A new era of green nuclear and grey decarbonisation?

State Street's global head of ESG Rick Lacaille says the EU's proposal for 'green' nuclear may open the door to innovative climate solutions

Few topics among climate activists polarise quite like nuclear energy. So, when the EU proposed late last month to recognise nuclear and gas as potentially sustainable activities, it may have settled the controversy, at least for the moment.

But the EU’s decision was important for another reason. It may have ushered in a new era in which the true complexity of decarbonisation is finally recognised. And rather than slow down progress on climate change mitigation, that recognition may in fact speed it up.

To understand why, start with the divide in the EU between proponents of nuclear energy, and those who have a long history of opposition.

Germany has been a user of nuclear energy, but also a host of significant opposition in the form of the Green Party; it performed a U-turn after the Fukushima disaster, promising to close existing nuclear power stations and not open any new plants. It has also been an enthusiastic user of natural gas and sponsor of pipeline links to Russia to enable a stable supply – once again courting controversy amongst allies such as the United States.

In part because of the legacy of Eastern Germany and the historic presence of large coal supplies, coal power has formed a significant part of its energy mix. Germany’s industrial base requires reliable power at a competitive price, and renewables form about 41% of its electricity generation, according to BP Statistical Review of World Energy 2021. However the need for reliable base load power capacity might remain a limitation in its ability to eliminate coal, unless gas (or nuclear) is permitted.

Next look at Germany’s neighbour, France, which has a long history of nuclear research and power generation, with some 67 percent of its electricity generation coming from nuclear. Its combination of renewables plus nuclear offers a combination of low carbon and relatively high base-load reliability.

Although the debate on nuclear and gas was not simply France against Germany, the two nations have epitomised positions taken by other nations within Europe and beyond in their evaluation of the risks and urgency of climate change and what this implied in terms of energy policy.

The debate has hinged on several issues: the safety, and lifetime cost of nuclear, including operating risks, but also waste and decommissioning risks; the ability of gas to provide a much lower carbon alternative to coal as a base-load power source, but with multi-decade investment horizon (and therefore delay of reaching zero carbon power); and whether renewables in combination with substantial storage capacity could replace both within a reasonable planning horizon.

Technology arguments also come into play because in all cases it is likely that we will see improvements in the future. For example, carbon capture and storage in the case of gas could mitigate the impact of extending the life of gas power and storage methods or episodic or seasonal smoothing could make traditional renewables potentially able to replace nuclear and gas economically.

Against that backdrop, return to the EU’s proposal to change its taxonomy that defines what constitutes a sustainable activity, specifically in the context of the Climate Change Adaptation and Mitigation framework.

The proposal notes two options for gas for being sustainable: either very low emissions as a result of Carbon Capture and Storage (CC&S) technology, or its use as a direct replacement of higher emitting fossil fuels, provided that the capacity of the replacement plant is not significantly beyond the original and it is clear that there is a large (55% plus) reduction in GHG emissions per unit of power generated.

On nuclear, the EU’s conditions are mainly about the safe treatment and pre-funding of waste and decommissioning in order to ensure no harm is stored up for the future.

The EU’s proposal recognises the challenges that even a wealthy region like Europe faces in its efforts to decarbonise over multiple decades and provides a compromise that can open the way to accelerate progress on emissions reduction.

It might also be an enlightenment moment in which a rational approach to balancing risks is emerging as a more dominant philosophy, brought about by a greater degree of engagement by a wider constituency of actors.

In other words, the EU’s proposal for ‘green’ nuclear and gas is a recognition that decarbonisation is not black and white. In fact, it involves many shades of grey. And that alone may open the door to more creative solutions to mitigate climate change.


Natalie Kenway

Natalie is editor in chief at MA Financial covering ESG Clarity, Portfolio Adviser and International Adviser. She was previously global head of ESG insight for ESG Clarity and has been an investment journalist...