Europe to adopt new finance classification

The European Union is to adopt a new green finance classification (called taxonomy), aimed at channelling billions of private investors’ money into clean technologies. New definitions will ensure tax breaks for coal, and – in principle - nuclear power, are out.

The new taxonomy will provide investors, pension funds and private equity firms with “a common definition of what is green and what is not, in order to channel more capital into sustainable businesses, and to prevent green-washing,” the European Commission has stated. The strengthened “Do No Harm” principle forms the centrepiece of the entire European Green New Deal. It probably means nuclear power will be excluded from the EU’s green finance taxonomy when experts sit down to agree detailed implementing rules this spring.

The European Parliament in particular has resisted all attempts by national governments to politicise the environmental criteria underpinning the EU’s new sustainable finance classification scheme. “Any investment in coal cannot be considered sustainable,” said Bas Eickhout, a Dutch Green MEP who was the European Parliament’s lead negotiator. “ ‘Do No Harm’ will shift financial flows away from dirty, carbon-intensive investments and into sustainable economic activities.”

The deal creates three categories for sustainable investments: “green”, “enabling,” and “transition”. It also obliges companies with more than 500 employees to disclose how much of their activities are compliant with the three new categories.

The European Commission is defining “transition” and “enabling” economic activities on the way to net-zero emissions, as part of efforts to reach compromise on a draft EU green finance taxonomy. European experts will now have to sit down and lay out thresholds to determine precisely which economic activities can qualify as green. These will include CO2emission limits for power production, which EU experts have tentatively set at 100g of CO2per kWh – a threshold that would, in principle, also exclude natural gas.

Whether the UK willcomply with these new arrangements will form a key part of the Brexit negotiations to form a new trade deal with the EU. The Prime Minister is seeking to complete these by December.

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