The EU Taxonomy: a means to an end that risks being the end of many industries

The year 2020 has been a year of massive change. While we celebrated the fifth year of the Paris Agreement, we were hit by a global pandemic with disastrous consequences for our well-being and economies.

As the European Union navigated the pandemic and prepared the post-COVID recovery, it designed ‘Open Strategic Autonomy’ as a basis for its re-evaluation of its global relationships and industrial leadership.

The critical raw materials sector was quick to rally around this strategy, highlighting its essential role in the green and digital transitions to spearhead the post-COVID economic recovery.

Meanwhile, European production cannot meet the increasing demand for raw material and fierce global competition continues to threaten our industry and risks increasing the EU’s dependency on imports of strategic materials.

Recent initiatives to reduce this reliance, such as the Critical Raw Material Action Plan and the European Raw Materials Alliance, are encouraging and praiseworthy.

However, some of the European Commission’s proposed new instruments, which aim to accelerate the shift to climate neutrality, fail to reinforce our strategic autonomy and resilience.

The EU taxonomy is riddled with contradictions. Though it could potentially be a game-changer for energy-intensive and metallurgical industries that are highly exposed to global competition, its recently adopted criteria for supporting these sectors will have the opposite effect. Instead of helping materialise the transition towards sustainability, the taxonomy as currently presented undermines this effort.

The proposed draft delegated acts on climate change mitigation and adaptation criteria fail to achieve strategic goals for the ‘hard to abate’ industries and in particular the electro-intensive aluminium industry.

The high number of comments by stakeholders and the threats of blockage from Member States, which have delayed the final proposal of the implementing rules, clearly illustrate how unfit the delegated acts are. The one-size-fits-all approach and thresholds do not consider the global, systemic, and sectoral challenges Europe’s industry faces today.

Neither does it differentiate and reward European players who have taken a holistic approach to sustainability and are already frontrunners in reducing their production process’s carbon emissions.

What the Commission has designed is, as it stands, an ineffective plan for supporting producers across the Union in their attempts to transition towards sustainability. Instead, it penalises strategic industries that do not have access to a fully decarbonised energy grid because of different national energy mixes, denying them credible financing pathways to reduce carbon emissions.

Primary aluminium producers’ ability to meet the proposed 100 gCO2/kWh and 270 gCO2/kWh thresholds for the carbon content of the electricity they consume depends strictly on their geographical location.

Only producers with access to massive volumes of nuclear or hydropower can meet such a requirement. In the EU 27, that would be a minimal number of smelters out of the only 11 still operating, which have an annual capacity of around 2 million tonnes.

In comparison, the reported Chinese overcapacity amounts to 14 million tonnes and the carbon content of its electricity grid is well beyond 600 g/kWh (still very much coal-based, despite an increase in renewable energy sources).

In some European countries with a strong industrial base and a significant share of aluminium primary production, such as Greece, Germany, the Netherlands, Romania, and Slovenia, the CO2 intensity of their electricity production is well above the European average,  (yet, much lower than China’s). Aluminium producers in these countries would, therefore, be automatically excluded from sustainable financing from the EU taxonomy.

In addition, compliance with the EU taxonomy will most probably be required for companies to access public funding. Aluminium producers risk being unable to fund the necessary investments to continue transitioning towards sustainability, despite having a carbon footprint that is around 50% lower than the global average and three times lower than that of China.

The European Commission should use the postponement of its taxonomy criteria’ final proposal to lay down the conditions for accelerating green electricity sourcing and encouraging investments to achieve such thresholds. It must facilitate, rather than hinder, the decarbonisation of European industrial processes, particularly during the ongoing economic recovery.

How can Europe have a thriving low-carbon aluminium industry when the Commission’s taxonomy is strangling it and Chinese dumping leads to more carbon leakage?

Today, more than ever, we cannot take this issue lightly.  We must defend our industrial leadership and create the environment within which our strategic industries can compete internationally and protect them from practices that are unfair to them and the environment.

It makes no sense that the European Commission should allow strategic sectors such as the non-ferrous metals industry to inevitably shrink because of higher emission reduction ambitions – despite a massive projected increase in global and EU demand. Yet, it is the path the Commission is currently on.

We also need to ensure our emission-reduction efforts are not undermined by third countries with lower ambitions. The EU is leading on international climate action, but climate change is not an EU internal-market problem and any relevant policy needs to fully integrate the international dimension.

Introducing new ambitious emission reduction targets for 2030 and higher carbon prices without adequate protection against international rivals – which goes beyond carbon border adjustment measures – will only harm the European industry.

Therefore, it is crucial that the EU taxonomy, and more generally, EU competition policy, become instruments to foster European competitiveness while preventing carbon and investment leakage.

Finally, why does the European Commission not include the European Parliament and the Council in designing the detailed rules and criteria for the EU Taxonomy?

How can changes with fundamental implications for the European economy be the European Commission’s sole responsibility? This is unacceptable.

Our message should be loud and clear: The European Parliament must be involved in designing the details of the EU taxonomy and it is clear that the current draft delegated acts are unrealistic.