By Michaël Oblin, Fixed Income analyst
& Gerrit Dubois, Responsible Investment Specialist at DPAM


After delaying the decision on gas and nuclear power and separating this decision from the wider discussions on in-scope activities, the EU has adopted a text outlining the majority of economic activities that substantially contribute to climate change mitigation and climate change adaptation. On February 2, 2022, the European Commission released its final delegated act on adding nuclear and gas power to the EU Taxonomy.

Nuclear activities that might be included into the EU Taxonomy are:

    • New nuclear plants for power production with a construction permit before 2045.

    • Modifications and upgrades of existing nuclear power plants (i.e. lifetime extensions) will be approved until 2040.

    • Activities related to research and innovation into safety standards and minimising waste can also be included.


Gas activities that might be included into the EU Taxonomy are:

    • Electricity generation or co-generation of heat/cold from fossil gaseous fuels,

    • Activities with a construction permit before 2030 will be included if direct emissions are below 270 grams CO2/kWh. Alternatively, if these activities are for electricity generation, they will also be included if the annual direct Greenhouse Gas (GHG) emissions do not exceed an average of 550 kg CO2/kW over 20 years. Note that post 2030, an even stricter threshold of 100g CO2/kWh will be applied.

    • These activities must replace a facility using solid or liquid fossil fuels, ensuring a switch to renewable or low-carbon gases by 2035. Additionally, they should also be subjected to regular compliance checks.


The main argument used by the Commission to include these activities in the Taxonomy is that they support a stable baseload energy supply, which helps to compensate for the intermittency of current renewable technologies. Regarding the compatibility of nuclear with the ‘do no significant harm’ requirement, the European Commission based its proposal on the Joint Research Centre’s argument that existing technologies can address the material negative impacts of nuclear energy at reasonable costs.

How should we understand these criteria?

    • Demand scenarios compatible with a max.+1.5°C target from both the International Energy Agency and the EU highlight that gas demand needs to decrease after 2030. The technical screening criteria indirectly tackle this issue by requiring gas operators to demonstrate that their facilities are technically equipped to gradually switch to renewable and low-carbon gases. This ensures that these assets are flexible enough to incorporate future technological developments (such as the use of green hydrogen in gas power plants instead of natural gas [methane]) and their compatibility with the EU’s carbon neutrality objective. While being very ambitious, the proposed timeframe to complete the switch by 2035 is necessary to deliver on the EU 2050 Net Zero objective.

    • If we look at current technologies and exclude hydrogen, biogas or Carbon Capture & Storage (CSS), meeting the 270g CO2/KWh threshold will prove to be quite a challenge. The newest Combined Cycle Gas Turbine Plants have an intensity of roughly 333g CO2/kWh. Efficiency gains may happen. However, these will likely be marginal and will require time. CCS is an option, yet its technical and cost-related problems remain key challenges that will take time to be developed. As a result, gas-fired power plants might have to look into blending conventional gasses with biogas or ‘green hydrogen’ (i.e., hydrogen that is produced thanks to renewable energies) to reduce their CO2 intensity in the short term.

    • By relying on the average of 550kg CO2/kW per year over a 20-year period, European power generators have more time to decarbonise their power generation. Their activities would still be compliant with the Taxonomy as long as they sufficiently reduce emissions in the future and commit to switching to renewable or low-carbon gases (such as hydrogen) by 2035. Indeed, this <550kg CO2e/kW yearly emission criterium limits gas power plants to a peaking usage only and seems insufficient to ensure supply security in the medium term until appropriate blending levels are reached.

    • According to the spirit of the EU Taxonomy, gas power plants are not supposed to replace nuclear power plants. Belgium’s construction of new gas power plants to replace nuclear reactors is consequently not in line with the EU-Taxonomy.

    • Capital expenditures (CapEx) in infrastructure associated with the transport, storage and distribution of natural gas is not included in the EU Taxonomy, unless this CapEx serves to adapt this infrastructure to cover hydrogen transport or distribution.

    • The 2030 (gas) and 2040-2045 (nuclear) deadlines show the transitional nature of these technologies in the eyes of the EU.

    • There are still several challenges left to face, such as developing low-carbon gas technologies on a large scale (green hydrogen, biogas) and proving that gas operations are directly offsetting coal production.


Next Steps

The European Parliament and the Council have 4 months to review the document, on top of which they requested an additional 2 months. They can object to the proposal but cannot amend it. A reinforced qualified majority is required to object in the Council (at least 20 member states representing 65% of the EU population) and a majority is required to object in the European Parliament. The opposition to the proposal has been vocal. However, with the high threshold to object and the support of Europe’s biggest countries, we can still expect the document to go through. Nuclear power in particular will likely receive support, as a result of the energy crisis and the EU’s plan to reduce its dependence on Russian gas. If there are no objections, the act will go into effect on January 1, 2023.

Taxonomy-alignment disclosure by companies

In the short term, reporting against Taxonomy eligibility will be mandated, as companies prepare to gather data for more detailed reporting going forward. Detailed Taxonomy-alignment reporting will then become mandatory in the next couple of years. This will not only increase transparency, but also allow investors who hold securities in European companies to report their own Taxonomy-alignment more easily. This has become mandatory for firms promoting funds with sustainability objectives under the EU’s Sustainable Finance Disclosure Regulation (SFDR).

Are investors willing to allocate capital to nuclear and gas power generation?

Fundamentally, the EU Commission’s decision on gas and nuclear activities reflects the growing concerns about energy supply issues caused by the intermittency of renewables. In addition, the phaseout of coal-fired powerplants and nuclear power generation in countries like Germany and Belgium further complicate matters. These issues are likely to remain until Europe deploys a much larger renewable package, perfects flexible carbon-free generation technologies (such as Green Hydrogen-fired power generation) or develops large-scale carbon storage and removal technologies.

However, even though the EU Taxonomy now includes nuclear and gas power generation, it is still unsure whether investors will be willing to allocate capital to these industries. In a recent survey by Barclays<sup>1</sup>, around 60% of respondents said that they are actively using of the Taxonomy when creating their investment policies. However, for most investors, it seems that including nuclear and gas-fired power generation into the EU Taxonomy (under certain conditions) has not impacted any of their investment policies. Indeed, many investors (mostly Europeans) are likely to have already taken a firm prior stance on nuclear and gas. To this effect, only 9% of respondents responded positively to the question “Has the inclusion of nuclear and gas in the EU Taxonomy changed any of your investment policies?”. This may be in part because many investors believe that the eligibility thresholds applied to nuclear and gas power generation under the Taxonomy are loose. However, many investors may have answered “loose” as they would have preferred not to have these fuels in the Taxonomy at all. Out of all respondents, 22% have exclusion criteria for gas-fired power stations, which suggests most investors consider gas to have some importance in the energy transition (particularly with regards to the phaseout of coal). In comparison to gas, nuclear exclusion criteria are more common (30% of respondents). Finally, green bonds funding nuclear and gas-fired power generation are not necessarily a “no-go” for all investors: around 45% of respondents would buy a green bond that funds gas-fired power generation projects. 60% of respondents would buy green bonds that fund nuclear power generation projects.

1 Source: Barclays: “EU Taxonomy Survey on Nuclear and Gas”, March 27, 2022


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