Taxonomy and natural gas: a fact-based approach to drive sustainable solutions

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Series Details 2021/35, Number 35
Publication Date 2021
ISBN 9789294660732
ISSN 2467-4540
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The EU Commission started developing in 2020 a “Taxonomy for sustainable activities” as an instrument to help directing investments towards sustainable projects and activities. As the initiative gains importance, it’s fair to expect that non- taxonomy aligned activities will become progressively more difficult, and more expensive to finance.

This is the aim of the Sustainable Finance Initiative, and it is working. All existing natural gas-based power generation cannot be considered as taxonomy-aligned, since taxonomy-aligned activities must substantially contribute to reaching the Paris Agreement goals, rather than maintaining the 'status quo'. On the other hand, in many circumstances and during the transition to 2050, natural gas will provide a substantial help in lowering GHG emissions, for example compared to coal, and will still be playing an important role as a back-up to the increasing RES-E generation (hence avoiding activation of more polluting energy for balancing). Making taxonomy criteria too strict (e.g. requiring the use of only zero-carbon options that will be needed in 2050), or taking a 'one-size-fits-all' approach on gas, could be counterproductive, since such zero-carbon options are currently technologically immature, or economically so expensive that – even if they are set as the standard under the EU Taxonomy – they would in any event not be used, and a standardized approach will not reflect the realities of the EU's electricity market.

The EU Taxonomy needs to drive investments into the most sustainable option available, and the factual circumstances existing at the time of investment need to be taken into account. Thus, in proposing a standard for natural gas in the EU Taxonomy, we centre our examination around two key questions: First: ‘Which investments in natural gas-based power generation will/can not be substituted by renewable-based alternatives and will thus be unavoidable over the next decades to ensure energy security? Second: once established which new investments in natural gas plants will be made, “How can the criteria of the EU Taxonomy drive this investment down the most sustainable path?” In this light, we put forward a 4-stage test, designed to check if – after all renewable-based alternatives have been exhausted –gas-fired power generation (namely CCGT/OCGT) can in some circumstances be considered the Best Available Technology (BAT) in terms of GHG emissions, hence concurring to meet the Climate goals. At the same time, such model would prevent any ‘lock-in’, since investors would need to ensure that zero-carbon solutions will be in place for the 2050 deadline.

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