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Brussels to weaken its sustainable finance ‘green standard’

Good morning and welcome to Europe Express.

The UN climate summit in Glasgow continues to make headlines this week, with a variety of pledges from world leaders inching in the right direction but still likely to fall short of the overall targets needed to limit greenhouse gas emissions in the next few decades (Follow our live coverage).

Meanwhile, in Brussels, plans are well under way to include nuclear and gas in the bloc’s compendium on green investments, in part because of the current energy crisis having deepened the resolve of member states which insist on these energy sources to be included — even if this will result in a weaker EU ‘green standard’.

That same energy crisis has also forced the hand of the EU’s tiny neighbour to the east, Moldova. We’ll be unpacking the country’s recently inked deal with Gazprom and what concessions it entails.

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Not so green standard

The UN COP26 climate change summit is well under way in Glasgow with a flurry of daily announcements from governments on promises to reduce emissions, fund green technologies, and help poorer nations face the cost of climate disasters, writes Mehreen Khan in Brussels.

The EU has been centre stage in the COP news cycle, including yesterday’s agreement for a global methane pact with more than 100 nations, and a landmark $8.5bn deal with other rich countries to help South Africa phase out coal.

As the EU makes a show of its climate leadership credentials in Glasgow (and will do for the next two weeks), back in Brussels the European Commission is still grappling with sensitive green regulations that will help define just how credible the bloc’s climate policies are.

At the heart of this debate is the future of Brussels “taxonomy” on sustainable finance — a pioneering attempt to define what counts as truly green economic activity to help investors stamp out so-called “greenwashing” in the financial industry.

The FT has written about the delicate balance between politics and science that is embodied in the taxonomy regulation. The rules were devised to be a science-led exercise in defining a whole sweep of economic activity from agriculture to energy.

But Europe’s recent electricity price surge has shifted the balance towards more generous treatment for natural gas and nuclear power in the regulation as governments struggle to combat the social impact of higher prices.

Europe Express has spoken to officials and diplomats who say the commission is devising a draft taxonomy text which will open the door for nuclear power (which has no CO2 but produces long-lasting toxic waste) to be awarded the highest green label under the rules.

Natural gas, which is a fossil fuel with a smaller carbon footprint than coal or oil, will also be included in the draft to win support from countries in eastern and southern Europe which have demanded that gas is not penalised.

Concrete details remain a closely guarded secret, but diplomats say Brussels has given countries assurances that nuclear and gas will make the cut. Favourable treatment would likely ensure that the text wins approval from pro-nuclear and pro-gas governments which make up a majority in the 27-member bloc.

Their inclusion will provoke a fierce backlash from environmental groups, which note even basic financial funds committed to green goals do not go near nuclear and gas. The EU’s green recovery bonds also prohibit the financing of the two.

For critics, the taxonomy is a litmus test for Brussels’ ability to prioritise long-term environmental concerns over short-run political constraints. If concessions are made, the commission will be accused of failing at the first hurdle.

Chart du jour: Covid toll

An FT analysis of excess deaths during the pandemic — the number of deaths above the historical average, factoring in most recent trends in the mortality rate — puts Russia’s total at 753,000 at the end of September, one of the highest in the world. (More here)

Under (gas) pressure

Andrei Spinu, the deputy prime minister Moldova sent to negotiate a new gas deal with Gazprom after the Kremlin-controlled company threatened to turn off the taps, has hailed the agreement he struck late on Friday as “strictly commercial”, writes Henry Foy in Brussels.

But even a cursory look at the text, seen by Europe Express, reveals a different reality: the EU’s eastern neighbour, with only partial guarantees from the bloc to meet its energy supply needs for the winter, capitulated to Russia’s demands faster and with more far-reaching concessions than EU officials and neighbouring countries expected.

Gazprom last month slashed its supplies to Moldova — where a new pro-EU government had come into office earlier this year — and demanded weaker ties with the bloc in return for a renewed supply contract.

The deal inked last week delivers on those demands. The first item on the list of deliverables is the formation of an “intergovernmental commission on economic co-operation between the Republic of Moldova and the Russian Federation”. That’s Kremlin-speak for closer political ties and a clear speed bump for the Moldovan government’s European aspirations.

Next up is an agreement that Moldova will ignore the terms of the EU’s energy market regulations for at least another year, allowing Gazprom’s subsidiary in the country to continue operating as an effective monopoly, safe from the so-called “unbundling” rule forcing the separation of companies that supply and produce energy. This is phrased in terms that reflect the Russian position: “the non-application of forced reorganisation and sanctions against Moldovagaz”.

Indeed, the actual deal on gas supplies — for five years at a cost determined by the market price for both oil and gas — is only listed as point seven in a list of eight deliverables outlined in the protocol agreement.

While EU officials are relieved that a winter gas shortage has been avoided in the 2.6m strong country, they are disappointed at how quickly the deal came together — just hours after Moldova’s prime minister left Brussels following crisis meetings with top EU officials (which secured just €60m in EU grants and promises of alternative gas supplies).

Further deepening the sense of bemusement in Brussels is president Maia Sandu’s interview with Russian newspaper Kommersant following the deal, where she denied a statement made by EU foreign policy chief Josep Borrell and first reported by the FT that Gazprom had used geopolitical pressure as leverage during the negotiations.

As one EU official remarked to Europe Express, you only need to read Spinu’s signed agreement to see how central geopolitics was to the Kremlin-controlled gas company’s objectives.

While nobody expected Moldova to completely sever ties with Russia, given that the east of the country — the region of Transnistria — hosts a frozen conflict and 1,500 permanently-stationed Russian troops, EU officials hoped Moldova would be able to drag out talks with Gazprom, and not try to sweep the Kremlin’s geopolitical strong-arming under the carpet.

As Moldovan officials are experiencing, the country may find it difficult to save face with EU officials and neighbouring countries, including Ukraine, which were willing to help out with the gas crunch and support the tiny nation caught up in geopolitical tussles.

Talks on technical assistance from the commission will restart — perhaps quite sheepishly — today. As one Moldovan official said when asked where this deal leaves Chisinau’s relationship with the EU: “It’s complicated.”

What to watch today

  1. COP26 continues in Glasgow

  2. Germany’s outgoing chancellor Angela Merkel meets with France’s President Emmanuel Macron in Burgundy

Notable, Quotable

  • Euro-corruption: Sepp Blatter and Michel Platini, the former heads of world and European football, have been charged with fraud by Swiss authorities as part of a long-running corruption investigation. Both men were indicted yesterday following a six-year investigation into a SFr2m ($2m) payment authorised by Blatter to be paid to Platini in 2011.

  • Basel III delay: The UK has pushed back its timetable for implementing the latest global bank capital standards, but stopped short of the two-year delay recently announced by the EU, raising the prospect that British banks will be forced to comply sooner.

  • Supply chain crisis: Danish container shipping group Maersk said there was no end in sight to the global supply chain crisis, as congestion outside ports such as Los Angeles and Long Beach is getting worse because of surging demand after the Covid-19 pandemic.

  • Vaccine gloom: Romania’s caretaker government has made Covid-19 health passes obligatory for public events, but it has not been able to mandate vaccines for healthcare workers. Fewer than four in 10 people are fully vaccinated and Covid mortality rates are highest in the EU.

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Today’s Europe Express team: mehreen.khan@ft.com, henry.foy@ft.com, valentina.pop@ft.com. Follow us on Twitter: @MehreenKhn, @henryjfoy, @valentinapop.

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