On 2 February 2022 the EU Commission approved in principle a "Complementary Delegated Act" ("CDA"), which sits alongside and amends the suite of legislation already published relating to the new EU Taxonomy Regulation. The CDA is available (along with its annexes) here.
The CDA proposes to amend both Regulation 2021/2139 (the "Climate Delegated Act") and Regulation 2021/2178 (the "Article 8(4) Delegated Act"). For background, the Climate Delegated Act is the first delegated act setting out the technical screen criteria ("TSC") for Taxonomy Regulation environmental objectives climate change mitigation and climate change adaptation, and the Article 8(4) Delegated Act establishes the methodologies for calculating and reporting under the Taxonomy Regulation. Both are now in force.
Changes to the Climate Delegated Act
Annexes I and II of the Climate Delegated Act currently contain the TSCs for determining the conditions under which specified economic activities qualify as "contributing substantially to" climate change mitigation (Annex I) and climate change adaptation (Annex II), and whether those economic activities "do no significant harm" to any of the other environmental objectives. The CDA proposes to add the following nuclear and natural gas-related activities to those already set down in Annexes I and II:
- Pre-commercial stages of advanced technologies to produce energy from nuclear processes with minimal waste from the fuel cycle
- Construction and safe operation of new nuclear power plants, for the generation of electricity or heat, including for hydrogen production, using best-available technologies
- Electricity generation from nuclear energy in existing installations
- Electricity generation from fossil gaseous fuels
- High-efficiency co-generation of heat/cool and power from fossil gaseous fuels
- Production of heat/cool from fossil gaseous fuels in an efficient district heating and cooling system
Each of these proposed new activities is accompanied by a description of the activity and relevant TSCs, and all are stated to be "transitional" activities, meaning they are classified as activities for which there are no technologically and economically feasible low-carbon alternatives, but which are still considered to support the transition to a climate-neutral economy for the time being.
Changes to the Article 8(4) Delegated Act
The CDA proposes to amend the Article 8(4) Delegated Act through the establishment of new reporting obligations specifically relating to the new gas and nuclear-related activities, and providing templates for the disclosure of this information.
Proposed new provisions in the Article 8(4) Delegated Act require that, in addition to the current reporting obligations, non-financial undertakings and financial undertakings must disclose the amount and proportion of natural gas and nuclear-related economic activities in the denominator and numerator of their key performance indicators. This information is to be presented using new templates proposed under the CDA.
Consultation and next steps
Almost all of the commentary available around the draft CDA focusses on the controversial inclusion of either nuclear or gas (or both) as a potentially sustainable activity at all, as well as the lack of consultation by the Commission on this legislation, and the fact that no impact assessment accompanied the proposed legislation.
However, at least some closed consultation occurred with the Platform on Sustainable Finance ("PSF") at the very beginning of January, and PSF released a report with their comments a few weeks later (available here). The PSF was critical of the Commission's approach, stating:
"Unfortunately, there is no accompanying rationale from the European Commission on the reinterpretation of these regulated requirements and how they are applied to the design of the activity criteria. There is also no available impact assessment (which would normally consider environmental impacts among other factors) or any assessment of implications for financial markets as a result of the draft CDA being implemented."
The CDA is currently being translated into all EU languages, after which time the scrutiny process will start. This allows the European Parliament and Council four months to decide if it will formally object to the proposal.
If no formal objections are made during this period, the CDA will enter into force and become applicable from 1 January 2023.