EU rescue fund raises emission limits for gas-fired power plants

LONDON (ICIS)–Conditions for natural gas-based power projects that may be funded through EU’s Recovery and Resilience Facility (RRF) are set to be less strict compared with the ones laid out in the Taxonomy Regulation.

This means that a number of gas investments that would not be defined as sustainable under the Taxonomy can still be eligible for the recovery package.

The RRF is the key instrument of the Next Generation EU providing €672.5bn via a combination of loans and grants. Designed to minimise the socio-economic effects of the pandemic, the European Parliament gave the green light to the text on 9 February .

According to the new guidelines, gas projects can receive support on a case-by-case basis in EU countries facing significant challenges in their transition from polluting fuels. Conditions include, among others:

– The gas-fired plant must produce less than 250g of CO2 emissions per KWh (as opposed to 100gCO2e/KWh proposed in the Taxonomy’s delegated acts which are still under discussion).

– The plant enables for the use of renewable and low-carbon gases.

– A significantly more carbon-intensive power plant and/or heat generation facility (e.g. coal, lignite or oil) with at least the same capacity is closed simultaneously.

TAXONOMY

The Taxonomy Regulation, in force since July 2020, tightens the selection criteria for strategic gas projects receiving EU funding. This will likely reduce the number of eligible projects in the future, experts told ICIS in July.

This regulation creates the first classification system for sustainable economic activities. This is meant to help drive private investments in green and sustainable projects.

Although, there are still aspects in the Taxonomy under discussion such as the proposed 100g of CO2 emissions per KWh criteria for gas-fired projects.

“The current RRF proposal sets a dangerous precedent when it comes to unabated gas’ role in the green transition. It not only disregards the [proposed] substantial contribution criteria of 100gCO2e/KWh introduced through the Taxonomy, it replaces it with the [do-not-significantly-harm] DNSH criteria with 250gCO2e/KWh,” according to Lina Strandvag Nagell, sustainable finance and economy manager at Bellona Europe.

The approved Taxonomy regulation does allow for a project to emit 250gCO2e/KWh only when an investment substantially contributes to one of the following objectives :

1.Climate change mitigation

2.Climate change adaptation

3.The sustainable use and protection of water and marine resources

4.The transition to a circular economy

5.Pollution prevention and control

6.The protection and restoration of biodiversity and ecosystems.

But the current RRF proposal sets it as a stand-alone metric which creates “parallel and broader DNSH criteria,” Strandvag Nagell warned.

Even the less stringent 250gCO2e/KWh threshold could be overstepped.

“The compliance with a 250g threshold can be circumvented if the investment enables for the use of renewable and low-carbon gases. But the fact that an infrastructure can be used for low-carbon alternatives does not mean it will,” she added.

But according to Poppy Kalesi, director of global energy at the Environmental Defence Fund, the RRF text seems to be striking a good balance.

“The RRF is time-limited and many of those projects should already be planned for delivery. The exceptions seem consistent with the aims of sector integration and the 2030 target and indeed, only the best performing gas plants seem to be meeting the criteria,” Kalesi said.

CO2 EMISSION THRESHOLD

The 100gCO2e/KWh limit only appears in the proposed Taxonomy delegated acts and delays could push their introduction to the legal text towards the end of March at the earliest.

The European Commission drafted delegated acts which define the way competent authorities and market participants must comply with the Taxonomy.

The Commission is expected to adopt the delegated act by June 2021, which will specify the information companies have to disclose on how, and to what extent, their activities align with those considered environmentally sustainable in the Taxonomy.

ITALY

With €222bn on track to be allocated to reboot the national economy, Italy will receive the largest share of the RFF, equal to roughly 28%.

Of this, €78.79bn is set to be earmarked to the green transition.

But despite the sizeable amount, renewable lobbies have lamented Italy’s lack of ambition in planning renewable installations.

Lobby group Elettricita’ Futura argued during a recent hearing at the chamber of deputies that the total amount for the green transition should be increased to make up 37% of the fund, as explicitly agreed by EU leaders last December.

Additional reporting by Federica Di Sario