EU Taxonomy: Is There Sustainable Gas-Fired Power Generation?
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- Despite concerns over the inclusion of gas in the EU Taxonomy, reported EU Taxonomy-aligned revenue in portfolios may not be meaningfully impacted given the low state of disclosure and stringency of requirements.
- We found that gas-fired facilities have an average lifecycle emissions intensity well above the required "sustainable" levels set by the EU Taxonomy.
- Only 12 companies in the MSCI ACWI Investable Market Index implement or plan to implement abatement technology, though there was no conclusive evidence that any of them met all the requirements to be considered sustainable.
Disclosure rate of lifecycle emissions among the 197 gas-fired power generators
Data based on CDP and company disclosures of the 197 gas-fired power generators in the MSCI ACWI IMI as of January 2023. MSCI estimate unreported emissions from Scope 1 and 2 and unreported Scope 3 emissions per category based on our estimation model. Source: MSCI ESG Research
Investors have also highlighted the potential technological impossibility for gas-fired power generation to meet the technical screening criteria without investments in carbon capture and sequestration (CCS) or by switching to alternative fuels such as biogas.5 Our research echoed such concerns.
We estimated pure-play gas-fired power generators in the MSCI ACWI IMI to have an average direct emissions intensity of 480g CO2e/kWh and average lifecycle emissions intensity of 580g CO2e/kWh, both well above the respective thresholds.6 While a quarter of gas-fired power generators in the universe were involved in CCS, most were only in the research and development phase, as shown below. We found only 12 companies currently using or planning to use CCS or other abatement measures at their gas-fired facilities, though none of these companies have disclosed evidence suggesting the installed abatement technology was capable of capturing enough emissions to meet the threshold set by the EU Taxonomy.
Number of companies involved in CCS-related activities and fuel switch to biogas and bioenergy
Data based on company disclosures of the 197 gas-fired power generators in the MSCI ACWI IMI as of January 2023. Source: MSCI ESG Research
Disclosure gaps need to be plugged to be of use to investors
Investors may face challenges in assessing whether a company's gas-fired facility is fully aligned with the EU Taxonomy because of gaps in company disclosures, especially related to Scope 3 emissions and amounts of emissions captured by CCS. Until these gaps are filled, the impact of including gas-fired activities in the EU Taxonomy may only have a minimal impact on investors' portfolio alignment.
Further Reading
1Kira Taylor. “Investors worth €50 trillion call on EU to exclude gas from green finance taxonomy.” EURACTIV, Jan. 13, 2022.2“Commission Delegated Regulation (EU) 2022/1214.” Official Journal of the European Union, March 2022.3The capacity range of 15% means that eligible gas plant cannot exceed the replaced coal facility’s capacity by more than 15%. “Commission Delegated Regulation (EU) 2022/1214.” Official Journal of the European Union, March 2022.4“Commission Delegated Regulation (EU) 2022/1214.” Official Journal of the European Union, March 2022.5“Response to Complementary Delegated Act.” EU Platform on Sustainable Finance, Jan. 21, 2022.6We consider pure-play gas-fired generators to be companies that derived more than 85% of revenues from natural gas-fired power generation and produced more than 85% of fuel mix through natural gas-fired sources.
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