Substantial contribution to climate change mitigation – a framework to define technical screening criteria for the EU taxonomy

The European Union has introduced a new policy tool to clarify which investments are to be considered environmentally sustainable: a taxonomy of environmentally sustainable economic activities. Regulation (EU) 2020/852 of the European Parliament and of the Council (the ‘Taxonomy Regulation’), defines the framework for the development of the EU taxonomy. It empowers the European Commission to define the taxonomy, i.e. the list of economic activities and associated technical screening criteria defining the required level of environmental performance. The European Commission will adopt the list of technical screening criteria in delegated acts. This report is an input to the work underlying the first delegated act under the Taxonomy Regulation, relating to activities making a substantial contribution to the first two objectives set out in the Regulation: climate change mitigation and climate change adaptation. This first delegated act should be adopted by the European Commission at the beginning of 2021. Building on the experience gained from working with the Technical Expert Group on Sustainable Finance (TEG) and on the set of recommendations the TEG provided to the European Commission, this report elaborates the concept of substantial contribution to an environmental objective and classifies the types of substantial contribution that an economic activity can make. It then illustrates which approaches can be used to define substantial contribution to climate change mitigation and elaborates on the conditions of applicability of each suggested approach. The requirements for technical screening criteria that are outlined in Article 19 of the Taxonomy Regulation are the basis for evaluating the suitability of each specific approach. This report also discusses the elements to be considered for setting the level of ambition of the technical screening criteria and how the technical screening criteria can result from combining the different elements analysed.