ZEW Economist Karolin Kirschenmann on EU Taxonomy
Comment“The EU Taxonomy Is Problematic and Ultimately Political in Its Essence”
Together, the European Parliament’s Committees on Economic and Monetary Affairs and on Environment, Public Health and Food Safety have objected to the classification of nuclear power and gas as sustainable investments. Dr. Karolin Kirschenmann, deputy head of the Research Department “Pensions and Sustainable Financial Markets” at ZEW Mannheim, has commented on this matter:
“The clear vote in the economic and environmental committees on a resolution to reject the additions to the EU taxonomy shows that classifying nuclear and gas activities as sustainable is highly controversial – and not only in Brussels.
The debate on the classification of nuclear and gas activities clearly shows how problematic the taxonomy is as an instrument, which is ultimately political. It reflects the current state of knowledge on sustainable activities, but does not take dynamic aspects into account. This would be extremely important, however, as it is difficult to predict today which path to CO2 neutrality is the most efficient. Adjusting the taxonomy every six or twelve months to possible new circumstances and findings seems hardly feasible, as decisions at the EU level simply take too long due to their complexity.
Moreover, the taxonomy sets the wrong incentives. Companies whose activities are classified as non-sustainable will probably find it more difficult to finance themselves. Their financial scope to invest in their own sustainability would thus be reduced. On the other hand, companies already classified as sustainable lack the incentive to invest in new eco-friendly technologies, as they can rest on their green label.
In order to create a dynamic system with adequate incentives for more sustainable investments, the classification should be left to market actors, as is the case with the credit rating of companies. For this, policymakers should create an appropriate legal framework and ensure more transparency so that the necessary data is collected and made available. However, the assessment of this data must not then be carried out in a static system such as the EU taxonomy. Rather, it should promote the shift towards sustainability. For only in this way can the transformation of the entire economy towards climate neutrality succeed.
In such a dynamic system, financial flows can then be channelled into investments and activities that enable the path to a sustainable, carbon-neutral economy. Such a system also leaves the necessary space for adjustments to new knowledge and technological possibilities.”
