In a move that surprised many, the European Parliament gave final approval on Wednesday to a new policy that will allow some nuclear and natural gas energy projects to qualify as being “green” for access to low interest loans and even some state subsidies. The new law will include qualifying natural gas and nuclear projects on the EU’s list of environmentally sustainable economic activities, those that will both help solve Europe’s current major energy crisis and help meet the EU’s climate and energy targets for 2030.
Parliament members voted to accept the final policy by a 328 to 278 margin, with 33 abstentions. The New York Times
The new law will become effective on January 1, 2023, by which time the European continent will be in the midst of the coming winter. Several EU countries, including Germany, have been engaged in efforts to obtain new sources of natural gas supply as imported volumes from Russia have dwindled, causing storage levels to reach perilously low levels.
Russia’s Nordstream 1 pipeline, whose flows have already been slashed to just 40% of capacity in recent weeks, is scheduled to go down entirely for periodic maintenance from July 11-21. Analysts at Goldman Sachs said in a note Tuesday that they do not expect the pipeline to be restored to its full through-put capacity once the maintenance has been completed.
“While we initially assumed a full restoration of NS1 flows following its upcoming maintenance event, we no longer see this as the most probable scenario,” the analysts told investors, raising their expectations for European gas prices in the process due to increased supply risks. If Goldman’s expectations are realized, Europe’s winter energy preparations would obviously become even more challenging.
The dash to secure more gas supplies from non-Russia sources has also raised awareness in Germany and at the EU of the continent’s dearth of import and regassification facilities for liquefied natural gas (LNG). While the new policy for classifying many natural gas projects as “green” comes with a set of strict environmental metrics that must be met, it will presumably free up additional capital resources to fund such major, multi-billion dollar projects. Somewhat ironically, the German government expressed opposition to the policy as being counter to its own efforts to retire its few remaining nuclear power plants.
Many critics of the new policy equate it to a form of “greenwashing,” scoffing at the idea that projects for energy generated by natural gas, a fossil fuel, or zero-emissions nuclear power can be truly “green.” A spokesperson for Geneva-based Institut Biosphère claimed that a joint letter supporting the policy signed by the governments of France, Hungary, Poland, Romania, Slovakia and Slovenia contained “a number of unverified statements designed to sway the Commission in favour of nuclear and influence the EU’s energy policy for decades to come.”
The new policy flies in the face of the goals of the ESG investor movement, which has worked to deny capital to nuclear and fossil fuel projects for the last 15 years, helping to create the under-supplied crude oil market that is a key element of the expanding global energy crisis. That movement’s outlook was already showing signs of fading in relevance as firms like BlackRock
It also runs contrary to the Biden administration’s Green New Deal policies, which polls show voters are increasingly beginning to blame for rising energy shortages and costs. Given that, it will be interesting to see if the EU’s move has any follow-on impacts in the U.S. in the months and years to come, especially if Republicans gain majorities in either or both houses of congress in this November’s elections.
Obviously, Russia’s war in Ukraine was a great motivator behind the final approval of the new policy, but it is key to note that the proposal germinated a year ago, well before Vladimir Putin began massing troops and hardware along Russia’s border with Ukraine. By then, it was becoming increasingly obvious that the notion of replacing natural gas, nuclear and other fossil fuel energy with wind and solar power was not a realistic notion.
Bottom line: The European Parliament’s final adoption of this new policy appears to reflect an overall return to a more realistic outlook for the future, a recognition that this energy transition is going to be far more challenging and complex than the member countries had initially contemplated.