Taxonomy Regulation – Level 2 climate change TSC published

On 9 December 2021, a Commission Delegated Regulation made under Articles 10(3) and 11(3) of the Taxonomy Regulation (also referred to as ‘the Climate Delegated Act’) was published in the Official Journal.

Its provisions come into effect on 1 January 2022.

Background to the Commission Delegated Regulation

Drawing on (a) the March 2020 Final Report of its Technical Expert Group on Sustainable Finance (TEG) and (b) feedback to its draft Delegated Regulation on which it consulted in November and December 2020, on 4 June 2021, the European Commission adopted a proposed Delegated Regulation (along with Annex 1 and Annex 2).

The European Parliament and Council of the EU originally had four months (to 8 October 2021) in which to review the contents, but this was extended by the Council by a further two months, to 8 December 2021.

What does the Commission Delegated Regulation contain?

The Commission Delegated Regulation sets out the technical screening criteria (TSC) for determining:

• the conditions under which an economic activity qualifies as ‘contributing substantially’ to climate change mitigation or climate change adaptation; and
• whether that economic activity does no significant harm (DNSH) to any of the other environmental objectives.

What do the TSC cover?

Article 19 of the Taxonomy Regulation requires the TSC to take into account the nature and the scale of the economic activity and sector to which it refers, and whether the economic activity is a ‘transitional economic activity’ (as referred to in Article 10(2)) or an ‘enabling activity’ (as referred to in Article 16).

As such, the TSC are set as:

• a quantitative threshold or minimum requirement;
• a relative improvement;
• a set of qualitative performance requirements;
• process or practice-based requirements; or
• a precise description of the nature of the economic activity itself where that activity by its nature can contribute substantially to climate change mitigation.

The establishment of TCS for agriculture has been delayed in light of the ongoing negotiations on the EU’s Common Agricultural Policy (CAP).

The description of each activity provided includes references to the NACE code(s) that may be associated with that activity; however, these are included in the Delegated Regulation to facilitate identification of the relevant economic activities and are intended not to prevail over the specific definition of the activity provided.

Annexes and appendices

Annex I

The TSC contained in Annex I to the Commission Delegated Regulation deal with climate change mitigation and cover the following activities:

1. Forestry

2. Environmental protection and restoration activities

3. Manufacturing

4. Energy

5. Water supply, sewerage, waste management and remediation

6. Transport

7. Construction and real estate activities

8. Information and communication; and

9. Professional, scientific and technical activities.

The appendices to Annex I of the Commission Delegated Regulation set out generic criteria for DNSH to the following environmental objectives:

• climate change adaptation;
• sustainable use and protection of water and marine resources;
• pollution prevention and control regarding the use and presence of chemicals; and
• protection and restoration of biodiversity and ecosystems.

They also cover, at Appendix E, technical specifications for water appliances.

Annex II

The TSC contained in Annex II deal with climate change adaptation and cover the same activities as Annex I with the addition of:

• Financial and insurance activities
• Education
• Residential care activities
• Arts, entertainment and recreation

The Appendices to Annex II cover generic criteria for DNSH to:

• sustainable use and protection of water and marine resources;
• pollution prevention and control regarding the use and presence of chemicals; and
• protection and restoration of biodiversity and ecosystems.

Appendix A to Annex II also covers the classification of climate-related hazards.