Circular economy
16.06.2020

The EU Taxonomy is heading in the wrong direction

Ilkka Räsänen
Vice President, Public Affairs, Neste

 

”The road to hell is paved with good intentions,” goes an old saying. The European Union is currently preparing a classification system for sustainable financing, known as the ‘Taxonomy’. Its intention is to create a common classification for sustainable economic activities and to involve financial markets in the fight against climate change.

The objective is good and welcome, but the preparation of the actual Taxonomy has taken a wrong track.

There is a danger that most of the investments that help to mitigate climate change will be left outside of the Taxonomy, and thus without ‘green funding’. This makes an enormous difference, as it will not be possible to market financial products as sustainable within the EU unless those comply with the taxonomy.

Preparation of the Taxonomy was skewed when a technical expert group preparing the draft proposal was formed, as industry was poorly represented in the group. This unfortunately shows in the group’s final report.

A good example is the capture of carbon dioxide from industrial processes. According to the experts’ report, it seems that capture would only be considered sustainable if the recovered carbon dioxide is permanently sequestered. Consequently, large-scale manufacturing of the much-discussed synthetic fuels would not be sustainable. These are exactly the types of fuels that are expected to considerably reduce emissions from aviation in the long term. Another, just as peculiar, example is bioplastics. Anyone wishing to manufacture plastics from plants instead of crude oil would need to prove that the raw material chain does not contain material from land where animals have pastured since 1994. Yes, the year is correct.

According to the Taxonomy, sustainable biofuels would be available to a very limited extent. Not even cutting transportation-related emissions by half would be considered sustainable. There is a glaring discrepancy between this and the binding sustainability criteria of the EU’s Renewable Energy Directive (RED II) that was approved in 2018. According to the RED II sustainability criteria, all biofuels must reduce greenhouse gas emissions at least by 50% compared to fossil fuels. Those produced from waste or residues can reduce greenhouse gas emissions by up to 90%* during the product’s life cycle – but are not for some reason Taxonomy eligible.

Such a contradiction between the taxonomy proposed by the technical expert group and the sustainability requirements of the existing legislation will inevitably lead to confusion among companies and investors. The Taxonomy, as proposed by the technical expert group, poses a threat to efforts that combat climate change and to investments mitigating its effects.

Fortunately, the European Commission still has the power to change the course and make the final Taxonomy criteria consistent  with the climate objectives.

 

A shortened version of the blog post was published in Finnish on 12 June 2020 in Talouselämä.

*) The method used to calculate life cycle emissions and emission reduction complies with the EU Renewable Energy Directive (2009/28/EC).

Written by
Ilkka Räsänen
Vice President, Public Affairs, Neste

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