The European Commission closed a long-running debate over the inclusion of natural gas and nuclear power in its sustainable finance taxonomy on Feb. 2, giving both technologies conditional green labels.

In a final document, now advancing to the European Parliament for approval, the commission made only minor changes to a previous draft issued on New Year's Eve despite significant pushback on the plan from EU member states, environmental groups and major financial sector actors.

The Taxonomy Complementary Climate Delegated Act introduces specific disclosure requirements related to activities in the gas and nuclear energy sectors so that investors can identify which investment opportunities include gas or nuclear activities and then "make informed choices," the commission said.

Presenting the decision as one of pragmatism, the commission — the EU's executive arm — acknowledged the recent barrage of objections, which also came from a group of advisers tasked by the commission to assess the plan.

"We need to move as fast as we can from the highest carbon energy sources like coal. During this transition, that may mean accepting imperfect solutions," said Mairead McGuinness, EU commissioner for financial services, financial stability and capital markets union, at a Feb. 2 news briefing to present the final taxonomy. "Today's delegated act may be imperfect but it is a real solution."

Gas, nuclear come with caveats

Serving as a checklist for climate-friendly investments, the taxonomy is aimed at preventing greenwashing and supporting the EU's pursuit of net-zero by 2050.

The inclusion of nuclear and gas comes with caveats. Nuclear projects permitted until 2045 will be classified as green, on the condition that countries can safely dispose of the toxic waste and do not create significant harm to the environment. Gas is only included until 2030, and emissions thresholds are also in place.

Gas will be considered sustainable if it replaces coal generation, and operators need to demonstrate that they can switch to low-carbon gases from 2035. The previous version of the taxonomy included interim blending targets, which are now gone.

Some voices in the financial sector have expressed concerns over the usability of the rule book for identifying truly sustainable activities. European Investment Bank President Werner Hoyer said his institution might veer from the taxonomy's guidelines and not consider nuclear and gas projects as green investments, Bloomberg News reported Jan. 27.

"The EIB has its own lending policies and our taxonomy doesn't change that," McGuinness said. "I think that there shouldn't be a confusion between the work that we're doing and the work of the EIB."

Concerns over the credibility of the taxonomy as a whole, and accusations of greenwashing, were leveraged during the news conference. "I believe our credibility is actually enhanced by doing something that is difficult but necessary," McGuinness said. The taxonomy clearly defines nuclear and gas as transitional technologies, far from providing them with "get out of jail" conditions, the commissioner added.

The EU's college of commissioners voted for the taxonomy with an overwhelming majority, the commission said without disclosing details on the vote.

No 'surefire exercise'

Energy ministers from the Netherlands, Austria, Sweden and Denmark wrote this week to the commission in a last-ditch attempt to stop some gas projects from receiving the green label. In ignoring such criticism, the commission's wider attempt to classify economic activities according to sustainability criteria has failed altogether, Markus Ferber, German member of the European Parliament, said on Twitter.

"The European Commission has allowed European governments to drag this Taxonomy Act into the gutter — and this fiasco is going to create a huge mess in financial markets," Sebastien Godinot, senior economist in environmental group WWF's European policy office, said Feb. 2 in reaction to the agreement. By maintaining its position on nuclear and gas, the commission has caved in to lobbying and, in particular, pressure from nuclear bastion France, Godinot said.

Environmental law charity ClientEarth said the decision to include gas in the taxonomy clashes with several EU laws, including the bloc's obligations under the Paris Agreement on climate change and even the Taxonomy Regulation itself.

"Failing to take these legal obligations into account puts the commission at serious risk of legal challenge," said Marta Toporek, a lawyer at ClientEarth, adding that the parliament should now veto the proposal. Luxembourg and Austria have already said they plan to sue the commission over the taxonomy.

The European Parliament has four months to scrutinize the document and, if it deems necessary, object to it. The taxonomy is then subject to approval by the European Council. Both institutions may request an additional two months of scrutiny time.

Objections from 20 member states, representing at least 65% of the EU's population, are required in order to block its passage. The European Parliament can object if a majority of its members vote against it in a plenary.

"It is by no means a surefire exercise," Ferber said.