Austria lodged a lawsuit against the European Commission over its decision to include nuclear and natural gas in its green investment taxonomy. However, with the legal challenge expected to run for more than two years, the new financing rule book is still set to come into force as planned on Jan. 1, 2023.

Nuclear and gas were added to the EU's taxonomy regulation earlier in 2022 via a delegated act, a type of legislation used to amend existing laws. The Austrian government, which filed its claim Oct. 10, said such an act "does not lie in the competency of the commission," as it constitutes a wide-ranging political decision.

Separately, procedural requirements, such as consultations with the public and member states, were not sufficiently met, Austria's Minister for Climate Action Leonore Gewessler said.

Even objections from the commission's own expert panel were ignored, according to Gewessler, who is a member of Austria's Green Party. "This shows that this is about satisfying the strong fossil fuel and nuclear lobby groups," the minister said.

On nuclear, Gewessler said the commission went against the taxonomy's requirement of "do no significant harm," pointing to nuclear accidents like Chernobyl and Fukushima.

While Austria itself will continue to rely on gas for power generation for years, the technology is harmful to the climate and ought not to be included in the green finance rulebook, Gewessler said.

Allowing fossil fuels to receive green funding does not square with the EU's ambitious climate agenda, the minister said. "Saying and wanting one thing and doing another, we don't have the time for that," Gewessler said during an Oct. 10 press conference.

Austria is now trying to rally other member states to join the legal challenge, with Luxembourg already on board, Gewessler said.

Green money for nuclear and gas starting in 2023

Despite the claim, financing natural gas and nuclear energy activities with a taxonomy label can still start Jan. 1, 2023, according to Markus Appel, partner and head of the German environmental and planning practice at law firm Linklaters.

"It can be expected that the legal challenge will take longer than two years, especially since in the present case, an appeal to the [European Court of Justice] is also conceivable," Appel said in an Oct. 14 email.

"Even if the legal challenge is successful, this may not be the last word on whether nuclear and gas will be deemed sustainable," Appel said. Instead, the commission is likely to supplement its argument with further scientific studies.

The commission would not comment on the substance of Austria's lawsuit but said that the taxonomy remains primarily focused on renewable energy and that such projects will be the main beneficiaries of green investments.

"Our goal is to prevent greenwashing and to help investors identify economic activities in line with our environmental and climate objectives," a commission spokesperson said in an email. The inclusion of nuclear and gas aligns with Europe's pathway to net-zero, with gas and nuclear recognized as important parts of the transition in several member states, the spokesperson added.

The legal challenge keeps alive longstanding controversy around nuclear and gas as green investments, and the dispute over the taxonomy may make some investors think twice about backing the technologies, according to Appel.

Financial market participants have to in future provide information on the extent to which their portfolios serve to finance nuclear and gas, the lawyer said. "Due to this transparency, investors might prefer to refrain from such investments on reputational grounds," Appel said.

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