What is the EU taxonomy criteria for green projects?

EU taxonomy

The EU Taxonomy is a leading science-based classification system expected to become the global standard for determining whether an economic activity can be considered environmentally sustainable​.

Despite its flaws and shortcomings, the EU taxonomy system is expected to aid in the energy transition and assist in rerouting capital flows toward renewable energy and green assets. The taxonomy will also have a significant impact on the amount of green investments made in the future, including in hydrogen, renewable energy, and batteries.

Outlining its Taxonomy Regulation, the European Commission states that “by clearly defining what is green, the EU Taxonomy seeks to incentivize and encourage companies to launch new projects, or modernize current ones to satisfy these requirements. It continues by saying that the intention is to stop greenwashing and assist investors in identifying business ventures that support environmental and climatic goals.

eu taxonomy

The focus lays on the following six environmental objectives:

  • Climate change mitigation
  • Climate change adaptation
  • Sustainable use and protection of water and marine resources
  • Transition to a circular economy
  • Pollution prevention and control
  • Protection and restoration of biodiversity and ecosystems

Among criteria set for solar and wind are, in the context of the circular economy, that investors should make sure the task evaluates the availability of and, when practical, makes use of machinery and parts that are highly reusable, easily disassembled, and easy to repair.

carbon capture

CO2 emissions are increasing as a result of Europe’s growing reliance on coal to keep the lights on. Estimates from Eurostat indicate that in 2021, energy-related emissions increased in nearly every EU member state. Over 50% of the rise in energy was attributed to the growing usage of solid fossil fuels, or coal, according to Eurostat. In the EU as a whole, emissions from fossil fuel combustion increased by 6.3% in 2021 compared with the previous year.

As the EU taxonomy takes shape, it may be applied in new ways. For example, the forthcoming EU proposal for an EU Green Bond Standard is expected to use the Taxonomy as the benchmark for eligibility. Linking the EU taxonomy to the Green Bond Standard would create a more direct link with EU – and potentially global – capital markets.

It is unclear if more EU policy initiatives will be connected to the Taxonomy.

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