EU ESG – more problems for the nuclear and gas CDA

Since the start of the year, we've reported on the rather bumpy ride that the European Commission's Complementary Delegated Act (CDA) under the Taxonomy Regulation has had -- see our articles here, here, here and here.

That ride hasn't become any easier with two influential European Parliament committees, ECON and the Environment, Public Health and Food Safety (ENVI) voting to object to the Commission's proposal.

What's the issue?

The EU's Taxonomy Regulation establishes a classification system to identify whether or not a given economic activity should be considered "environmentally sustainable". This, then, allows firms to determine how far an investment is environmentally sustainable, or 'green'.

To make sure that the Level 2 rules (or RTS) under the Regulation came into effect on time, the issue of whether (and, if so, under what conditions) nuclear and gas energy activities should be included as environmentally sustainable economic activities under the taxonomy was held over and dealt with in a separate Level 2 measure -- a draft CDA was put forward by the Commission in March 2022.

This would classify certain fossil gas and nuclear energy activities as transitional activities which contribute to climate change mitigation under the Taxonomy Regulation. The inclusion of certain gas and nuclear activities would be time-limited and dependent on specific conditions and transparency requirements.

However, politically speaking, the whole question of gas and nuclear has been fraught with difficulty from the outset and not been made any easier following the Russian invasion of Ukraine. As a result, the Commission's proposals have met a fair amount of criticism.

The proposals need to be approved by both the European Parliament (EP) and the Council of the EU before they become law. These have until 11 July 2022 by which to decide whether to accept the Commission's proposal or to object to it.

So what's happened?

The draft CDA has run into potential problems on the EP side.

At a joint meeting of the two committees charged with scrutinising the proposal (ECON and ENVI) on 14 June, committee members objected (by 76 votes to 62) to nuclear and gas being included in the list of environmentally sustainable economic activities.

This was on the basis that the technical screening standards proposed by the Commission fail to meet the criteria for environmentally sustainable economic activities set out in the Taxonomy Regulation.

Instead, the committees voted through a draft resolution requesting that any new or amended delegated acts should be subject to a public consultation and impact assessments, which would, of course, involve more delay.

What happens next?

The committees' draft resolution will be voted on by the EP during its plenary session being held on 4 to 7 July 2022.

If an absolute majority of MEPs (i.e., 353) objects to the Commission's proposal, the Commission will have to withdraw or amend it.

We will continue to monitor the CDA's progress and report back on how it is faring.