The Bulgarian Industrial Capital Association (BICA) welcomes the Commission’s determination to continue the process with the EU Taxonomy, aiming to finance the transition to a climate-neutral Europe by 2050.

The Bulgarian Industrial Capital Association (BICA) joins the SGI Europe position that it is essential that this framework has to be guided by common principles that safeguard similar level of ambition across various sectors and aims for a technology neutral approach and respects the role of public undertakings.

The BICA joins the fears of SGI Europe that this principle is not reflected in its current form.

The BICA supports the point of view that it is highly necessary that the EU Taxonomy is fully taking into account the respected national and EU Legislations and applies them accordingly. A key issue is the necessity to simplify the process to make sustainable and resilient projects more attractive.

Taking in regard that the “Do No Significant Harm” (DNSH) assessment, the principle of proportionality (in terms of company size, investment size, risk profile etc.) should prevail, in accordance with risk management practices, the BICA supports the SGI Europe standpoint that it is quite difficult to see how the proportionality principle may be applied in practice.

The BICA joins the ask of SGI Europe to reassess this criterion as well as provide concrete guidance on the implementation of the principle. We strongly agree that the EU Commission should provide more clarity and support for the application of the taxonomy, e.g. by more explicitly naming the expectations in the due diligence on DNSH criteria and on minimum social standards.

The BICA is sure that there is a great danger that service providers and investors may lose the needed interest if the information burden is too onerous and opt for traditional funding requiring less disclosure. Ultimately, the sustainable finance market rests on the availability of eligible assets. Therefore, the way the EU Taxonomy is designed it is risks undermining investments in sustainable and resilient projects and additionally slowing down its harmonisation with other sustainable investment strategies i.e the EU Green Bond Standards.

From the BICA point of view, it should be made clear that the disclosure requirements deriving from Article 8 of the Taxonomy Regulation will only become mandatory for financial years beginning after 1 January 2022.

Only this will truly support an investment strategy that can facilitate a cost-efficient decarbonisation process and build up a resilient infrastructure that serve the environment, the economy and society as a whole.

In this respect, BICA would like the Commission to reflect further its proposals and take on the following points, which we share with SGI Europe in the prevailing number of cases.

Technical Screening Criteria for ‘Do No Significant Harm’ (DNSH)

BICA welcomes the idea that the DNSH criteria has to become a key element of the EU Taxonomy to ensure that economic activities have no significant negative environmental impact.

Together with SGI Europe, the BICA is going to continue to support the Commission on this mission. A clarification on the key element criteria needs to be simplified and where relevant national or EU legislation are applied to ensure legal security for investors.

BICA shares the fears of SGI Europe that here an unnecessary administrative burden may appear, that will potentially hinder sustainable activities and projects rather than supporting it. It needs to be undoubtedly understandable, clear connections to existing national and EU legislations and in line with the Commission’s proposed wording to “ensure usability and proportionality” and being “easy for economic operators to use”.  While such an approach is outlined in the draft Delegated Acts, it does not match the detailed criteria laid out in individual DNSH requirements.

Technical Screening Criteria for “transitional activities”

In Art 10.2 in the EU Taxonomy it explicitly foresees a distinct category for so-called “transitional activities”, that support the transition to a climate neutral economy. BICA shares SGI Europe’s strong believe, that the current approach of the European Commission is not in line with Art. 10.2, as for example no distinction is being made between the emission thresholds for electricity generation and heat production for “green” activities and for “transitional activities”

That is why, BICA strongly supports the call of SGI Europe for the creation of a dedicated section for transitional activities in the delegated act, with distinct criteria and thresholds from green activities. Furthermore, all activities that comply with the criteria set out in Art. 10.2 should be taxonomy-eligible under the category of ‘transitional activities’.

The BICA agrees that the Taxonomy could be a great tool to prioritize and accelerate financial investments in various energy technologies such as wind, solar, bioenergy, hydrogen as well as energy efficiency and enabling infrastructures (e.g. storage, smart grids, electric vehicles charging).

It is of crucial importance to realise that no type of energy production is completely carbon-neutral. It is really important to consider the whole lifecycle of energy production and compare it accurately of its impacts and beneficial contribution for the energy transition.

Here we remind again the call that regulations should in general be technology neutral, with regards to GHG-savings and sustainability.

Additionally, the technical screening criteria for energy should be defined in a way, that makes them realistically achievable today, if true efforts are put into the decarbonisation of energy generating activities.

The BICA puts an emphasis on the issue that if criteria cannot be achieved, the objective of the taxonomy to incentivize investors and operators to decarbonize their portfolios will not work.

Life-cycle assessments

While SGI Europe supports the approach to take into account the average emissions over the life-cycle of energy generating technologies, clarification on the exact implementation of life-cycle assessments (LCA) for electricity generation and heat/cool production is needed, as the current criteria do not allow for an unequivocal calculation of life-cycle emissions which will be crucial for the classification of energy generating technologies. To simplify LCA, the utilisation of standard reference values should be possible, wherever they are available.

Carbon Capture and Storage (CCS)

The Technology of Carbon Capture and Storage (CCS) will continue playing an important role within the energy mix in Europe as some fossil fuel-based energy sources will remain. That is why, BICA supports the standpoint, shred by SGI Europe as well, that it as important and realistic to take CCS into account as it will support and accelerate the decarbonization process.

The BICA underlines again that it is necessary to rethink to have a one single hydrogen solution in place as this will turn out uneconomical and unrealistic approach. We strongly agree with the standpoint of SGI Europe that it is crucial to ensure that the production of hydrogen from a low carbon electricity mix is eligible in the taxonomy in order to enable the development of this technology.

We are very much troubled by the fact that the proposed threshold qualifies as sustainable only hydrogen produced from 100% renewable electricity (!) and could even – under certain assumptions – exclude photovoltaics (PV).

In order to use references already present in the taxonomy and to allow low-carbon hydrogen to fully take off and act also as a transitional tool, it is necessary to refer to the emission threshold proposed by the taxonomy for electricity, previously included in the Technical Expert Group’s report.

The BICA puts an emphasis on the fact that the sustainable use and protection of water and marine resources is already regulated under the Water Framework Directive. All necessary requirements to reach the environmental objectives, including adequate implementation times are laid down in the Programs of measures and the River Basin Management Plans and then are adequately transposed into new and existing permits. Separate requirements or duplicating the water body and basin related planning and evaluation requirements onto the project level are therefore not appropriate and would result in additional costs without any positive effect on sustainability.

The BICA should like to underline that bioenergy that is fulfilling requirements for sustainability and GHG-savings according to the Renewable Energy Directive (RED) should be classified as a sustainable activity, and not as only transitional. The BICA supports the suggestion of SGI Europe  for changing the description of the activity to a taxonomy-compliant sustainable activity.

The BICA shares the standpoint on the importance of cities in fighting the increase in emissions in transport and the need to include public transport in a successful modal shift campaign that includes not only rail, but metros, buses, trams and soft mobility modes. We welcome the fact that modal shift has been kept in the EU Taxonomy Delegated acts that will facilitate investment in various mobility projects.

Here we share and support the view of SGI Europe that vehicles operating on biofuels fulfilling GHG-savings and sustainability requirements according to the RED should be accepted. Hybrid should be reintroduced to broaden the scope and allow for transition in technologies where needed.

In regard to leakage rates, the BICA shares the view that the demand for a 20% reduction of leakage rates compared to the ILI Index of 1.5 is neither realistic nor feasible.

The BICA shares the criticism of SGI Europe towards the setting of limit values ​​for energy consumption per cubic meter of water to 0.5 kWh per m³. The energy demand is influenced by various factors such as the size of the plants, structural circumstances and geological conditions. Therefore, we strongly oppose a general and very concrete limit value. At least, this requirement should be modified for services with less favorable conditions as regards density, topography etc. Overall, the priority is to supply the population with clean drinking water that meets hygienic requirements. As warm water is more appropriate for purification and cleaning purposes than cold water, the benchmark for the drinking water supply is not the energy efficiency but the health protection of the population – which is especially relevant in times of the COVID-19 pandemic.

In regards to the energy efficiency standards (p. 168, Art.5.4. Renewal of waste-water collection and treatment), companies in the waste-water treatment industry are maintaining their sovereign duties (waste-water and sludge treatment) and are generally already seeking to design energy-efficient processes. An improvement of energy efficiency by 10 % cannot be demanded across-the-board, as operators – which have been very efficient so far – can only achieve these improvements with considerably higher costs or are otherwise unable to achieve them at all. Therefore, efficiency efforts that have already been made and implemented must also be considered.

The BICA strongly supports SGI Europe in its appeal towards the DG FISMA to avoid setting unrealistic requirements, that do not follow existing and specific EU legislative files of the European Commission as this could lead to less investments in waste-water treatment plants.

In regards to methane emission, the BICA should like to confirm the adequacy of the statement of SGI Europe, that there currently are no data or comprehensive studies available on methane emissions in waste water treatment, hence no statement can be made on whether and how energy efficiency measures will affect methane emissions. We insist that before DG FISMA makes a statement within the framework of the Taxonomy Regulation, a coherence check should be carried out considering in particular the Urban Waste-Water Directive.

The BICA joins the proposition for a change of the DNSH-criteria for the environmental objective towards “Transition to a circular economy”, due to the understanding that Waste-Water Management and sewage sludge utilisation can in the near future utilise technologies such as methane pyrolysis, avoiding emissions and transform them into clean hydrogen. 

The BICA joins the criticism towards the fact of the non-inclusion of thermal waste utilization, Waste-to-Energy (WtE) as a sustainable economic activity within the Taxonomy Regulation. The European Commission has acknowledged in its Communication COM (2017) 34 on “the role of Waste-to-energy in the circular economy” (Section 5) that WtE has a role to play in the circular economy. The WtE acts a complementary tool for the recycling sector, acting as a sink for the unwanted legacy substances that contaminate the materials cycle[1]. Many waste materials can only be safely disposed of by incineration. The context of the corona crisis with large amounts of contaminated protective clothing and household waste arising from infected or quarantined persons make this terrifyingly clear.

With regard to such types of waste, energy recovery through thermal utilization is part of sustainable waste management. The BICA insists that it should also be taken into account in the taxonomy or it should at least be included as a transitional activity, as in the Climate Bonds Initiative. It has to be considered that some member states or regions in member states still have consistent lack of capacity in waste to energy facilities and for them it will be more difficult to divert waste from landfills.

The BICA supports the call of SGI Europe upon the TEG to further discuss and consider this matter in order to positively consider Waste-to-Energy within the framework of the EU Taxonomy Regulation.

The BICA supports as well the proposition of SGI Europe to place sewage sludge incineration as a sustainable economic activity that makes an essential contribution to the transition to a circular economy[2].

Furthermore, the burning of landfill gas as part of landfill gas capture and utilisation should be considered as contributing to climate change mitigation under the taxonomy[3].

Conclusion:

The BICA strongly supports the Commission on this path to create a sustainable EU Taxonomy. On the other hand, just like other respected European level social partners as SGI Europe, we insist that it is necessary to take into account the view of essential public undertakings, whose business models are often motivated by social sustainability, into account by supporting them to facilitate their actions to become taxonomy approved.

[1] It is a safe and reliable recycled material market is one of the pillars for the transition to a Circular Economy. In the Technical Expert Group’s report (TEG report) it is furthermore stated that the incineration of non-recyclable, hazardous waste does not constitute significant harm.

[2] Art. 13 provides that „an economic activity makes a significant contribution to the transition to a circular economy if it (…) reduces waste incineration as far as possible“. Several Member States have no political alternative to the incineration of sewage sludge, particularly when valuable materials (including phosphorus) are also meant to be recovered from the sludge. The only alternative consists of large landfill sites being made available for dried sewage sludge. This is, however, not a viable option. Consequently, the use of sewage gas (as a by-product) should be considered as a renewable energy source when used for electricity generation or when blended into a gas network.

[3] When permanently closed landfills age, the concentration of methane in the gas emitted decreases significantly, which and makes the further utilisation of that gas no longer economically viable. Therefore, the only feasible option is to burn the gas. As long as this process is in line with the relevant emissions standards, it should be eligible under the taxonomy.