EU Returns to Science-Based Decision-Making in Landmark Nuclear Report

Pillsbury Winthrop Shaw Pittman LLP

EU’s in-house science body determines that nuclear energy is a sustainable technology under the EU’s green finance rules; ruling has positive impact for government and private sector support for nuclear technologies in the EU and beyond.

TAKEAWAYS

  • The EU Taxonomy Regulation establishes a list of environmentally sustainable economic activities; inclusion in the Taxonomy can significantly impact government and private sector financing of energy sector projects.
  • The EU’s Joint Research Centre determined in March 2021 that nuclear energy meets the “do no significant harm” criteria of the Regulation, giving the EU Commission the technical basis to include nuclear energy in the Taxonomy; that decision is expected in the second half of 2021.
  • Inclusion of nuclear energy in the Taxonomy should support government financing of new nuclear projects, unlock the funding potential for advanced nuclear technologies, and facilitate the role of nuclear in broader EU decarbonization initiatives, such as the EU Hydrogen Strategy. This finding also has positive impact for support for nuclear energy beyond the EU.

Last year, the EU established a classification system called the EU Taxonomy Regulation (Regulation (EU) 2020/852 (Taxonomy) on the establishment of a framework to facilitate sustainable investment) that sets out the parameters for determining what activities can be classed as environmentally sustainable. The main objective of the Taxonomy is to enable the EU to meet its 2030 climate and energy targets, consistent with the EU’s “green vision” for a carbon-neutral economy. The Regulation also requires large EU “public interest” companies, such as investors, financial institutions and issuers, to report how much of their investment is aligned with sustainable activities.

While the Taxonomy is clear in its differentiation of fossil-fueled plants from renewable energy facilities, it has been less so regarding nuclear energy. Despite nuclear energy being one of the two largest sources of carbon-free electricity in the EU (hydro is the other), some EU members have opposed the classification of nuclear as sustainable not only due to scientific concerns about the disposal of used nuclear fuel but also due to general political opposition to nuclear. European countries are divided in their support for nuclear, with countries like France, Hungary and Poland being strong proponents for nuclear energy, and others such as Austria and Germany in the opposing camp. The fault lines are largely political, and proponents of nuclear have been quick to point out that carbon emissions in Germany spiked after it began its phase-out of nuclear energy.

In a refreshing return to science-based decision-making, the EU Commission appointed the Joint Research Centre (JRC), the EU’s technical in-house science and knowledge body, to make a determination on whether nuclear energy should be labeled a sustainable or a transition technology under the EU’s green finance rules. In March 2021, the JRC issued its report determining that nuclear energy qualifies as an environmentally sustainable energy source. While the Taxonomy Regulation itself has yet to be updated to reflect the JRC’s findings, the significance of the JRC’s report to the EU’s efforts to combat climate change cannot be overstated. In this article, the authors consider the background to the publication of this landmark report, its key findings, and its implications for a carbon-free future.

Background and room for debate

The current drafting of the EU Taxonomy Regulation does not consider whether nuclear energy should be considered a sustainable economic activity across the life cycle of a nuclear plant. The EU had appointed a Technical Expert Group on sustainability (TEG) to consider the question in more detail. While the TEG found that nuclear energy was a “climate-neutral energy,” it also opined that further research was needed to determine whether or not nuclear energy can be said to “do no significant harm” (DNSH) when considering the nuclear energy life-cycle as a whole, including the disposal of spent fuel and radioactive waste.

The absence of a definitive conclusion by the TEG in relation to nuclear energy’s overall sustainability caused much debate. A finding that nuclear energy caused “significant harm” to the environment would have irreversibly stigmatized the industry, likely reducing the amount of support that governments would be allowed to provide for new projects under the EU funding rules.

The JRC report

To settle the discussion and debate, the EU Commission appointed JRC, its technical in-house science and knowledge body, to draft a technical report regarding the DNSH aspects of nuclear energy and to assess whether it should be labelled a “sustainable” or a “transition” technology under the EU’s green finance rules. Industry participants have been eagerly awaiting the publication of the JRC report.

In March 2021, the JRC published its report titled “Technical assessment of nuclear energy with respect to the ‘do no significant harm’ criteria of Regulation (EU) 2020/852 (the Taxonomy Regulation)” confirming that nuclear energy does not significantly harm any of the EU’s environmental objectives. The report is an evidence-based determination intended to settle the debate using scientific methodology.

Key findings

The JRC report considered the potential and existing nuclear impacts of the whole nuclear energy life cycle, including performing a detailed review of the management of the generated nuclear waste.

Its analyses did not find any evidence that nuclear energy does more harm to human health or to the environment than the other electricity production technologies already included in the EU Taxonomy Regulation as activities supporting climate change mitigation. In fact, comparison of the impacts of various electricity generation technologies (e.g., oil, gas, renewables and nuclear energy) on human health and the environment, based on recent a full life-cycle analysis, showed that the impacts of nuclear energy are mostly comparable with hydropower and renewables, with regard to non-radiological effects.

Regarding nuclear waste, the report found that there is broad scientific and technical consensus that the EU’s current strategy of disposal of high-level, long-lived radioactive waste in deep geologic formations is, at the state of today’s knowledge, considered an appropriate and safe means of isolating it from the biosphere for very long time scales. It compared this to the sequestration of carbon in carbon capture and sequestration technology that is also based on long-term disposal of waste in geological facilities, and considered that there is already a clear regulatory framework in place.

Next steps

While the JRC report has been well received by the nuclear industry, there are further administrative hurdles to be cleared prior to nuclear energy being deemed sustainable under the EU Taxonomy Regulation. The JRC report needs to be reviewed by two additional expert groups: (a) the group of experts on radiation and protection and waste management under Article 31 of the Euratom Treaty, and (b) the Scientific Committee on Health, Environmental and Emerging Risks, who deal with environmental impacts. These two groups are expected to issue their reports within the next three months and will inform the EU Commission’s final decision on the matter. There could of course be some delay as the Scientific Committee on Health, Environmental and Emerging Risks remains very occupied with COVID matters are the current time.

Once both groups of experts have submitted a report to the EU Commission, if all goes well, the EU Commission should then make a decision in the second half of 2021.

Implications of the JRC report

Subject to the uncertainty as to timing described above and the fact that a final decision from the EU Commission remains outstanding, the publication of the JRC report remains a very positive development for the EU’s decarbonisation efforts. After many years of politics dominating the discussion on the role of nuclear power in Europe, the JRC report represents a firm step back onto the path of science-based decision-making.

The JRC determination will certainly facilitate ongoing government support to new nuclear projects in Europe, in the context of EU funding rules, which are expected to evolve to favor projects that use sustainable technology. Poland, the Czech Republic, and Bulgaria all have plans to build new nuclear reactors to decrease their reliance on coal and meet the EU’s climate goals while Finland and Hungary have already executed contracts for new nuclear units and secured siting permits for the facilities. The findings are also positive for the availability of funding from commercial banks to these new projects, as well as any financing required to support the long-term operation of existing nuclear plants, which is also a highly important but often overlooked facet to the EU’s decarbonization efforts.

Further, a number of countries in the EU are considering the deployment of small modular reactors (SMRs) for both zero-carbon electricity and industrial process heat production. SMRs are reactors with outputs typically under about 300 MWe designed around module factory fabrication that involve short construction times and are focused on economies of serial production. Although SMRs are less capital-intensive than large nuclear reactors and will thus rely less on government support (especially after the first units are demonstrated), significant amounts of equity and debt from the private sector will be required to deploy large-scale SMR fleets. Inclusion of nuclear as a sustainable technology in the EU Taxonomy will unlock this funding potential.

It is also expected that if nuclear is determined by the EU to be sustainable, the impact will be global, rather than limited to the EU, as other stakeholders across the world refer to the EU’s findings in respect of nuclear energy for guidance. Indeed, the EU Taxonomy Directive is regarded as influential on the global stage as a helpful standardization exercise, and no doubt the findings on nuclear energy will be equally influential.

Finally, the impact will likely also be felt beyond the nuclear industry. By way of example, 2020 saw the unveiling of the EU Hydrogen Strategy, which seeks to create a green hydrogen market to support the decarbonization of the electricity sector as well as transportation, industry, and buildings across the EU. To date, the EU Hydrogen Strategy has focused on the production of hydrogen through renewables. However, nuclear power, due to its ability to produce not only electricity but also heat and its small geographic footprint, presents an immense opportunity to produce hydrogen at large scales and in an efficient and low-cost manner. It would appear that hydrogen produced with nuclear energy can now be termed “green hydrogen,” representing a positive step for the hydrogen economy.

Conclusion

Finding a workable solution to the climate change puzzle involves leveraging all the technologies at humankind’s disposal. Nuclear energy currently provides about 40 percent of the EU’s low-carbon electricity, and confirmation that it does no more harm to human health or the environment than any other sustainable power-producing technology will certainly allow nuclear power to continue to be an essential environmentally sustainable power source in the EU going forward, as well as have a wider impact globally. While some uncertainty remains regarding the final decision to be taken by the EU Commission, for the moment at least the EU is eyeing nuclear power through “green” tinted lenses, and that is in itself a cause for celebration.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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