Sustainable finance regulations

Financial instruments that aim to support the development of decarbonising solutions are defined by their potential to reduce GHG emissions and the extent to which they attract investment. The GHG emission savings are therefore dependent on the design of the criteria that define the financial instrument's scope of application. The effectiveness of the policy framework plays a role in encouraging investors to opt for economic activities that are compliant with these criteria.

In the transport sector, quantitative thresholds proposed in the EU Taxonomy Regulation and delegated acts are based on both tank-to-wheel emission (tailpipe emission) per passenger or tonne-kilometre and well-to-tank emission characteristics for different energy sources.

For example, for road transport, economic activities classified as sustainable include cars with up to 50 g CO2/km of tailpipe emissions (therefore including plug-in electric vehicles and plug-in hybrid vehicles [PHEV]) until 2025, and zero tailpipe emissions of CO2 after that (therefore excluding PHEVs). They also include buses, two-wheelers, three-wheelers and low-carbon vehicles with zero tailpipe emissions of CO2 and heavy trucks that emit less than half of the average CO2 emissions/km of all vehicles in the same vehicle category (EC, 2021b).

For aviation, economic activities classified as sustainable in the EU Taxonomy include the construction, modernisation, maintenance and operation of infrastructure that is required for zero tailpipe CO2 operation of aircraft (EC, 2021b).

On energy distribution for road transport, the economic activities include infrastructure dedicated to the operation of vehicles with zero tailpipe CO2 emissions. In particular, these include electric charging points, electricity grid connection upgrades, hydrogen fuelling stations and electric road systems (ERSs). They also include infrastructure and installations dedicated to public passenger transport (EC, 2021b).

On energy carriers used or suitable for all transport vehicles, the activities cover electricity and hydrogen as well as biofuels. For electricity (and heat), they include (a) generation from renewable solar, wind, hydro, geothermal energy, and gaseous and liquid fuels leading to less than 100 g CO2e/kWh and (b) biomass fulfilling the sustainability criteria defined in the recast of the Renewable Energy Directive (EC, 2021b).

Economic activities included in the draft formulation also include (a) electricity transmission and distribution infrastructure (for cases where newly connected generation capacity is primarily serving generation capacity below the threshold value of 100 g CO2e/kWh measured on a lifecycle basis) and (b) electricity storage in closed-loop pumped hydropower storage (EC, 2021b).

For hydrogen, they include the construction of hydrogen storage facilities, the development of transmission and distribution networks, the manufacturing of technologies for producing hydrogen and hydrogen-based synthetic fuels, as well as the production of hydrogen and hydrogen-based synthetic fuels, provided that they have lifecycle GHG emissions savings of 73.4% for hydrogen and 70% for hydrogen-based synthetic fuels (relative to a fossil fuel benchmark of 94 g CO2-eq/MJ) (EC, 2021b).

The reporting and verification requirements needed to certify financial and non-financial reporting as compliant with the requirements of instruments like the Taxonomy Regulation in Europe are the key instruments guaranteeing compatibility with GHG emission mitigation objectives.