Climate Change Policies
Now, Who Will Protect Us From Greenwashing?
With a recent update in the Taxonomy, the EU risked its ambition towards climate change
A while ago, the EU took a step to crown its leading position on climate change and created a taxonomy to provide guidance on which investments would be considered an environmentalist. In particular, with this step taken to prevent companies that claim to engage in environmentalist activities in order to gain public or investor support, but act on the contrary, the EU has shown the whole world through which investments can sustainable finance be provided. I recently shared a review on my blog about this arrangement. Therefore, before continuing with this article, I recommend that you take a look at the article I mentioned.
The taxonomy prepared by the EU was described by many as the world’s green gold standard. To remind very briefly; The EU’s taxonomy is a comprehensive taxonomy system for industries that represent around 80 percent of the EU’s emissions aimed at channeling private capital into environmentally sustainable activities. It should be reminded right away that this taxonomy does not oblige investment in certain sectors or areas, nor does it prohibit investing in dirty sectors. With this dimension, it would be more accurate to consider the regulation only as a guide.
A Huge Step Back?
Undoubtedly, it would be unrealistic to expect coal-based growing countries to remain unresponsive to such a classification, which distinguishes dirty investments from clean ones, thus bringing renewable energy to the fore. In the past years, while determining the climate change and energy policies to be implemented throughout the Union, we have always witnessed the efforts of countries such as Poland and Hungary to ensure that coal or natural gas do not lose their place in their energy mix. However, until now, all these efforts have been fruitless. So much so that even in the Just Transition Fund, which was created for the transition process, demands in this direction were not met.
However, when we look at today, the European Union made nuclear and natural gas-based energy production debatable again in the energy crisis that the EU was in. In this, we can state that France’s desire to use nuclear energy resources in the exit from the energy crisis plays a leading role, as the Nord Stream 2 project between Germany and Russia, Russia’s threatening statements and actions against Ukraine supported by the EU, became undesirable by the EU. In addition to all these, we have seen that the facilities that want to switch fuel for production turn to natural gas as an alternative to coal, as the rising prices in the carbon markets increase the costs of coal. Moreover, natural gas prices had seen historical record levels due to the fact that natural gas stocks were not enough to meet the post-pandemic economic recovery and other developments such as the Russia-Ukraine tension that would endanger energy supply security.
All these developments, of course, brought up the reconsideration of fossil energy resources, which were previously uncompromised, dirty, and undesirable to be included in the transition to a green economy. On February 2, 2022, the European Commission decided that nuclear and natural gas investments in the EU should be considered sustainable investments, albeit temporarily. This decision, which points to a very serious paradigm change, caused a lot of discussions but was enacted as a result of both geopolitical and economic difficulties.
According to the decision, these two energy sources will be considered sustainable if they meet the scientific-based criteria, and it is foreseen that this regulation will be valid until 2045 for nuclear energy and until the end of 2030 for natural gas. In this context, if the safe elimination of radioactive wastes in the nuclear power plants to be built until 2045 is guaranteed, it will be appropriate to classify the investments to be made in the mentioned nuclear power plants as sustainable. In the context of natural gas, it has been decided to qualify investments for new natural gas power plants, which will be built by the end of 2030, to replace the power plants that pollute nature more, and to be built by complying with the threshold values to be determined at greenhouse gas levels, as sustainable.
While the echoes of this development are still ongoing, the statement made by French President Emmanuel Macron has shown us in which direction the EU’s nuclear policies will go. After the European Union’s proposal to label nuclear energy as clean energy, Macron announced that France would build six more nuclear reactors, and he heard this decision by saying, “It’s time for the nuclear renaissance.” Germany, on the other hand, made diplomatic contacts in order to prevent a possible intervention by Russia in Ukraine for the establishment of energy supply security and wanted to prevent the successful completion of the Nord Stream 2 project and to prevent problems in natural gas supply for a while. Both countries received support from countries with similar policies with these policy preferences. What is interesting is that the groups supporting these policies criticize each other’s policies and claim that their own policies are the only ones that should be accepted. Therefore, it seems possible to say that the decision taken by the EU Commission is a decision that makes both sides happy.
Will the EU Continue to be the Global Champion in Climate Change?
For a long time, the EU has been playing a leading role in taking the most ambitious steps on climate change, both at the union level and at international platforms. The European Green Deal plan, which he put into practice in this direction, was the most important implementer of this. However, at the point we have reached today, it seems possible to attribute the EU’s stepping back from its previous stance by classifying natural gas and nuclear energy as sustainable, to a climate policy designed in a way that is not suitable for geopolitical realities.
It should not be forgotten that one should not be hasty when implementing all policies used to combat climate change. Because hasty policies have the potential to lead to undesirable consequences not only for the economy but also for nature. Steps that are not built on solid foundations and that do not take into account many different dynamics will have negative effects on many factors, especially energy security and social welfare. This loss of credibility will cause a very difficult credibility problem to compensate. A transition that does not take into account societal consequences will result in inequalities in income and welfare within or between countries and increase geopolitical risks.
Undoubtedly, all countries, not only the EU, need to take as fast and serious steps as possible to decarbonize their economies. On the other hand, wrong planning will not only hinder the process but may also reverse the progress made. At this point, unfortunately, it would not be wrong to describe this policy choice of the EU as a step back. Therefore, the EU is faced with a serious credibility risk in its climate change policies.
Considering that the EU Taxonomy regulation is a study for the definition of sustainable finance, it is claimed that nuclear energy and natural gas resources are sustainable resources, which is not realistic. In addition, directing capital resources to nuclear and natural gas, even for a temporary period, is incompatible with the EU’s target of being carbon-neutral by 2050. Based on this, reactions to this new regulation have increased from different countries like Germany, Austria, and Spain arguing that the decision is in violation of the EU Climate Law. Because of this reason it has been stated that the decision will be brought to the judiciary by some parties.
When we look at taxonomic studies in other countries, we see that the EU’s decision will have reflections. For example, the LNG sector in Australia has already started lobbying for the EU implementation to be reflected in their national legislation. On the other hand, South Korea seems to have found a strong supporter for the policy of including fossil fuels in their taxonomy, which it is currently implementing for the transition process.
The country that makes this table interesting is China. Indeed, China has chosen not to include fossil fuel-based power plants in its taxonomy version. While China sees a strong role for fossil fuels and even coal in its energy mix in the coming years, its eagerness to maintain strict standards for what is classified as green investment signals to us that it will henceforth assume the leading role in the EU’s climate policy.
Updates and Insights…
As a very recent update coming along with Russia’s invasion of Ukraine, Germany halted the Nord Stream 2 for an undefined period. The US, on the other hand, stated that there is no way back for Germany in this project and the Nord Stream 2 was canceled indefinitely. From the point of view of geopolitical actors, interesting developments stand before us. Because of the fact that Azerbaijan, another natural gas giant announced that it will cooperate with Russia, accessing affordable gas sources has become increasingly difficult for the EU. At this point, we will undoubtedly witness that the US will make every effort to send LNG to the EU, but we will need a little more time to see how fast and how adequate this supply will be. In this case, it is possible that we will see a loss of determination and slowdown in the ambitious climate policies of the EU in the coming period.
At this point, when we turn our attention towards China, we encounter an actor who takes his diplomatic steps much more carefully. Undoubtedly, due to its close relations with Russia, China is seen as an advantageous side if it takes the right steps from the current crisis environment. In the context of climate change, as I mentioned above, it seems to continue to implement the right strategies in environmental policies, despite the self-confident and all the opposite growth model. In this crisis environment, while the EU and the US are struggling with a conjuncture with high natural gas prices, it seems possible to accelerate the transition to a green economy with the natural gas that it will supply cheaply thanks to its close relations with Russia.
In a nutshell, whether the EU’s backward step on taxonomy will be reflected in other environmental policies will be among the developments that we will follow closely in the coming period. At this point, how EU citizens will support the policies of their states in the fight against climate change, how they will make concessions to the populist discourses against climate policies, and what attitude they will follow in the face of fluctuations in energy prices will guide us to the questions we wonder. On the other hand, if China manages the crisis that we are in, diplomatically correctly, it looks like it will take the global leader position in climate change from the EU. Therefore, it seems that the steps that China will take in this hot agenda in the coming days, will be critical for the future of global climate change agenda. But for now, I predict that China will be the answer to the question that I’ve asked in the title, and in the near future they will set an example for the climate struggle of the whole world.
