EU Taxonomy: delegated act 2021/2139 published, with criteria for biogas and biowaste

On 9 December 2021 the Official Journal of the EU published Commission Delegated Regulation (EU) 2021/2139, which sets out the technical screening criteria for activities that make a substantial contribution to climate change mitigation or adaptation. It is the first act implementing the Taxonomy Regulation 2020/852. It applies from 1 January 2022 and has a direct impact on how investments in biogas, digestion of biowaste and wastewater treatment are described.

What the act covers

The act contains criteria for activities in many sectors. From the point of view of our compendium, the following categories are relevant:

The criteria usually combine a life-cycle emission reduction threshold with requirements concerning feedstocks. For the digestion of biowaste, among other things, separate collection, a plan for monitoring and limiting methane leaks, and the use of digestate as a fertiliser or soil improver are required. For bioenergy, the criteria refer to the sustainability rules of the Renewable Energy Directive.

What the act does not cover

Thermal treatment of municipal waste was not among the activities making a substantial contribution to climate change mitigation. Natural gas and nuclear energy were not covered by this act – the Commission announced that it would decide on them in a separate procedure.

Significance for investors

From 2022, undertakings subject to reporting obligations and financial market participants will disclose what share of their activity or portfolio is covered by, or aligned with, the taxonomy (in the first year non-financial undertakings report only the share of eligible activities, and financial institutions until the end of 2023). A biogas installation that meets the criteria can be described as "green" in these reports, which makes it easier to access financing. This does, however, require documentation: an emissions balance, the origin of feedstocks, the tightness of the installation and the way digestate is managed.

For waste processing plants, the key distinction is between digestion and composting of biowaste, which fall within the criteria, and incineration, which does not.

What next

The Commission announced further acts for the remaining environmental objectives, including the circular economy and pollution prevention. For the waste industry they will be decisive for assessing investments in recycling and waste processing.

How to use the act in practice

For an investor, the most convenient way to assess a project is in four steps: check whether the type of activity is on the list in the act, then whether the criteria for substantial contribution are met (for example life-cycle emission reduction), then whether the project does no significant harm to the other environmental objectives, and finally whether the minimum safeguards are met (Article 18 of Regulation 2020/852: procedures ensuring compliance with, among others, the OECD and UN guidelines on business and human rights and the fundamental conventions of the International Labour Organization). Only when all four conditions are met can an activity be described as sustainable within the meaning of the taxonomy. It is worth keeping the supporting documentation, because it will be needed for audits and reporting.