Brussels faces the threat of a legal dispute over the rules on sustainable financing

Brussels faces the threat of legal action and the potential disregard for its remarkable rules for sustainable funding by EU governments that do not want nuclear energy or natural gas to be labeled as green investments.

The energy ministers of Austria and Luxembourg told the Financial Times they would sue the European Commission over its rules on so-called green taxonomy, while the Spanish deputy prime minister said Madrid could choose to use its own green framework, with the exception of nuclear power and natural gas.

The complaints put a lot of pressure on the European Commission, which has proposed that nuclear technology and some forms of natural gas be identified as sustainable investments under comprehensive rules designed to help eliminate green leakage in the financial industry.

The anti-nuclear governments of Austria and Luxembourg have begun preparations for a case against the Commission if the rules are approved in their current form. They claim that nuclear energy, which does not have a carbon footprint but produces toxic waste with radiation risks, violates the EU’s principle of “no significant harm” to the environment.

“There is a solid and strong argument to turn to the European Court of Justice if the Commission decides to continue and the taxonomy comes into force,” said Leonore Gevesler, Austria’s Minister of Green Energy. “We need to make sure that the financial markets remain true to the alternatives to renewable energy.

Critics of the taxonomy are looking for legitimate ways to challenge the text, as it is almost certain that it will be approved by an alliance of EU pro-gas and pro-nuclear governments in the coming months. The draft can only be repealed if it is rejected by an overwhelming majority of both the Member States and the Members of the European Parliament.

The Taxonomy Regulation categorizes industries, which generate about 80 percent of EU greenhouse gas emissions, in an attempt to help investors direct capital to sustainable economic activity. The labeling system will then apply to financial products and green bonds and will direct EU government spending towards the climate transition.

But the exercise, which began three years ago, has sunk into sensitive energy sovereignty policies as pro-gas countries in Eastern Europe and pro-nuclear countries like France have demanded rules not to penalize energy sources that supply much of their electricity needs. and are crucial for the transition to net zero emissions.

The German coalition government is divided over the taxonomy between the anti-nuclear Greens and the more pro-gas coalition partners, the Free Democrats. On Saturday, German Green Economy Minister Robert Habeck and Environment Minister Steffi Lemke said that if the project remained unchanged, the German government should reject it.

Teresa Ribera, Spain’s deputy prime minister for the environment, said categorizing nuclear and gas was a “mistake” that did not prepare the EU for net zero carbon emissions by 2050. She warned that Madrid could to choose to apply its own standard when issuing green bonds, instead of using EU taxonomy as a basis for debt issuance.

“If it is more appropriate to our own needs and priorities, we will apply our own standard,” Ribera said. “So there may be different standards: a silver standard at EU level and a gold standard at the level of some Member States.

Claude Turmes, Luxembourg’s energy minister, who will join the case with Austria, also said there was a risk that instead of providing a common standard for sustainable financing, the taxonomy would “lead to more fragmentation as countries move on their own.” road “. .

Legal uncertainty risks hampering the widespread adoption of the taxonomy among investors who want to bring their portfolios in line with net zero emission targets. A group of institutional investors in climate change, whose members have 50,000 euros in assets under management, warned that the inclusion of gas would create an “unnecessary headache” for investors with green ambitions.

An independent group of advisers who helped the European Commission develop the rules also called for radical changes, including that the gas meets green label requirements only if it produces less than 100 g CO2 per kilowatt-hour when replacing more polluting sources. such as coal.

Marta Toporek, a lawyer with the environmental charity ClientEarth, said the current taxonomy “contradicts a number of EU laws, including the EU’s obligations under the Paris Agreement, the European Climate Act and the taxonomy regulation itself”.

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