Why are taxonomy and natural gas such a great scandal? We tried a fact-based approach to see what the sustainable solutions are and how harmful is the Delegated Act for Sustainable Finance. Earlier, 2Celsius contacted professor Ilaria Conti from the Florence School of Regulation to shine an academic’s light on this piece of legislation that was recently passed in the European Parliament.

For accuracy we followed these issues as to make order in the conceptual area as well as in the normative evolution of the taxonomy:

– Issues related to the delegated act from January 2022 – lack of public consultation;

– Will the targets under Paris Agreement be met?

– How will we ever know if the best available technologies related to gas are actually sustainable?

 

The sustainable taxonomy legislation as proposed by the Commission provides two concepts that give rise to suspicions of greenwashing: “transition activities” and “enabling activities”.

  1. ‘Transition’ activities are defined as follows: “an economic activity for which there is no technologically and economically feasible low-carbon alternative shall qualify as contributing substantially to climate change mitigation where it supports the transition to a climate-neutral economy consistent with a pathway to limit the temperature increase to 1.5 C above pre-industrial levels, including by phasing out GHG emissions, in particular emissions from solid fossil fuels, and where that activity: (a) has GHG emission levels that correspond to the best performance in the sector or industry; (b) does not hamper the development and deployment of low-carbon alternatives; and (c) does not lead to a lock-in of carbon-intensive assets, considering the economic lifetime of those assets.”

  2. ‘Enabling’ activities: “an economic activity shall qualify as contributing substantially to [climate change mitigation] by directly enabling [the generation, transmission and storage of renewable energy], provided that such economic activity: (a) does not lead to a lock-in of assets that undermine long-term environmental goals, considering the economic lifetime of those assets; and (b) has a substantial positive environmental impact, on the basis of life-cycle considerations.”

 

In the case of the Delegated Act for Sustainable Finance, there was a group of experts which provided recommendations and they were published for a certain period of time and therefore they were potentially and shortly – open to consultation. The Act was not open to consultation despite the fact it was not a technical matter.

Regardless of this, in some cases, while looking at clean forms of energy and in the final attempt to making the energy mix more sustainable for some countries, the rationale of the Commission’s proposal is that gas is a better option than coal. Despite both being fossil!

So we know that gas is already a better source of energy in strict terms of CO2 emissions than, for example, coal, which is still largely utilized in some parts of Europe. Consequently, the taxonomy just wanted to make sure that this option is not completely excluded because, in some cases, it could accelerate the transition of a particular country or market towards decarbonization.

„I know it sounds paradoxical, but it is the case in some specific countries. Obviously, this doesn’t mean that gas is one of the cleanest options. We do have much cleaner options than gas, but we have to make sure that there is an assessment of the market conditions so that we know that we achieve the right target by decarbonizing, reducing CO2 emissions in a shorter time frame than it would take the same market to go through to make a big jump towards, I don’t know, wind or solar and with smaller results.”

So that’s the thing the policy brief really insisted on, the fact that even gas, which seems to be a non clean option, sometimes could be considered in some specific cases as a cleaner option if the target is to accelerate the transition.

 

Classification of clean gases needed

Conti co-wrote a policy brief on taxonomy, which comes as more theoretical, but where the professor tries to make a classification of clean gases.

“I insisted on an important point, which is, in order to consider certain gas clean, it’s not only important to consider the CO2 emissions abatement, but also the other greenhouse gas abatement, such as methane, just to name one [laughs], or the feedstock that is used to produce this gas.”

So by combining these parameters, one really has a complete idea of how clean a certain gas is.

There are some gases that appear to be clean, particularly in the name, but eventually they are not. It’s important when one wants to inform efficiently and correctly those who will utilize these gases or those who want to invest in these types of gases, that they make sure they understand how sustainable they really are.

And we have seen so far that the Commission has taken a very convinced path towards classifying gases based on CO2 emissions. And this is what we have seen in the CO2 emissions abatement. This was noticed in the latest Hydrogen and Carbonized Gas Market Package published in December 2021.

However, the definition of low carbon gas and renewable gas is still not complete. So we are waiting now for a famous Delegated Act which should be published by 2024, where the Commission plans to clarify better what we mean by lifecycle assessment. So we need to know where the assessment of CO2 abatement starts and ends, and also how the famous threshold of -70% reduction of greenhouse gas emissions, how this is actually calculated and how it should be measured.

“There is time until 2024 to publish this delegated act. What I hope instead is that it will come sooner than 2024 because it is very important. This definitions have been lagging for a few years now and it’s really now the time to take a decision in order to give certainty to investors, but to anyone working in this sector to understand what we can really call renewable gas, what we cannot call renewable gas, and what we can consider as a sufficiently low carbon gas to foster the carbonisation of the energy system.”

 

2Celsius: We have this taxonomy, which leads us to something schizophrenic in the sense that these requirements are not really fact based in the sense that we just do not know. We simply do not know the reduction of greenhouse gases that is being provided by this.

 

We must take into account that the attention to methane emissions is much more recent than the attention to CO2 emissions abatement. And also there are some huge differences in the way CO2 is emitted and managed.

We have the ETS (the European Trading Scheme), which has been addressing this for many years now, whereas methane is still something that caught the global attention only a few years ago.

There are huge (regulatory) problems concerning detection and measurement. It’s very difficult to understand where there are, for example, leakages of methane across the gas value and delivery chain. So that would be the first issue to be addressed, something we do not have in CO2 emissions.

So it’s a slightly different scope. And yes, I would say it is a subject which at the moment is treated separately for at least a number of good reasons. Of course, we are talking about two faces of the same coin and we can’t address one without thinking about the other.

Eventually we will need to address them simultaneously and to integrate more and more the debate on these topics, because we are still talking about polluting the environment and greenhouse gases emissions in general.

“So this is one thing regarding the schizophrenia in the taxonomy.”

“That’s how it looks, I would say from the outside; taxonomy is a debate which started in the regulatory forum in Madrid already four years ago. So that’s why I say it’s now probably time to come up with an agreed taxonomy for the classification of gases.

At the same time, while these discussions were taking place at regulatory and policy level, there were some steps being made in the taxonomy for sustainable finance, which has a different flavor. In this delegated act we are talking about suggestions for clean investments.”

That is what sustainable finance taxonomy is about, making sure that investments can take place in the right, let’s say, form of energy. So, of course, one should inspire the other.

Meanwhile, at some point we should come to an agreed one only taxonomy which tells us exactly which gasses are clean, which are less clean, which are not clean and which ones are considered for investments in sustainable finance and which are not.

That would be the final target. Hopefully we will get there soon.

 

 

 

Ilaria Conti is Head of Gas at the Florence School of Regulation.

Her main fields of expertise concern EU institutional relations and EU electricity and gas regulation.

She spent about 9 years in Brussels, working for the the Permanent Representation of Italy at the EU, the United Nations and, from 2005 until 2013, for EFET, the “European Federation of Energy Traders” covering various positions within the association.

Professor Conti joined the Florence School of Regulation (FSR) in 2015 as Energy Policy Deputy and in 2017 she was appointed Head of the new FSR Gas area.

She is author and co-author of many scientific articles and position papers, actually, until 5 years ago she was the Managing Editor of the publication “Economics of Energy & Environmental Policy” that belongs to the International Association for Energy Economics.