ClientEarth legal challenge exposes ‘credibility risk’ of EU taxonomy

NGOs argue fossil gas inclusion in the EU's sustainable finance taxonomy is unlawful

The European Commission needs to close the loophole in its green taxonomy that allows fossil fuels to be included, if it wants to avoid the legal challenge it currently faces, an investor group has said.

Four environmental NGOs are taking the European executive to court to stop the EU labelling fossil gas as ‘sustainable’ in its sustainable finance rulebook, known as the taxonomy.

Maria van der Heide, head of EU policy at ShareAction, said: “International consensus has made it clear that there can be no new oil and gas fields if we are to limit global warming to a 1.5C temperature rise. 

“For this reason, it is essential that any green taxonomy is fossil fuel free, or else it puts its own credibility at risk.”

She added: “If they wish to avoid these challenges, the European Commission should act to close this loophole in its taxonomy of assets and exclude fossil gas from its sustainable finance rulebook.”

ClientEarth, the WWF European Policy Office, Transport & Environment (T&E), and BUND (Friends of the Earth Germany) filed a case on 18 April in the Court of Justice of the European Union, against the European Commission’s refusal to remove fossil gas from the EU’s sustainable finance taxonomy.

The NGOs argue that this classification is unlawful, as it clashes with a number of key EU laws, in particular the taxonomy regulation itself.

Further, the groups add that these uses of gas cannot be considered sustainable given their negative impacts on the environment. Fossil gas is a high-carbon source of energy when burnt and, when leaked into the atmosphere, its impact on climate change is more than 80 times greater than CO2 over 20 years, they pointed out.

A spokesperson for ClientEarth, the WWF European Policy Office, T&E and BUND said: “Labelling fossil gas as ‘sustainable’ is as absurd as it is unlawful. It goes against the EU’s own scientific advice and fundamentally undermines the credibility of the EU’s climate action. Fossil gas is not clean, not cheap and not a secure source of energy.”

The taxonomy, they pointed out, is meant to support the EU meeting its climate targets.

They added: “Instead, this label stands to do the opposite, by channelling additional investments into this harmful energy source and away from genuinely sustainable sources of energy. We’re taking the Commission to court in the hope of restoring some credibility to the taxonomy and avoiding this huge risk to the climate and people’s energy security.”

A hearing at the General Court could be held in the second half of 2024 and a judgement released in 2025. The desired end result would be a ruling that forces the Commission to review the complementary delegated act.

The EU published the CDA at the end of 2021 proposing that gas and nuclear energy sources be labelled sustainable, which led to WWF accusing the EU of turning the taxonomy itself in to greenwashing.