What is the EU Taxonomy?

The EU has been working for some years to produce a clear way of defining what is sustainable economic activity and what is not. In a typical example of Eurospeak they have chosen to use the rather off-putting scientistic word ‘Taxonomy’ to define this work.

But don’t be put off by it. Perhaps you can just think of the word ‘definition’ whenever you come across the word taxonomy? That’s a rather more friendly word.

The taxonomy defines six types of economic activity to be sustainable:

• Climate change mitigation • Climate change adaptation • The sustainable use and protection of water and marine resources • The transition to a circular economy • Pollution prevention and control • The protection and restoration of biodiversity and ecosystems

Exactly how these are defined relies on a great deal of technical work from the Commission’s Technical Expert Group. For now, we just need to know that it covers 13 sectors, including renewable energy, transport, forestry, manufacturing, buildings, insurance and even the arts.

When you count them together, these sectors account for nearly 80% of EU greenhouse gas emissions. So if we can shift them all towards sustainability we are making great strides to protecting the climate. But what is the point of the taxonomy? It feels like a rather academic exercise? How can it make a difference in the real world?

The hope is that the taxonomy can be used as the basis for a whole range of policies. Remember when we looked at greenwashing? How could we decide whether claims about whether investment or bonds were having great sustainable impacts were true or not? Having a definition makes that possible. So we can eventually have a green investment label and for EU-accredited green bonds. But we could also have this for investments, pension funds, and so on.

Launching the legislation in April 2021, EU Commission Vice-President Valdis Dombrovskis said ‘The taxonomy describes which economic activities are in line with the Paris Agreement, helping companies and investors to know whether their investments and activities are really green. . . it sorts green from greenwash’.

It is obvious from the list I read out earlier that the most urgent focus of the taxonomy is on climate, but it does cover other areas where there is an environmental crisis, like pollution, lack of water and soils, loss of species, and so on.

I think the motivation for setting up the taxonomy was a good one but unfortunately it didn’t survive its contact with European politicians. The most controversial question was whether gas and nuclear can be included in a taxonomy labelled Green.

You can have an argument about for how long we will be using gas to warm our homes or generate electricity, but you can’t have an argument about whether fossil fuels are sustainable. They quite simply are not. And you can argue about whether we should have a place for nuclear energy in our future economy, but again, it can’t be labelled sustainable.

You can see in the video that follows how the Greens in the Parliament thought about whether gas and nuclear are Green. But, the lobbyists from fossil and nuclear industries – and the right-wing politicians who support them – eventually won the vote. This has totally undermined the credibility of the taxonomy and all the green labels and certification schemes that might have been based on it.

The research group Reclaim Finance were furious about this. They said:

‘When is a sustainable taxonomy not sustainable? When it becomes captured by lobbyists from environmentally damaging industries, of course. That is the key – unsurprising but unfortunate – takeaway of our new report on the gas and nuclear industries’ €85m lobbying offensive aimed at overturning their initial effective exclusion from the European Union’s flagship ‘sustainable taxonomy’, with support from state backers. Unfortunately, it appears their efforts are paying off, with the door now open to the inclusion of these energy sources confirmed in the European Commission’s “sustainable finance strategy”.’

Their research shows that 182 gas-related entities spent between €64.9 and €78.4 million annually lobbying on the taxonomy. Between January 2020 to May 2021, the crucial period when the technical standards for the taxonomy were being finalized, gas lobbyists held an extraordinary 323 meetings with EU officials — more than one meeting every two days.

In all these discussions, the question is whether you limit sustainable finance to the deep green sectors or use it to accelerate the sustainability transition. The purpose of the taxonomy is to define the deep green sectors that need to be rapidly developed to accelerate the sustainability transition. That doesn’t mean there is no role for companies that can rapidly transition to makes themselves sustainable in the future economy. But there are sectors and companies that can never be sustainable.

The first question must be: does this industry have a place in a sustainable future? Since there is no such thing as a sustainable fossil fuel it is absurd to include gas in a sustainable taxonomy. And it is self-defeating, since if the taxonomy itself becomes a form of greenwashing it will lose credibility and no longer be used as a standard against which to measure green investments.

Many would argue that this has already happened and that the dream of clear and authoritative definitions of sustainable economy activity has died.