lost them respect as a global climate leader among scientists, activists, and other governments, while leaving the door open for another country or geographic region to step into the spotlight at the upcoming COP27 negotiations.