European regulators recently proposed to include nuclear power and natural gas in a select group of energy sources, alongside renewables such as wind and solar power, to help reduce greenhouse gas emissions. This initiative follows the EU’s commitments to multilateral climate diplomacy and the 2019 announcement of the Green Deal to make the EU economy carbon-neutral by 2050. The European Commission (EC) says it aims to facilitate new gas and nuclear investments for a “difficult transition” between now and mid-century, a period during which coal-burning must be phased out and electricity demand may dramatically increase.
Some nuclear power advocates assert that the proposed regulation will encourage member states and investors to bring about a long-awaited reinvestment in Europe’s nuclear power infrastructure, while critics deplore the EC’s endorsement of natural gas (a fossil fuel) and nuclear power (a technology bearing severe residual risks and waste management uncertainties). A final decision on the EC’s proposal will be made by member states and the European Parliament during the coming six months. Below, Mark Hibbs digs into the proposal and what it could mean for nuclear power investors.
What’s Behind the European Commission’s Resolve to Embrace These Energy Sources?
Not all EU member states rely on gas and nuclear as energy fuels. Several are programmatically opposed to nuclear power, and Europe’s dependence on foreign gas supply is highlighted by the Russia-Ukraine crisis. But the EU is running out of time to decarbonize, its power demand will keep increasing, and the share of nuclear power and gas in the EU energy sector is too great to quickly replace.
The EU is party to the 2015 Paris Agreement and has committed to cut carbon emissions by 55 percent of 1990 levels by 2030. In 2018 the EC set the still more ambitious goal of reducing EU greenhouse gas emissions to net zero by 2050. In the power sector, which emits about one quarter of Europe’s atmospheric carbon, the EC aims to phase out the burning of coal and replace it with climate-friendly power sources, chiefly renewables.
But cuts achieved by the EU during the past three decades amount to less than 20 percent of the total required to meet its 2050 target; the remaining 80 percent must be reduced during the next three decades. And the EU is very far from generating most of its electricity with renewables. Only 35 percent comes from these sources, compared to 40 percent from fossil fuels. Nuclear, which emits virtually no carbon, and gas, which emits less carbon than coal, together account for nearly half of the EU’s electricity, and the EC expects that it will take many years before nuclear and gas could be replaced with renewable sources. What’s more, the EC projects that under scenarios that include a shift in energy use toward electrification and hydrogen, the share of electricity in final energy demand in the EU might “at least double” by 2050, such that Europe’s power demand by 2050 might increase by up to 2.5 times 2018 levels.
How, Specifically, Did the EC Propose to Support Nuclear Power Investments? Why Was That Controversial?
The EC aims to allocate 1 trillion euros to its Green Deal through 2030; most of this is intended to come from the EU budget and the rest from other public and private funds. Because the EC needs rules to fairly, effectively, and transparently mobilize financial resources for climate-neutral power investments, it is setting up a classification system to identify which investments are “green” or “sustainable” from a climate perspective. The EC is also drafting screening criteria for the energy technologies endorsed by the Green Deal.
During 2021, the criteria for renewable technologies were drafted and submitted without public controversy to member states and the European Parliament. But forging an agreement on criteria for gas and nuclear investments has been contentious, at times dividing the EC finance and energy directorates that are responsible for drafting the regulation. When the EC finally submitted draft criteria for nuclear and gas power on the last day of 2021, the proposal unleashed controversy among European Parliament members, states, and competing stakeholder interests, including about the future role of gas and nuclear supply in the EU’s energy system.
In January, intervenors filed several hundred comments and counterproposals to the EC. The EC’s technical advisers, a majority of whom in 2021 had agreed with a verdict from the EC’s nuclear directorate expressing confidence that the EU could manage nuclear risk, reversed that endorsement. In late January, the EC appeared to brush off that rethink when the lead EC directorates prepared a revised, final version of the regulation that differed little from the original on essential points. On February 2, the EC as a whole agreed to the proposal and submitted it to the parliament and member states, who have up to six months to decide whether to accept the measure.
Because EU member states are mindful of their sovereignty in making strategic energy fuels decisions, the commission said that its proposed rule was “not an instrument of EU energy policy” and that “member states remain fully responsible for deciding their energy mix.” That statement implied that individual states may in principle decide upon future power investments independent of the regulation’s compliance terms and possible incentives.
How Will the EU Go Forward With the EC’s Draft Regulation?
Member states and the European Parliament have four months (which can be extended for two more months) to scrutinize the regulation. They will then decide whether to accept the proposed regulation. They may not submit changes to the text, but they may reject the entire proposal through either a simple parliamentary majority or a vote of member states in which at least twenty states are opposed.
Defeat of the proposal by the states is considered unlikely, in part because the measure is a package deal: it permits investments in both gas and nuclear power, and most EU states rely upon at least one of these energy sources. In January, the EC made a late concession to gas-burning states, including nuclear-critical Germany, by removing some carbon emissions restrictions from the original draft. In the European Parliament, some groups expressed criticism of the January proposal, but it is far from certain that legislators will block it. If the measure is not voted down, the regulation will enter into force under EU law in 2023.
Did the EC’s Signal That Nuclear Power Will Be Needed in Years Ahead Translate Into a Consensus in Favor of More Nuclear Power?
Not yet. The EC has been sending this message since 2018, but the twenty-seven member states remain divided. Half of the members generate electricity with fission reactors, and a few others firmly oppose it. France, the EU’s leading atomic state with nuclear weapons and fifty-six power reactors, is poised to launch a major reinvestment in nuclear power. Bulgaria, the Czech Republic, the Netherlands, and Poland are preparing to build new power reactors. Austria, Denmark, Germany, Luxembourg, and Portugal oppose nuclear power. Belgium and Italy have ordered their reactors to be phased out but might consider new nuclear energy projects.
Will This Regulation, If Approved, Benefit Nuclear Power?
Yes, but the extent is not clear. The nuclear power industry may argue that the EU favors nuclear investments as contributing to carbon emissions reductions. The regulation expressly supports retaining nuclear power as a backstop for the time needed to add more renewables while demand for electricity increases significantly. Some nuclear research and development projects—for example, the nuclear production of hydrogen to fuel vehicles and generate electricity—may be eligible for Green Deal funding, including a slice of the 265 billion euros that the EC has earmarked for post-pandemic climate protection investments. It is possible that an EU seal of approval for nuclear power will enhance the prospects for nuclear power elsewhere.
At the same time, the regulation might not lead private investors and institutions to significantly favor nuclear projects under increasingly important environmental, social, and governance considerations. Most of these hard-line exclusions on fossil and nuclear power investments are likely to stick, but exceptions may be made, according to an evaluation by Goldman Sachs. Independent of the EC’s favorable nuclear verdict, future potential investors will decide on a case-by-case basis whether any nuclear power project is viable.
But without new investment to replace and extend the lifetime of Europe’s existing power reactors, the EU will gradually lose a large share, perhaps half, of its nuclear power generation capacity by 2050. EU states may focus more near-term attention on maintaining and building large power stations than on new mini reactors. Large-scale projects for new nuclear power plants incur high capital costs, long construction periods, and risks of potential delays related to supply chain issues, legal challenges, regulation and licensing, and political risk. In recent years, some of these risks have resulted in significant construction delays and cost overruns for projects in Finland and France.
Will Green Deal Compliance Criteria Impact EU Nuclear Power Oversight?
Europe’s nuclear industry has raised concerns that the Green Deal might add a layer of regulation above and beyond what is legally binding under the Euratom Treaty, which has governed EU nuclear activities since 1958. The regulation compels green nuclear investment projects to use the most advanced technology, and it sets a 2050 deadline for the operation of high-level radioactive waste repositories in any host state. Without clarification, arbitrary interpretation and implementation of the regulation might set prohibitive technology requirements and mean that only a very few EU states would satisfy the repository requirement.
The final version of the regulation appears to address some of these concerns. It frequently refers to Euratom directives that do not set repository deadlines and do not provide for an independent EC opinion about technology compliance, and it qualifies the requirement to use the most-advanced fuel technology upon consideration of prior licensing. Remaining concerns may need to be addressed in forthcoming implementation guidance, presumably negotiated between the EC and stakeholders, since the text of the regulation itself may no longer be amended. Without clarity on some points, investors might be discouraged from supporting future nuclear energy projects.