EU taxonomy-a common dictionary of sustainable development

EU taxonomy is a buzzword that is increasingly appearing in the public space in the context of sustainable development. Under this term is an EU document that sets out a framework for investments considered sustainable. The EU Taxonomy is intended to be a dictionary used throughout the Community. The official Polish translation of the name is systematics, but as it has not caught on in public discussion, we will use the original version.

Regulation (EU) 2020/852 of the European Parliament and of the Council of 18 June 2020. on Establishing a Framework to Facilitate Sustainable Investment, amending Regulation (EU) 2019/2088 (that’s the full name of the EU Taxonomy), introduces six environmental goals in the text alone:

• climate change mitigation;
• climate change adaptation;
• Sustainable use and protection of water and marine resources;
• The transition to a closed-loop economy;
• Pollution prevention and control;
• Protection and restoration of biodiversity and ecosystems.

What activities are considered sustainable according to the EU Taxonomy?

An activity can be considered sustainable as long as it meets a total of four conditions:

• makes a significant contribution to one or more of the six environmental goals;
• does not do serious damage to any of the environmental targets (DNSH);
• is carried out in accordance with minimum guarantees;
• meets the technical qualification criteria.

All points are described in detail by type of activity. Technical guidelines are to be published for each environmental goal, specifying both the issues of significant contribution and the “do no serious harm” principle. Technical eligibility criteria are now published for two goals: climate change mitigation and adaptation.

In terms of these two objectives, potentially compatible with the Taxonomy are activities related to:

1. Forestry, including afforestation and forest protection;
2. environmental protection and restoration activities, including wetland restoration;
3. industrial processing, such as the manufacture of low-carbon technologies for transportation;
4. energy, particularly electricity storage and the installation and operation of electric heat pumps;
5. Water supply, wastewater and waste management, and remediation, among others. Capture and disposal of landfill gas;
6. Transportation, particularly rail freight;
7. Construction and real estate activities, including renovation of existing buildings;
8. Information and communication, among others. based on solutions for reducing greenhouse gas emissions;
9. Professional, scientific and technical activities, among others. Research, development and innovation, concerning the direct capture of carbon dioxide from the air.

For each of the above types, it has been determined which activities (provided certain conditions are met) can be considered sustainable throughout the European Union. This applies to both new ventures and the evaluation of existing investments. Significantly, the compromise recognizes that in special cases, energy and heat generated by gas combustion or produced by a nuclear power plant can be considered sustainable. An addendum on technical qualification criteria has been published for these industries .

Example qualification criteria for the EU Taxonomy

The evaluation methodology, entering the project into the Taxonomy, assumes the possibility of three outcomes:

• Taxonomy-compliant investment – one that meets all the specified technical requirements for making a significant contribution to one of the goals, does not seriously harm any of the other environmental goals, and meets the minimum requirements for social issues.
• An investment that qualifies for the EU Taxonomy – is one that, in principle, can have a positive effect on one or more environmental objectives (it is on the list of activities specified in the Taxonomy), but fails to meet either technical requirements, negatively affects one of the other environmental objectives, or fails to meet minimum social requirements.
• Investment not in accordance with the Taxonomy – the activity is not included in the list of projects listed in the EU Taxonomy.

In the case of hydropower, which we wrote about in a previous numbers, we can say that it qualifies for the EU Taxonomy, as it is indicated in the list as hydroelectric power generation. To be considered compatible, it must meet all of the following conditions:

• It must make a significant contribution to climate change mitigation. The following are ways to realize the premise.

(a) The power generation facility is a run-of-river power plant and does not have an artificial reservoir.

(b) The power density of the power generation facility is above 5 ^W/m2.

(c) The level of life-cycle greenhouse gas emissions from hydropower generation is below 100 g carbon dioxide equivalent/kW.

• It must not do serious damage to other environmental goals, particularly the sustainable use and protection of water and marine resources. These activities must comply with the provisions of the Water Framework Directive, in particular with all requirements for achieving environmental objectives for water bodies.

With regard to the operation of existing hydropower plants, including modernization work to increase the capacity for renewable energy generation or storage, the measure should meet the following criteria:

• Implement all technically feasible and environmentally relevant mitigation measures to reduce adverse impacts on water resources, as well as on protected habitats and species directly dependent on water.
  • Where appropriate and depending on the naturally occurring ecosystems in the exposed water bodies, the following should be used:
    • Measures to ensure that fish can migrate up and down the river (such as fish-friendly turbines, fish guiding structures, modern, fully functional fish ladders, measures to stop or minimize exploitation and discharges during migration or spawning);

With regard to the construction of new hydropower plants, activities must meet the following criteria:

• Prior to construction, an impact assessment of the project is carried out to determine its potential impact on the status of water bodies in the basin and on water-dependent protected areas, taking into account, in particular, fish migration corridors, free-flowing rivers and ecosystems in a state close to undisturbed conditions by human activities. The assessment specifically considers the impact of the cumulative effects of the new project and other existing or planned infrastructure in the basin.
  • Based on the impact assessment, it was determined that the power plant should be planned – in terms of design and location and mitigation measures – to meet one of the following requirements:
    • The power plant must not lead to deterioration in the status or threaten the achievement of good status or potential of the specific water body within which it is to operate.

The final element of compliance with the EU Taxonomy relates to the provision of minimum social requirements, which are defined in separate regulations.

A hydropower plant that collectively meets all of the above requirements can be considered a sustainable activity that contributes to climate change mitigation. As can be seen from the above example, for a project to be considered sustainable it is not enough that it generates a positive effect on the climate. As the name implies, it must balance other environmental as well as social elements.

To make it easier to navigate through the maze of requirements, the European Commission has published a tool to navigate the regulations – Compass. Its main drawback is that it only works in English.

What is the purpose of the EU Taxonomy?

The EU Taxonomy Regulation itself does not explicitly make this EU common vocabulary mandatory. However, as a set of principles for defining sustainable operations, it is used in many areas. On the one hand, it provides a basis for various types of reporting. Some companies are directly subject to Taxonomy disclosures, another group will report for the CSRD. We wrote about it in an earlier issue of Water Issues. It should also be noted that for reporting purposes, CSRD covered entities, including banks, will need data from their customers and suppliers. This means that the assessment of their activities for compliance with the EU Taxonomy will also have to be addressed by entities not explicitly named in the CSRD.

On the other hand, the requirements for compliance with the EU Taxonomy are specified as elements of various types of financing. An example of such an instrument is the Invest EU Program, which explicitly involves evaluating investments for compliance with the EU Taxonomy. The situation is similar for the National Reconstruction Program. It applies the DNSH principle – do no serious harm to the six environmental goals set out in the EU Taxonomy.

The widespread use of the EU Taxonomy to determine what is and is not sustainable activity will grow. This is because the idea behind its development is to standardize the rules for determining what we can consider to be beneficial to the environments, climate and society.

What’s next for Taxonomy?

Currently, we have technical qualification criteria developed, specifying the requirements for a significant contribution to one of the environmental goals of the EU Taxonomy and DNSH rules for two of the six goals. Work is underway to prepare such requirements for four more targets. This will expand the catalog of sustainable ventures, but will also oblige more industries to evaluate their operations. It will also create opportunities in terms of obtaining financing. You will find out what impact the EU Taxonomy will have on “green financing” in future issues of Water Issues.

Interestingly, in addition to the EU Environmental Taxonomy, work is also underway at the European Commission on a so-called “Environmental Taxonomy. social taxonomy. It is intended to define a common way of defining socially sustainable activities.

So the coming months will bring many changes and hopefully dispel doubts about what sustainability is.