Sign up for more! Or get the recording: https://www.climatebonds.net/webinars Carel Cronenberg Webinar 4: Sandrine Dixson- Senior Economist Declève Sean Kidney Thursday European Bank of President, Climate Bonds 16 April Reconstruction and Club of Rome 15:00 CEST Development
(Environmental) Sustainability: Definitions Sustainable Development Environmental Social Economic Governance Other Climate change Cimate change environmental Mitigation adaptation objectives Low-carbon Climate Green Socio-environmental Sustainable Source: United Nations Environment Programme Inquiry.
Taxonomy
EU Taxonomy Objective Use: is it obligatory ? Provide a classification tool to help investors and companies to make Obligatory disclosures for institutional investors and asset managers • informed investment decisions on environmentally sustainable activities marketing investment products as ‘green’ for the purpose of determining the degree of sustainability of an investment EU Member States are required to use the EU Taxonomy when • creating public labelling schemes for ‘green’ investment products and corporate bonds We need a taxonomy that is robust, science-based, and ambitious , in line with our shared environmental objectives, including going towards Further voluntary use by a range of actors climate neutrality in line with the Paris agreement What is it? What is it not? A list of economic activities that are environmentally sustainable. To be included in the Taxonomy, an economic activity must meet the following criteria: § A rating of good or bad companies What is not? Do not significantly harm substantially contribute Minimum social* + + § A mandatory list to invest in any of the other 5 obj. to 1 of the 6 objectives safeguards § Making a judgement on the financial performance of an investment 1. Climate change mitigation 2. Climate change adaptation § Inflexible or static 3. Sustainable use & protection of water 6 environmental objectives 4. Circular economy, waste prevent & recycling 5. Pollution prevention and control 6. Protection of healthy ecosystems * Observe International Labour Organisation (ILO) core labour conventions
What has been agreed? Taxonomy regulation • Fina inal c compromis ise t e text xt 1 17 Dec ecem ember er 2 2019 • Pr Provides framework • Allows f for t the e progressive development of a an E n EU-Wi Wide de classif ific icatio ion s n system em • Se Sets o out ut c classif ific icatio ion o n of economical activities th that t qua ualif ify a as en envir ironm nment entally su sust stainable 5
What framework is provided? Framework for classification of economic activities Six environmental objectives Four requirements 1. 1. Clim imate c e chang nge m e mit itig igatio ion 1. Sub 1. Substant ntia ial c cont ntrib ibut utio ion t n to a at lea east o one o ne of t the 6 e 6 o objec jectiv ives es 2. Clim 2. imate c e chang nge a e adaptatio ion 2. No s 2. sig ignif nific icant nt h harm t to a any o other er 3. Sus 3. Sustaina inable us e use a e and nd p protec ectio ion o n of envir en ironm nment ental o objec jectiv ives es water er a and nd m marine r ine res esour urces es 3. Complia 3. ianc nce w e wit ith r robus ust a and nd 4. 4. Trans nsit itio ion t n to a a c cir ircul ular ec econo nomy scienc ience b e based ed t tec echnic nical screening eening c crit iter eria ia 5. 5. Pollut utio ion p n prevent entio ion a n and nd c cont ntrol 4. 4. Complia ianc nce w e wit ith m minim inimal s socia ial 6. Protec 6. ectio ion a n and nd r res estoratio ion o n of and nd g gover erna nanc nce s e safeg egua uards bio iodiv iver ersit ity a and nd ec ecosystem ems 6
Framework for classification of economic activities that are environmental sustainable Type of activity Criteria Examples Deep green: In and of themselves contribute Likely to be stable and long-term Near to zero carbon • manufacturing processes substantially to one of the six environmental E.g. by high level of • objectives recycling or electrification using RE Transition: Activities that contribute to a Subject to 3-year revision, Hydrogen manufacturing < • 5.8 tCO2e/t of t hydrogen tending towards zero emissions. transition to a zero net emissions/green Steel manufacturing, • economy in 2050 but are not currently Electric Arc Furnace (EAF) operating at that level. high alloy steel < 0.352 tCO2e/t product Likely to be stable and long-term Manufacture of wind Enabling: Activities that enable those above. • turbines (already deep green) or subject Installing pipelines for • to regular revision tending to hydrogen transport zero (enabling activities that Manufacturing of cars <50g • contribute to transition). CO2/km 7
Transition from environmentally harmful performance Both SC and DNSH thresholds reduce towards zero by 2050 SC threshold Zero emissions DNSH threshold Very low CO2e intensity Very high Substantially Not sustainable but not Significantly contributing significantly harmful harmful and can be (for now) or so-called called “brown” sustainable
What’s in the Taxonomy for manufacturing? Do No Significant Harm criteria identified? Can climate Ecosystem Pollution Adaptatio Circular economy Water change Manufacturing n s mitigation criteria change in future? Manufacturing of low carbon technologies a a a a Manufacture of Cement a a a a a a Manufacture of Aluminium a a a a a a a a Manufacture of Iron and Steel a a a a a a a a a a Manufacture of hydrogen Manufacture of other inorganic basic a a a a a a chemicals Manufacture of other organic basic a a a a a a chemicals Manufacture of fertilizers and nitrogen a a a a a a compounds Manufacture of plastics in primary form a a a a a a
TEG Reports: March 2020 Summary Report § Key concepts & important design decisions § Detailed guidance for investors and companies § Commentary on future development Technical Annex § Full methodologies § Detailed criteria with detailed rationale § Mitigation + Adaptation + DNSH Taxonomy spreadsheet § All criteria in summary form § Tables for economic classification systems 10
Technical annex: mitigation Section: Technical screening criteria: substantial contribution to climate change mitigation Sector classification and activity Mitigation criteria Rationale Do no significant harm assessment Below 3 examples taken from this section for cement, hydrogen and ammonia manufacturing 11
Example of threshold: Manufacture of Cement Sector classification and activity Macro-Sector C - Manufacturing NACE Level 4 Code C23.5.1 Description Manufacture of cement Mitigation criteria The manufacturing of cement is associated with significant CO 2 emissions. Minimising process emissions through Principle energy efficiency improvements and switch to alternative fuels, promoting the reduction of the clinker to cement ration and the use of alternative clinkers and binders can contribute to the mitigation objective. (A) Specific emissions (tCO2e/t of clinker) Metric (B) Specific emissions (tCO2e/t of cement or alternative binder) GHG emissions must be calculated according to the methodology used for EU-ETS benchmarks. Thresholds for cement Clinker (A) are only applicable to cement clinker plants that are not producing finished cement Threshold (no cement mills). All other plants need to meet the thresholds for cement (B)..For production of alternative binders only threshold (B) need to be met. Cement clinker: Specific emissions (calculated according to the methodology used for EU-ETS benchmarks) associated to the clinker production processes are lower than the value of the related EU-ETS benchmark. 0,766 tCO2e/t of clinker Cement: Specific emissions associated to the clinker and cement production processes are lower than: 0.498 tCO2e/t of cement 12
Example of threshold: Manufacture of Hydrogen Sector classification and activity Macro-Sector C - Manufacturing NACE Level 4 Code C20.1.1 Description Manufacture of hydrogen (CPA: 20.11.11.50) Mitigation criteria Principle The manufacturing of hydrogen is a highly carbon-intensive activity within the chemical industry.Reducing the emissions from the manufacturing activity itself can positively contribute to the mitigation objectives. Hydrogen generated as a process by product of the chlor-alkali production is not eligible. Mitigation measures are eligible provided they are incorporated into a single investment plan within a determined time frame (5 or 10 years) that outlines how each of the measures in combination with others will in combination enable the activity to meet the threshold defined below actions Threshold The following thresholds need to be met: • Direct CO2 emissions from manufacturing of hydrogen : 5.8 tCO2e/t Hydrogen in alignment with energy thresholds in the taxonomy. • Electricity use for hydrogen produced by electrolysis is at or lower than 58 MWh/t Hydrogen • Average carbon intensity of the electricity produced that is used for hydrogen manufacturing is at or below 100 gCO2e/kWh (Taxonomy threshold for electricity production, subject to periodical update). 13
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