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14 July 2020

Green Finance Taxonomy: sustainable opportunities for transport

The recent adoption of the Taxonomy Regulation by the European Parliament marks the last legislative step for creating the world’s first classification of sustainable economic activities. It is expected to leverage on private investments to set in motion the transformation of the EU economic activities, transport systems included. A rational roadmap to implement available solutions without risky shortcuts is not planned yet.

Sustainable Finance file approved by the European Parliament

The adoption of the Taxonomy Regulation by the last EP Plenary in June marks the final step of the legislative process for creating the world’s first green classification of sustainable economic activities.

By re-orienting private sector investments to green technologies and businesses, this piece of legislation will serve as guidance for the EU to reach the climate neutrality by 2050.

This should happen with the help of delegated acts containing specific technical criteria to supplement the principles set out in the Regulation. Expected by the end of this year, these new criteria will profile which technologies will be worthy a sustainable-proofed future. And this is where a simple detail hides major technical difficulties.

Devil in the (technical) details

The Technical Expert Group (TEG) on Sustainable Finance’s report has been instrumental to shape those new criteria and thresholds.

For the transport chapter, the report uses a tailpipe approach to assess the different fuels’ performance in terms of CO2 emissions impact. But this does not reflect the real carbon footprint of the different fuels and low emissions mobility solutions. Moreover, the stricter thresholds introduced by the TEG are not aligned with current EU transport and energy policies, creating a misleading legal framework.

The EU needs to start off the decarbonization process as of today. If this is the objective, the consequent question is if the tailpipe approach is the right choice to capture all viable solutions available on the market to decarbonise the road mobility. The answer is no: as it stands now, there is the risk that the Taxonomy will turn into just another legislative tool which force market dynamics and narrow down the options to an exclusive set of predefined solutions.

Higher ambitions without an appropriate policy framework would only result in phasing out those technologies, like natural gas vehicles, whose environmental benefits are well-proven. This would go against the overall goal of the European Green Deal which is to achieve a fair and inclusive transition towards carbon neutrality for the benefit of all European citizens.

Not including gas in transport within the Taxonomy is a missed opportunity

Renewable gas is an affordable fuel option for consumers, a solution to decarbonise mobility across Europe and a source of local jobs. However, too often legislators forget about these huge opportunities at hand.

Renewable gas, such as biomethane accelerates the reduction of GHG emissions in the transport sector. Already 17% of renewable gas is used in the EU transport sector in the form of bioCNG and bioLNG, bringing the CO2 emissions reduction up to almost 40% compared with gasoline, and with production pathways based on the Circular Economy trajectory.

It remains the most affordable and accessible alternative to conventional fuels, while maintaining full compatibility with existing gas infrastructure and natural gas vehicles. In other words, renewable gas is the enabler of a carbon-free mobility, generating carbon savings not in the future, but already today – thanks to an existing fleet of about 1.5 million vehicles in Europe.

Gas in transport complements the parallel electrification process, while being able to welcome a higher share of renewable gas, including the option for blending hydrogen.

How to reflect and integrate multiple solutions

Choosing today the technology of 2050 is not a simple, linear formula that should result zero (emissions).

The long-term 2050 decarbonisation target must be reached with a solid roadmap based on an incremental approach. The Taxonomy must contribute to the creation of a pathway towards this target. But with a strong focus on cost-effective solutions that can kick-off the decarbonisation process immediately, and with a clear and stable perspective on investment already in place or planned. The risk is otherwise to miss out on short-term actions that could be a game changer on the path towards decarbonisation.

The Clean Vehicles Directive (CVD) and the Sustainable Finance Regulation share the same objective, which is to incentivise decarbonisation of the economy by streaming investments towards the most sustainable technologies. The CVD focuses on decarbonisation of the transport sector by setting minimum public procurements targets for Member States when purchasing light and heavy-duty vehicles. As such, it already provides those specific conditions and thresholds that a vehicle needs to qualify as “clean”. Therefore, CVD criteria, even if still missing the right consideration for renewable gas, should be reflected in the Taxonomy of the Sustainable Finance.

Taxonomy: at the bottom line

While ensuring consistency, this proposed legislative simplification would help moving away from a pure tailpipe perspective, including more solutions other than electrification and hydrogen that can effectively contribute to the decarbonization process.

The decarbonisation of the transport sector cannot afford any further delay that could jeopardise achieving the 2050 climate targets. While waiting for the innovative technologies to reach marketability and critical industrial scale production, we must take advantage of today’s solutions. Otherwise, the waiting will be even more detrimental and mitigation investments will have to substantially increase at the costs of our environment.

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This article was published at Euractiv on 14 July 2020.