The EU now classifies nuclear power and natural gas as sustainable energy sources, which could lead to more capital flowing into energy projects. Kim Parlee speaks with Priti Shokeen, Head of ESG Research and Engagement, TD Asset Management.
- Hey, Kim, good to be here. So what's happening is that the European Commission put forward a provision under the EU taxonomy regulation that talks about the importance of both nuclear and natural gas in meeting their climate goals. Now, these two sources of energy, as we know, have not typically fallen within the definition of climate aligned under most taxonomies. And the purpose of the taxonomy is to define economic activities that are considered green or transition activities so capital flows can go into these activities to help meet our climate goals.
So under this new development, both nuclear energy and natural gas would now be captured within the green economic activity bucket, if those nuclear power plants and natural gas projects meet certain criteria, which means that to be considered green, a nuclear power plant would need to have a plan in place to dispose of the radioactive waste and the means to ensure continued safe disposal.
For natural gas, the project must replace coal-fired plants. So there are certain strict requirements projects to go through under both of these.
- Assuming, and also I would expect part of the reason why this is happening is this is an energy-hungry world, and it needs, you know, better forms of energy versus others. But still, I understand that not all members of the EU are supporting this. Why is that?
- Yeah. So the challenge really is that the proponents are essentially saying that the EU needs to balance the energy security needs with the climate goals. And they see nuclear and natural gas as a necessary requirement within climate transition. While the critics are essentially saying that it is a dangerous counterproductive precedent watering down the credibility of a well respected benchmark for defining green activities.
Critics don't negate the need to find ways to meet ongoing energy demand with reliable sources. But they argue that the taxonomy was not intended to address these issues. It was instead meant to give definition to the environmental performance of various economic activities. So some countries are standing off on this issue. France, for example, gets upward of 70% of its energy from nuclear, and it's supporting the addition of nuclear.
Germany is firmly against the idea. And Eastern European countries have also seen natural gas as critical in making sure that they have energy requirements met, and also to reduce their dependency on coal. So I think investors are divided as well, as you can understand, Kim, here because some are welcoming the possibility of greater number of sustainable investment vehicles, where others are seeing this as a crippling step in climate work.
So there's voices on both sides. We at TDAM view nuclear as a critical source which needs to be at the table. And we're actually working on a white paper, and we'll be talking a little bit more about that. Because it is a low emitting source of energy that is key in making sure that we are decarbonizing the economy. So hopefully, more to come on that.
- We'll have you back for sure, Priti, when you do get come out with that, because I think there's a great deal of interest on nuclear and what it could mean. Maybe just give me your sense or your thoughts of like what does this all mean for Canada? I know that, often, the Canadian policymakers will look overseas in terms of then developing their policies. So any sense of what this is going to mean for us in what has been a traditionally very dependent on fossil fuels in the past?
- Yeah. I mean, that's very true. And the EU has definitely served as a model for other developing standards across the globe for defining what is green, what is brown. They've set the bar as other countries work to develop their own taxonomy. Canada is no different, and is working to develop a Canadian taxonomy that reflects the reality of our economy.
By expanding the definition of green investment and inclusion of nuclear and natural gas, investors could potentially look to Canada where both of these sources are substantial aspects of the kind of our country's energy mix. In fact, Canada is the sixth largest nuclear producer behind US, China, France, Russia, and South Korea.
And we ourselves have engaged with companies as they try to understand the eligibility of their nuclear projects in investor green bond frameworks. If including nuclear was widely held standard, this would really provide us with greater level of green bond supply, where investors can increasingly look for ways to invest more sustainably, particularly in a Canadian context. So yeah, we'll be watching this very, very closely.
- I only got about 30 seconds, Priti, but I guess there probably is some adjustment to your point about with regards to investors getting used to what is classified as green and what isn't. And that could cause a few bumps, I would think, from a capital flow standpoint.
- Absolutely. And there's some criticism that including nuclear and natural gas could dis-intense-- dis-intensify-- sorry, disincentivize investments and much needed growth in the cleaner energy sources and renewable. But again, we need to sort of match the near-term energy demand with long-term energy planning. So I think there's concern, but that may not be very strong given the realities we are in right now.
- Well, we'll have you back, as I mentioned, when you get to your paper on nuclear. I know a lot of people will be looking forward to seeing that, Priti. Thanks so much.
- Thanks, Kim.