Green finance groups have reacted angrily to news that the UK government may weaken its sustainable taxonomy by including natural gas. The Daily Telegraph reported a government source saying that the UK is considering including natural gas to help trigger investment in North Sea oil.
Politics, stay out of it. James Alexander, chief executive of the UK Sustainable Investment and Finance Association, said in a statement: “We are extremely concerned by reports that the UK government now plans to incorporate natural gas within the UK’s green taxonomy. As we highlighted last week in our report, ‘Delivering a net-zero financial centre‘, the inclusion of natural gas would fundamentally change the taxonomy’s purpose as a science-based tool to define for investors what is ‘green today’, and directly conflict with the UK’s ambitious decarbonisation targets.
“The UK must learn the right lessons from the EU’s recent experience with its taxonomy, and this means not using the taxonomy as a direct political instrument to drive our energy security policy. If implemented, this move could seriously damage the UK’s leadership position on sustainable finance in the coming years.”
UKSIF represents members with more than £10tn in assets under management.
“Constructive divergence” needed. Ben Caldecott, director of the Oxford Sustainable Finance Group at the University of Oxford, told Sustainable Views that the inclusion of natural gas in the EU green taxonomy has completely discredited it. “The UK excluding gas from its own green taxonomy is a great opportunity for constructive divergence from EU rules that will improve UK competitiveness in an important area.
“We can have a robust, science-based green taxonomy that is adopted worldwide because it is trusted by the market, thereby supporting UK leadership in green finance, or we can end up with something that is irrelevant because it has become debased.”
Is this really a surprise? Chancellor of the exchequer Rishi Sunak first announced the UK would create its own post-Brexit green taxonomy two years ago. The possible inclusion of natural gas could jeopardise this and would be seen as sharply at odds with his pledge last November to make the UK the world’s first net zero financial centre, calling on others to follow suit.
But it is scarcely a surprise. One problem lies with the technical architecture of the taxonomy’s green vs non-green classification. The EU has been wrestling with this problem – and how best to classify nuclear and natural gas – for well over a year. During that time, the issue has become intensely politicised.
The EU has now moved to a less binary approach; and the UK will have to think long and hard about the structure of its taxonomy. But, as its enthusiastic rhetoric from COP26 fades, the government has been softening its line markedly, as a backlash has built up against restrictive environmental measures. For example, mandatory sustainability disclosures were absent from the government’s new financial services bill, part of the list of forthcoming legislation unveiled last week. Meanwhile, the spike in energy prices – aggravated by the war in Ukraine – has made a fossil fuel such as natural gas, seen as a transition fuel, seem much more attractive.