Technical screening criteria (TSC) under the Taxonomy Regulation define when an activity is deemed sustainable (Draft report of 3 August 2021 by the Platform on Sustainable Finance on preliminary recommendations for technical screening criteria for the EU taxonomy, p. 9). They are the core of the EU taxonomy system defining when economic activities are taxonomy-aligned while intending to be as comprehensive as possible and covering all relevant parts of the economy. The technical screening criteria either relate to:

- the end product, e.g. in the case of zero emission vehicles or 

- the production process, e.g. in the case of manufacturing of chemicals, metals and cement, and power and heat/cool generation (Transition finance report of March 2021, Platform on Sustainable Finance, p. 26).

In particular, they must ensure that power generation activities that use solid fossil fuels do not qualify as environmentally sustainable economic activities (paragraph 3). Requirements for technical screening criteria are laid down in Article 19 of the Taxonomy Regulation (with clarifications in Recitals 38 - 50 and 54).

It is noteworthy, descriptions of economic activities in technical screening criteria include the references to NACE codes (established by Regulation (EC) No 1893/2006 of the European Parliament and of the Council) that can be associated with given activity. However, as Recital 6 of Commission Delegated Regulation (EU) 2021/2139 of 4 June 2021 explains, “those references should be understood as indicative and should not prevail over the specific definition of the activity provided in its description”.

Recital 11 of the said Regulation also underlines that "the technical screening criteria for certain activities rely on elements of considerable technical complexity and the assessment whether those criteria have been complied with may require expert knowledge and may not be feasible for investors. To facilitate that assessment, the compliance with such technical screening criteria for such activities should be verified by an independent third party".

 

First Taxonomy Climate Delegated Act

 

The first Taxonomy Climate Delegated Act has been published in the EU Official Journal on 9 December 2021: Commission Delegated Regulation (EU) 2021/2139 of 4 June 2021 supplementing Regulation (EU) 2020/852 of the European Parliament and of the Council by establishing the technical screening criteria for determining the conditions under which an economic activity qualifies as contributing substantially to climate change mitigation or climate change adaptation and for determining whether that economic activity causes no significant harm to any of the other environmental objectives.

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Arrow-rightFirst Taxonomy Climate Delegated Act: Commission Delegated Regulation (EU) 2021/2139 of 4 June 2021

  

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Taxonomy - manufacture of hydrogen

 

Arrow-rightTaxonomy - electricity generation from bioenergy

 

Arrow-rightTaxonomy - electricity generation from natural gas


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Taxonomy Complementary Climate Delegated Act 

When on 21 April 2021 the European Commission published its draft of this TSC {SWD(2021) 152} - {SWD(2021) 153}, C(2021) 2800/3) it stated as regards the energy that:
"The cross-cutting 100gCO2e/kWh lifecycle emissions threshold for energy activities was maintained, except where evidence clearly shows relevant technologies to be well below this level. Bioenergy is no longer labelled as transitional and the criteria for bioenergy were aligned more closely with applicable EU legislation, while those of hydropower were made more context-specific and likewise more aligned with existing EU law".

 

Taxonomy Complementary Delegated Act (CDA) - treatment of nuclear and gas activities 

 

The first Taxonomy Climate Delegated Act did not include any transitional activities in the energy sector, hence, on 1 January 2022, the European Commission began the expert consultations on Complementary Delegated Act (CDA) covering - as transitional - certain nuclear and gas activities (Commission Delegated Regulation amending Delegated Regulation (EU) 2021/2139 as regards economic activities in certain energy sectors and Delegated Regulation (EU 2021/2178 as regards specific public disclosures for those economic activities).

The relevant European Commission's press release noted:

"Commission considers there is a role for natural gas and nuclear as a means to facilitate the transition towards a predominantly renewable-based future. Within the Taxonomy framework, this would mean classifying these energy sources under clear and tight conditions (for example, gas must come from renewable sources or have low emissions by 2035), in particular as they contribute to the transition to climate neutrality".

However, on 21 January 2022 the EU Platform on Sustainable Finance published its sceptical opinion regarding the draft Complementary Delegated Act (EU Platform on Sustainable Finance, Response to the Complementary Delegated Act). Nevertheless, on 2 February 2022 European Commission presented the Taxonomy Complementary Climate Delegated Act with minor amendments only.

Considering 3 types of activities the Taxonomy Regulation lays out: low-carbon (Article 10(1)), enabling (Article 16) and transitional (Article 10(2)), certain nuclear and gas activities are classified by the European Commission in the Complementary Climate Delegated Act as the third category.

The Explanatory Memorandum to Complementary Climate Delegated Act stresses that the taxonomy "covers more than climate neutral and renewable investments. It also covers economic activities that are clearly not climate neutral or renewable but could, under strict conditions and for a limited time, enable the transition towards a sustainable energy system, such as the economic activities in the natural gas and nuclear sector. They should not hamper the development of renewable sources".

The European Commission rejects the criticism insofar as it seems to be based on the assumption, which is contrary to the purpose of Article 10(2) of the Taxonomy Regulation, that only the technical screening criteria that ensure the most substantial contribution to the climate change mitigation objective and do no harm, or the least harm to the other environmental objectives could be included in the Delegated Act. The Commission argues that under Article 10(2) and (3) of the Taxonomy Regulation it is required to set out technical screening criteria for economic activities for which at present there is no technologically and economically feasible low-carbon alternative and which would be necessary in transition towards climate neutrality.

According to Recital 6 of the CDA, nuclear energy-related activities are low-carbon activities, they do not constitute energy from renewable sources as defined in Article 2, second subparagraph, point (1) of the RED II, and as referred to in Article 10(1), point (a) of the Taxonomy Regulation and do not fall under the other categories of economic activities listed in points (b) to (i) of that provision (the list enumerates economic activities that qualify as contributing substantially to climate change mitigation). Such nuclear energy related economic activities should be qualified under Article 10(2) of the Taxonomy Regulation, in the absence of technologically and economically feasible low-carbon alternative at a sufficient scale to cover the energy demand in a continuous and reliable manner.

Nuclear energy related activity should therefore be considered as complying with Article 10(2) of the Taxonomy Regulation, i.e. “an economic activity for which there is no technologically and economically feasible low-carbon alternative shall qualify as contributing substantially to climate change mitigation where it supports the transition to a climate-neutral economy consistent with a pathway to limit the temperature increase to 1,5 0C above pre-industrial levels, including by phasing out greenhouse gas emissions, in particular emissions from solid fossil fuels, and where that activity:
(a) has greenhouse gas emission levels that correspond to the best performance in the sector or industry;
(b) does not hamper the development and deployment of low-carbon alternatives; and (
c) does not lead to a lock-in of carbon-intensive assets, considering the economic lifetime of those assets”. 

The Commission also rejects the criticism expressed by other Member States, contesting the qualification of nuclear energy activities under Article 10(2) of the Taxonomy Regulation and arguing that they should be qualified under Article 10(1) thereof.

The Commission points out that generating, transmitting, storing, distributing or using energy is limited, in Article 10(1), point (a), of the Taxonomy Regulation, to renewable energy in line with Directive (EU) 2018/11, and nuclear energy activities do not fall under the other categories of economic activities listed in points (b) to (i) of that provision.

The European Commission also recalls that what does not qualify as a sustainable economic activity under the EU Taxonomy is not by definition harmful.

Nevertheless, the Taxonomy Complementary Climate Delegated Act includes strict requirements for the activities to qualify (to ensure the respect of the do no significant harm principle).

In the case of fossil gas-related activities the facility should switch fully to renewable or low-carbon gases by 31 December 2035.

The Taxonomy Complementary Climate Delegated Act, as adopted by the Commission, is intended to ensure that any new gas-based power/heat plant (or refurbished combined heat and power plant or heat/cool plant) is either below the technology-neutral 100g CO2/kWh life-cycle emission threshold (i.e. using Carbon Capture and Storage technologies) or meets a number of stringent conditions and obtains a construction permit by 2030.

Importantly, the use of gas should act as a replacement of plants running on more polluting solid and liquid fossil fuels (e.g. coal).

As regards the co-generation of heat and power and heating/cooling activities, for every new natural gas-fired plant to be built, a coal-fired plant with the same capacity has to be removed for the technical screening criteria to be complied with.

Regarding the power generation, the capacity of the gas-fired plant cannot exceed the capacity of the coal-fired plant by more than 15%. Facilities have to integrate a rapid conversion towards renewables with a clear commitment for a full switch to renewables by 2035.

Taxonomy Complementary Climate Delegated Act (Commission Delegated Regulation (EU) 2022/1214 of 9 March 2022 amending Delegated Regulation (EU) 2021/2139 as regards economic activities in certain energy sectors and Delegated Regulation (EU) 2021/2178 as regards specific public disclosures for those economic activities) has been published in the EU Official Journal on 15 July 2022.

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Questions and Answers on the EU Taxonomy Complementary Climate Delegated Act covering certain nuclear and gas activities, 2 February 2022

Complementary Climate Delegated Act covers the following activities:

Nuclear-related activities:

1. Advanced technologies with closed fuel cycle (“Generation IV”) to incentivise research and innovation into future technologies in terms of safety standards and minimising waste (with no sunset clause);
2. New nuclear power plant projects for energy generation, which will be using best-available existing technologies (“Generation III+”), will be recognised until 2045 (date of approval of construction permit);
3. Modifications and upgrades of existing nuclear installations for the purposes of lifetime extension, will be recognised until 2040 (date of approval by competent authority)

Gas-related activities:

1. Electricity generation from fossil gaseous fuels
2. High-efficiency co-generation of heat/cool and power from fossil gaseous fuels
3. Production of heat/cool from fossil gaseous fuels in an efficient district heating and cooling system

Each gas-related activity needs to meet either of the following emission thresholds:
- lifecycle emissions are below 100gCO2e/kWh, or
- until 2030 (date of approval of construction permit), and where renewables are not available at sufficient scale, direct emissions are below 270gCO2e/kWh or, for the activity of electricity generation, their annual direct GHG emissions must not exceed an average of 550kgCO2e/kW of the facility's capacity over 20 years. In this case, the activity must meet a set of cumulative conditions: e.g. it replaces a facility using solid or liquid fossil fuels, the activity ensures a full switch to renewable or low-carbon gases by 2035, and a regular independent verification of compliance with the criteria is carried out.

 

Further perspectives


The next steps include further delegated acts on the other environmental objectives of the taxonomy: water, circular economy, pollution prevention and biodiversity (Environmental Delegated Act). 

Draft Commission Delegated Regulation supplementing Regulation (EU) 2020/852 of the European Parliament and of the Council by establishing the technical screening criteria for determining the conditions under which an economic activity qualifies as contributing substantially to the sustainable use and protection of water and marine resources, to the transition to a circular economy, to pollution prevention and control, or to the protection and restoration of biodiversity and ecosystems and for determining whether that economic activity causes no significant harm to any of the other environmental objectives and amending Delegated Regulation (EU) 2021/2178 as regards specific public disclosures for those economic activities (Taxonomy Environmental Delegated Act), Ref. Ares(2023)2481554 has been published on 5 April 2023.

European Commission's Q&As on Taxonomy Climate Delegated Act explain:

"The Taxonomy Climate Delegated Act is a living document and will continue to evolve over time, with more activities being added to its scope by means of amendments. It will also reflect technological progress. The screening criteria for climate change mitigation and adaptation in this Delegated Act are dynamic and will be subject to regular review. This ensures that new sectors and activities, including transitional and enabling activities, can be added to the scope over time". 



Excerpts
 

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Taxonomy Regulation, Recitals 20, 38 - 50, 54, Article 19

(20) To ensure the reliability, consistency and comparability of sustainability-related disclosures in the financial services sector, disclosures pursuant to this Regulation should use existing sustainability indicators to the extent feasible as proposed by the European Parliament in its resolution of 29 May 2018 on sustainable finance(7). In that context, the technical screening criteria should, to the extent feasible, be based on the sustainability indicators referred to in Regulation (EU) 2019/2088.

(38) Given the specific technical details needed to assess the environmental impact of an economic activity and the fast- changing nature of both science and technology, the criteria for environmentally sustainable economic activities should be adapted regularly to reflect such changes. For the criteria to be up to date, based on scientific evidence and input from experts as well as relevant stakeholders, the conditions for ‘substantial contribution’ and ‘significant harm’ should be specified with more granularity for different economic activities and should be updated regularly. For that purpose, granular and calibrated technical screening criteria for the different economic activities should be established by the Commission on the basis of technical input from a multi-stakeholder platform on sustainable finance.

(39) Some economic activities have a negative impact on the environment, and reducing such negative impact can make a substantial contribution to one or more environmental objectives. For those economic activities, it is appropriate to establish technical screening criteria that require a substantial improvement in environmental performance compared with, inter alia, the industry average, but at the same time avoid environmentally harmful lock-in effects, including carbon-intensive lock-in effects, during the economic lifetime of the funded economic activity. Those criteria should also consider the long-term impact of a specific economic activity.

(40) An economic activity should not qualify as environmentally sustainable if it causes more harm to the environment than the benefits it brings. The technical screening criteria should identify the minimum requirements necessary to avoid significant harm to other objectives, including by building on any minimum requirements laid down pursuant to Union law. When establishing and updating the technical screening criteria, the Commission should ensure that those criteria are based on available scientific evidence, are developed by taking into account life-cycle considerations, including existing life-cycle assessments, and are updated regularly. Where scientific evaluation does not allow for a risk to be determined with sufficient certainty, the precautionary principle should apply in accordance with Article 191 TFEU.

(41) In establishing and updating the technical screening criteria for the environmental objective of climate change mitigation, the Commission should take into account and provide incentives for the ongoing and necessary transition towards a climate-neutral economy in accordance with Article 10(2) of this Regulation. In addition to the use of climate-neutral energy and more investments in already low-carbon economic activities and sectors, the transition requires substantial reductions in greenhouse gas emissions in other economic activities and sectors for which there are no technologically and economically feasible low-carbon alternatives. Those transitional economic activities should qualify as contributing substantially to climate change mitigation if their greenhouse gas emissions are substantially lower than the sector or industry average, they do not hamper the development and deployment of low-carbon alternatives and they do not lead to a lock-in of assets incompatible with the objective of climate- neutrality, considering the economic lifetime of those assets. The technical screening criteria for such transitional economic activities should ensure that those transitional activities have a credible path towards climate-neutrality, and should be adjusted accordingly at regular intervals.

(42) An economic activity should qualify as contributing substantially to one or more of the environmental objectives set out in this Regulation where it directly enables other activities to make a substantial contribution to one or more of those objectives. Such enabling activities should not lead to a lock-in of assets that undermine long-term environmental goals, considering the economic lifetime of those assets, and should have a substantial positive environmental impact, on the basis of life-cycle considerations.

(43) When establishing and updating the technical screening criteria the Commission should take into account relevant Union law, including Regulations (EC) No 1221/2009(55) and (EC) 66/2010(56) of the European Parliament and of the Council, as well as Commission Recommendation 2013/179/EU(57) and the communication of the Commission of 16 July 2018 on ‘Public procurement for a better environment’. To avoid unnecessary inconsistencies with classifications of economic activities that already exist for other purposes, the Commission should also take into account the statistical classifications relating to the environmental goods and services sector, namely the classification of environmental protection activities (CEPA) and the classification of resource management activities (CReMA) of Regulation (EU) No 538/2014 of the European Parliament and of the Council(58). When establishing and updating the technical screening criteria, the Commission should take into account existing environmental indicators and reporting frameworks, developed by, amongst others, the Commission and the European Environment Agency, and existing international standards, such as those developed by, amongst others, the OECD.

(44) When establishing and updating the technical screening criteria, the Commission should also take into account the specificities of the infrastructure sector and should take into account environmental, social and economic externalities within a cost-benefit analysis. In that regard, the Commission should take into account relevant Union law, including Directives 2001/42/EC(59), 2011/92/EU(60), 2014/23/EU(61), 2014/24/EU(62) and 2014/25/EU(63) of the European Parliament and of the Council, standards and current methodology, as well as the work of international organisations, such as the OECD. In that context, the technical screening criteria should promote appropriate governance frameworks integrating environmental, social and governance factors as referred to in the United Nations-supported Principles for Responsible Investment at all stages of a project’s life cycle.

(45) The technical screening criteria should ensure that relevant economic activities within a specific sector can qualify as environmentally sustainable and are treated equally if they contribute equally to one or more of the environmental objectives laid down in this Regulation. The potential capacity to contribute to those environmental objectives can vary across sectors, which should be reflected in those criteria. However, within each sector, those criteria should not unfairly disadvantage certain economic activities over others if the former contribute to the environmental objectives to the same extent as the latter.

(46) When establishing and updating technical screening criteria for environmentally sustainable activities, the Commission should assess whether the establishment of those criteria would give rise to stranded assets or would result in inconsistent incentives, or would have any other adverse impact on financial markets.

(47) To avoid overly burdensome compliance costs on economic operators, the Commission should establish technical screening criteria that provide for sufficient legal clarity, that are practicable and easy to apply, and for which compliance can be verified within reasonable cost-of-compliance boundaries, thereby avoiding unnecessary administrative burden. Technical screening criteria could require carrying out a life-cycle assessment where sufficiently practicable and where necessary.

(48) To ensure that investments are channelled towards economic activities that make the greatest positive impact on the environmental objectives, the Commission should give priority to the establishment of technical screening criteria for the economic activities that potentially contribute most to the environmental objectives.

(49) Appropriate technical screening criteria should be established for the transport sector, including for mobile assets. Those screening criteria should take into account the fact that the transport sector, including international shipping, contributes close to 26 % of total greenhouse gas emissions in the Union. As stated in the Action Plan on Financing Sustainable Growth the transport sector represents about 30 % of the additional annual investment needed for sustainable development in the Union, for example to increase electrification or to support the transition to cleaner modes of transport by promoting modal shift and better traffic management.

(50) When developing the technical screening criteria, it is of particular importance that the Commission carry out appropriate consultations in line with the Better Regulation Agenda. The process for the establishment and update of the technical screening criteria should involve relevant stakeholders and should build on the advice of experts who have proven knowledge and experience in the relevant areas. For that purpose, the Commission should set up a Platform on Sustainable Finance (the ‘Platform’). The Platform should be composed of experts representing both the public and private sectors. Public-sector experts should include representatives of the European Environmental Agency, the ESAs, the European Investment Bank and the European Union Agency for Fundamental Rights. Private sector experts should include representatives of financial and non-financial market participants and business sectors, representing relevant industries, and persons with accounting and reporting expertise. The Platform should also include experts representing civil society, including experts in the field of environmental, social, labour and governance issues. Financial market participants should be encouraged to inform the Commission if they consider that an economic activity that does not meet the technical screening criteria, or for which such criteria have not yet been established, should qualify as environmentally sustainable, in order to help the Commission in evaluating the appropriateness of complementing or updating the technical screening criteria.

(54) In order to specify the requirements set out in this Regulation, and in particular to establish and update for different economic activities granular and calibrated technical screening criteria for what constitutes ‘substantial contribution’ and ‘significant harm’ to the environmental objectives, the power to adopt acts in accordance with Article 290 TFEU should be delegated to the Commission in respect of the information required to comply with the disclosure obligations pursuant to this Regulation, and in respect of the technical screening criteria. It is of particular importance that the Commission carry out appropriate consultations during its preparatory work, including at expert level, such as through the Platform and the Member State Expert Group on Sustainable Finance, and that those consultations be conducted in accordance with the principles laid down in the Interinstitutional Agreement of 13 April 2016 on Better Law-Making(64). In particular, to ensure equal participation in the preparation of delegated acts, the European Parliament and the Council receive all documents at the same time as Member States’ experts, and their experts systematically have access to meetings of Commission expert groups dealing with the preparation of delegated acts.

Article 19
Requirements for technical screening criteria

1.The technical screening criteria established pursuant to Articles 10(3), 11(3), 12(2), 13(2), 14(2) and 15(2) shall:
(a) identify the most relevant potential contributions to the given environmental objective while respecting the principle of technological neutrality, considering both the short- and long-term impact of a given economic activity;
(b) specify the minimum requirements that need to be met to avoid significant harm to any of the relevant environmental objectives, considering both the short- and long-term impact of a given economic activity;
(c) be quantitative and contain thresholds to the extent possible, and otherwise be qualitative;
(d) where appropriate, build upon Union labelling and certification schemes, Union methodologies for assessing environmental footprint, and Union statistical classification systems, and take into account any relevant existing Union legislation;
(e) where feasible, use sustainability indicators as referred to in Article 4(6) of Regulation (EU) 2019/2088;
(f) be based on conclusive scientific evidence and the precautionary principle enshrined in Article 191 TFEU;
(g) take into account the life cycle, including evidence from existing life-cycle assessments, by considering both the environmental impact of the economic activity itself and the environmental impact of the products and services provided by that economic activity, in particular by considering the production, use and end of life of those products and services;
(h) take into account the nature and the scale of the economic activity, including:
(i) whether it is an enabling activity as referred to in Article 16; or
(ii) whether it is a transitional activity as referred to in Article 10(2);
(i) take into account the potential market impact of the transition to a more sustainable economy, including the risk of certain assets becoming stranded as a result of such transition, as well as the risk of creating inconsistent incentives for investing sustainably;
(j) cover all relevant economic activities within a specific sector and ensure that those activities are treated equally if they contribute equally towards the environmental objectives set out in Article 9 of this Regulation, to avoid distorting competition in the market; and
(k) be easy to use and be set in a manner that facilitates the verification of their compliance.

Where the economic activity belongs to one of the categories referred to in point (h), the technical screening criteria shall clearly indicate that fact.

2.The technical screening criteria referred to in paragraph 1 shall also include criteria for activities related to the clean energy transition consistent with a pathway to limit the temperature increase to 1,5 0C above pre-industrial levels, in particular energy efficiency and renewable energy, to the extent that those activities substantially contribute to any of the environmental objectives.

3.The technical screening criteria referred to in paragraph 1 shall ensure that power generation activities that use solid fossil fuels do not qualify as environmentally sustainable economic activities.

4.The technical screening criteria referred to in paragraph 1 shall also include criteria for activities related to the switch to clean or climate-neutral mobility, including through modal shift, efficiency measures and alternative fuels, to the extent that those are substantially contributing to any of the environmental objectives.

5.The Commission shall regularly review the technical screening criteria referred to in paragraph 1 and, where appropriate, amend the delegated acts adopted in accordance with this Regulation in line with scientific and technological developments.

In that context, before amending or replacing a delegated act, the Commission shall assess the implementation of those criteria taking into account the outcome of their application by financial market participants and their impact on capital markets, including on the channelling of investment into environmentally sustainable economic activities.

To ensure that economic activities as referred to in Article 10(2) remain on a credible transition pathway consistent with a climate-neutral economy, the Commission shall review the technical screening criteria for those activities at least every three years and, where appropriate, amend the delegated act referred to in Article 10(3) in line with scientific and technological developments.