Impact of the EU taxonomy from the perspective of a European plant operator
The taxonomy is the first EU-wide classification system for environmentally sustainable economic activities
by Dr. Joachim Manns
1. Taxonomy and thermal waste recovery
2. Waste-to-energy’s contribution to the EU environmental objectives under the taxonomy criteria
3. Current risks and unfavourable developments if taxonomy does not include waste-to-energy
4. Alternative investments: Green Bonds
5. Necessary regulatory framework
1. Taxonomy and thermal waste recovery
The taxonomy is the first EU-wide classification system for environmentally sustainable economic activities and is aimed at expanding sustainable investments to support the implementation of the European Green Deal. The first EU delegated act on climate taxonomy sets out which activities are to be classified as environmentally sustainable as of 1 January 2022. The idea is that the capital market will contribute to achieving the goals of the European Green Deal: In future, investments should flow where they are most urgently needed to achieve the EU climate objectives. The EU promises that the taxonomy will offer investors planning certainty, while giving companies with sustainable business operations preferential access to capital.
However, thermal waste recovery is not currently classified as a sustainable economic activity under the taxonomy. Negotiations are currently taking place at the European level about the second delegated act, which will cover the remaining environmental objectives. If thermal waste recovery is excluded once again, this could lead to stalled investments – especially in member states in eastern and south-eastern Europe – and put the brakes on the development of sustainable waste management infrastructure across the EU. This would have negative consequences for the entire waste management industry as well as for climate change mitigation.
It is inconceivable – and not only to European operators of waste-to-energy (wte) plants – that thermal waste recovery has not yet been included in the taxonomy. Last year, members of the EU’s Technical Expert Group (TEG) on sustainable finance assessed thermal waste recovery to be convincingly sustainable and green. The Commission itself has also noted the immense potential for climate change mitigation in the waste sector. The same conclusion was reached by PwC auditors in a legal analysis commissioned by the European Waste Management Association FEAD. According to the analysis, from a legal perspective, energy recovery from non-recyclable waste must be considered an environmentally compatible economic activity and a complement to recycling.
2. Waste-to-energy’s contribution to the EU environmental objectives under the taxonomy criteria
An economic activity is considered to be taxonomy-aligned if it makes a significant contribution to at least one of the six environmental objectives: climate change mitigation, climate change adaptation, the sustainable use and protection of water and marine resources, the transition to a circular economy, pollution prevention and control, and protection and restoration of biodiversity and ecosystems , without doing significant harm to any of the other criteria . Thermal waste recovery meets the "do no significant harm” (DNSH) criteria in all six environmental objectives of
the taxonomy. It should thus be considered an environmentally sustainable economic activity. The contributions to the six sustainability objectives are:
Objective 1: Climate change mitigation
The European Commission wants to reduce greenhouse gas emissions in the EU by 55 per cent (compared with 1990 emission levels) by 2030 and transform Europe into the first climate-neutral continent by 2050. This is laid out in the EU 2030 Climate Target Plan . The Climate Target Plan describes the necessary adaptations to harmonise the EU’s climate policy framework with the more ambitious targets.
In terms of the climate objective, business activities should significantly avoid or reduce emissions of greenhouse gases or increase greenhouse gas removals through the generation, transmission or use of renewable energy. Investments in the expansion of electrical grids or the more intensive and environmentally sound use of carbon capture and storage (CCS) are also considered taxonomy-aligned.
1 "It follows from this that the waste incineration for energy recovery can certainly contribute to the achievement of the environmental objective ‘transition to a circular economy’ pursuant to Article 9 d) and the environmental objective ‘climate change mitigation’ pursuant to Article 9 a) as well as the environmental objective ‘pollution prevention and control’ pursuant to Article 9 e) and can thus be considered sustainable pursuant to Article 3.” .
Using efficient combined heat and power (CHP), operators of waste-to-energy plants use non-recyclable waste with an average biogenic share of at least 50 per cent as feedstock to produce energy in the form of electricity, heat and process steam,. In this way, the operators not only substitute large volumes of fossil fuels, they also reduce the greenhouse gas emissions that would otherwise be caused by the landfilling of untreated municipal waste.
In compliance with strict legal requirements, thermal waste treatment facilities generate low-carbon energy that can meet base load demand in the form of process steam for industrial plants, district heating for residential areas and environmentally-friendly electricity. Waste-to-energy plants are operated as CHP plants and make an important regional contribution to realising the energy transition. In 2019, electricity generated from waste accounted for around 1.5 per cent of the total gross electricity production in the European Union. The share of district heating generated from waste was about 11 per cent of the total gross heat generated. Regional heat and steam production is growing rapidly and makes an important contribution to the energy transition and therefore to the EU’s climate goals.
There is enormous potential for climate change mitigation. If the EU introduced a strict landfill ban and entirely phased out the landfilling of untreated municipal waste by 2030, furthered strengthened recycling and thermally recovered the unavoidable residual waste arisings, the EU could avoid around 283 million tonnes of CO2 equivalent each year. This was the finding of a recent study carried out by the consulting firms CE Delft and Prognos on behalf of the associations FEAD, CEWEP, DWMA and RDF Industry Group . That figure is equivalent to 7.5 per cent of the EU’s total emissions – or the volume of greenhouse gases emitted in one year by the EU member state Poland . Additionally, operators of thermal waste treatment plants are preparing to invest significant sums in innovative carbon capture and utilisation measures in the near future.
Objective 2: Climate change adaptation
Climate change is already happening. Mitigation measures can now merely limit the change to keep it within a range bearable for humans. Adaptation to climate change is therefore at least as important as mitigation and is thus rightfully defined as one of the taxonomy’s environmental objectives. Business activities relating to climate change adaptation aim to significantly reduce the negative impacts of climate change.
Climate experts anticipate more extreme weather events as one of the consequences of climate change. Western Europe is expected to experience significantly more frequent torrential rainfall and flooding, as occurred in parts of North Rhine-Westphalia, Rhineland-Palatinate and Bavaria in Germany in 2021 .
Severe rain events and disastrous flooding can generate huge volumes of waste which must be disposed of quickly to prevent the outbreak of diseases. Due to the moisture content and contamination of the waste, it is not suitable for recycling. Following the catastrophic flooding in Germany in 2021, operators of thermal waste treatment plants in the country safely managed around 1 million tonnes of additional waste and thus helped to quickly deal with the aftermath of the catastrophe. Waste-to-energy plants are therefore a fundamental component of services in the public interest and are rightly classified as critical infrastructure, so they should be part of every strategic plan for climate change adaptation.
Objective 3: The sustainable use and protection of water and marine resources
Our water bodies and oceans are considered goods deserving of protection under the taxonomy. Companies that want to conduct business in alignment with the taxonomy contribute with their activities to achieving good water conditions or preventing the deterioration of existing good conditions. In addition, protecting human health from the adverse impacts of water pollution and improving water efficiency are included under the taxonomy.
Thermal waste treatment facilities prevent untreated, non-recyclable waste from being sent to landfill. When plastic-containing waste is sent to landfill, it can be washed away by rain or drift into European water bodies and thus pollute the world’s oceans. Landfills also pose a pollution risk to increasingly valuable groundwater supplies.
Besides municipal waste, sewage sludge is also becoming an important – and indisputably climate-neutral – material stream for thermal recovery plants. Thermal treatment eliminates the microplastics contained in sewage sludge, which would otherwise be widely distributed in the environment through agricultural recovery methods. Downstream phosphorus recycling after thermal treatment enables pollutant-free fertiliser to be produced with the targeted addition of nutrients. This prevents eutrophication of water bodies without reducing agricultural yields.
Objective 4: The transition to a circular economy
The circular economy is a cornerstone of climate action and a core strategy that leads to more prudent management of our resources, without sacrificing prosperity and economic growth. The circular economy, waste reduction, reuse and recycling therefore play a fundamental role in the taxonomy.
Companies operating in alignment with the taxonomy use natural resources efficiently. This includes measures to increase the efficiency of resources and energy as well as the durability, repairability, upgradability and reusability of products, especially in their design and manufacturing. A further criterion is the recyclability of products, including the individual materials contained within the products.
Rather than hampering recycling, thermal waste recovery enables high-value recycling by acting as a pollutant sink. Without an outlet for the non-recyclable components that are polluted with hazardous substances, waste management firms and recyclers could not achieve the recyclatequality that industrial customers demand. If waste that is unsuitable for material recycling cannot be thermally treated, it must be sent to landfill – with all the consequences this entails, including for the climate and water protection.
Moreover, thermally recovered waste is not just unproductively incinerated: Ferrous and non-ferrous metals are recovered from the incinerator bottom ash. In 2019 alone, processors recovered around 500,000 tonnes of ferrous and non-ferrous metals from the bottom ash of thermal waste treatment facilities, thus substituting metals produced from crude ores, which require significant energy and raw materials . Other residues are used to substitute natural raw materials for backfilling in mines or to replace primary mineral resources in road construction. Moreover, in sewage sludge mono-incineration, phosphorus is recovered in a downstream process.
In addition, waste-to-energy plants can use captured CO2 along with hydrogen to synthesise methane, which can be used for e-fuels. Supplying carbon dioxide as a chemical feedstock can likewise play a decisive role in transitioning to a sustainable circular economy.
Objective 5: Pollution prevention and control
Another key environmental objective of the taxonomy is pollution prevention and control. Corporate activities in this area avoid or – if this is not practicable – reduce pollutant emissions into air, water and soil. Moreover, they prevent or minimise the adverse impacts of the production, use and disposal of chemicals on human health and the environment. Thermal waste treatment contributes significantly to the sanitisation of the environment and protects both human health and the environment. Waste-to-energy not only prevents uncontrolled burning and landfilling of waste, it also destroys the organic pollutants contained in waste and concentrates heavy metals, such as mercury, in the residues to enable safe disposal.
It is important to stress that the entire waste sector along the waste hierarchy contributes to climate protection by keeping waste out of landfills and thus saving millions of tonnes of greenhouse gas emissions every year. Landfill gas is not only a climate problem, as the bacteriological and chemical decomposition of organic components creates methane (around 50 per cent) and carbon dioxide (around 40 per cent). Landfill gas also contains numerous different trace elements, which can be harmful to health, even at low concentrations.
Objective 6: Protection and restoration of biodiversity and ecosystems
Protection of biodiversity is a much-discussed topic in expert circles but is not as prominent in public awareness as it should be given its importance. The European Commission therefore rightfully declared protection and restoration of biodiversity and ecosystems as one of the taxonomy’s environmental objectives. According to the Commission, company activities should lead to the conservation of ecosystems and biodiversity, for example by maintaining a "good conservation status” of natural and semi-natural habitats and species. This also includes the sustainable use and management of soil as well as agricultural practices that contribute to improving biodiversity or preventing deterioration of soil quality.
Thermal waste treatment plants protect soils because they prevent untreated municipal waste from being sent to landfill. As a result, no pollutants are washed away by rain into soils, while habitat for flora and fauna as well as human settlement areas are preserved. Moreover, thermal treatment of sewage sludge can play an important role in protecting soil because sewage sludge containing pollutants is no longer widely distributed into nature via agriculture.
3. Current risks and unfavourable developments if taxonomy does not include waste-to-energy
Thermal waste recovery is important to mitigate climate change and protect the environment in Europe. It is urgently needed in the EU to achieve the objectives of the Green Deal. If thermal waste recovery is excluded from the taxonomy in the next delegated act as well, this will create numerous risks for operators of waste-to-energy plants.
Situation in Europe
Along with waste separation and recycling, waste-to-energy plants are essential to prevent the ecologically harmful landfilling of untreated municipal waste. Landfilling is still practised in many member states, where it is the dominant form of waste management. Of the 225 million tonnes of municipal waste generated annually in Europe, around 52 million tonnes are still sent to landfill without prior treatment.
To deal with certain types of waste, there are still no alternatives that are more sustainable than thermal treatment. At the same time, the use of waste heat and the reclamation of recycled metal and mineral resources contribute to climate change mitigation and resource conservation .
Despite major environmental benefits, access to capital could become more difficult
The failure to include waste-to-energy in the taxonomy will have numerous negative effects, with the likely result being that European potential for wte plants remains untapped and landfilling continues in the medium to long term. Companies that do not meet the criteria could be subject to tougher (re-)financing conditions or find their access to financing completely blocked. At the same time, insurance premiums for waste-to-energy operations could increase. But even the companies that meet the criteria could be regarded with general suspicion and might experience disadvantages.
It is already clear that European and national funding programs will be aligned with the taxonomy criteria. References to the taxonomy can also be expected in future legislation . One potential consequence of this is that companies in southern and eastern Europe in particular might find it harder to make the necessary investments to achieve the objectives of the circular economy. As a result, the EU would prevent an important player in the circular economy – not only in these regions – from contributing to the achievement of the climate and resource protection targets. This would result in millions of tonnes of unnecessary CO2 and methane emissions.
Delayed decarbonisation projects
There are fears that necessary investments in sustainable waste recovery would not be made because the capital market is redirecting financial flows to other industries. This could slow the expansion of treatment capacity and delay or even prevent important measures to reduce emissions at new and existing plants. This would also penalise the expansion and operation of thermal waste treatment plants in the member states and significantly weaken competitiveness.
4. Alternative investments: Green Bonds
In contrast to the European Commission’s taxonomy, the International Capital Market Association (ICMA) included waste-to-energy in the list of green projects eligible for the global Green Bonds market due to its essential contribution to a sustainable circular and energy economy. As a leading company in the European thermal waste treatment sector, EEW has already set a precedent on the capital market as the first company from this industry to issue a Green Bond, in June 2021.
EEW impressed the international capital market with its sustainable business model and the EEW Green Financing Framework, which is aligned with recognised market principles for green investments, and thus established the foundation for building trust with investors. The sustainability ranking agency Sustainalytics confirmed that EEW’s Green Financing Framework aligns with the basic components of the Green Bond Principles, that the projects financed with the proceeds from the Green Bonds will have positive effects on the environment and that EEW’s business operations are sustainable. Moreover, Sustainalytics confirmed the EEW Green Financing Framework was compatible with the company’s overall sustainability strategy and the green categories for use of proceeds would contribute to promoting the UN Sustainable Development Goals.
With the Green Financing Framework, EEW can issue green bonds, green promissory notes and borrow green loans and use the proceeds to finance suitable green projects. These can range from environmentally sound thermal recovery to the production of renewable energy. The capital market thus sent a clear signal that thermal waste recovery is an important and appropriate technology for Germany’s path to climate neutrality by 2045.
With its issuance of a 6.6 times oversubscribed Green Bond, EEW raised €400 million on the capital market last year to (re-)finance sustainable projects. One-quarter of the investors are "green investors” according to Environment Social Governance (ESG) estimates. The capital market thus confirms that EEW is a company that is not only committed to sustainability but also actually operates a sustainable business model.
5. Necessary regulatory framework
Inclusion of thermal waste recovery in EU taxonomy
A results-oriented taxonomy can advance sustainable financing in Europe and simultaneously set international standards. To achieve this, however, all players that meet the environmental criteria must also be part of the solution. As they contribute to the environmental objectives set out in the taxonomy, waste-to-energy plants should be considered "sustainable per se” and the energy they generate should be classified as "green” energy on a proportional basis.
Moreover, the Taxonomy Regulation was not designed or adopted to serve as a general yardstick or a minimum standard to be applied in other EU legislative acts or as a benchmark for public funding.
Even the German government argued in March 2021 in its comment on competition policy to support the European Green Deal that the taxonomy must not lead to exclusion from state funding despite adherence to legal regulations.
Promoting investments and use of BAT
It is urgently necessary to exhaust all possibilities to achieve the goal of greenhouse gas neutrality. To this end, the certainty required for planning and investments in the EU economic region should be formalised in a European growth and innovation strategy. The basic prerequisite for this is the promotion of innovative technologies that will transform energy-intensive industries. These include decarbonisation measures, the expansion of renewable energy and a green hydrogen strategy.
The revision of the Industrial Emissions Directive (IED) as part of the Zero Pollution Action Plan offers a chance to ensure compliance with best available techniques (BAT). As the main instrument to regulate emissions of pollutants to air, water and soil, the IED already successfully implements rules for the majority of large-scale industrial plants in the EU. For example, air pollutant emissions by waste-to-energy plants today are seven times lower than 20 years ago.
The DNSH criteria for the prevention and reduction of environmental pollution should be based on the BREF reference document for the BAT for waste incineration (WI BREF) because WI BREF lays down the current environmental standards for the incineration and co-incineration of waste. This would guarantee a level playing field for all alternative waste incineration pathways, for example, in the cement industry.
Nevertheless, the evaluation of companies’ sustainability should not be focused on fixed thresholds. Since the overarching goal is to protect the environment, the evaluation must take into account the positive and negative aspects of circular economy processes, including energy consumption. Only in this way can the life-cycle greenhouse gas emissions of the various processes (e.g., chemical recycling) be compared with each other.
Further development of the Waste Shipments Regulation
The EU waste shipments legislation should support the transition from a national to a European approach to waste management. The European Commission’s recent proposal to amend the Waste Shipments Regulation (WSR) supports in parts the pivot away from landfilling. A ban on waste shipments destined for disposal within the EU ensures future improvements in the material recycling or energy recovery of waste.
To ensure that the WSR fosters a sustainable waste sector based on the best treatment options and the landfilling of untreated municipal waste in Europe is gradually phased out in accordance with European legislation, ITAD (among others) recommends, in addition to the inclusion of the industry in the taxonomy, transitioning from a national to a European approach to waste management. For this to occur, appropriate framework conditions must be created within EU law for the existing and necessary new treatment capacities.
Strict landfill ban needed much earlier
The primary aim must be to end the landfilling of untreated municipal waste in the EU as quickly as possible. The current plans to reduce landfilling of municipal waste to 10 per cent by 2035 (and in exceptional cases as late as 2040) is not sufficient to achieve the EU’s ambitious climate targets. If the EU continues to allow waste to be sent to landfills, even the planned elimination of EU funding for landfill construction will not be sufficient to put a stop to landfilling in the member states in the medium term and provide impetus for sustainable and climate-friendly alternatives.
As previously mentioned, around 52 million tonnes of municipal waste are still sent to landfill each year in the EU, particularly in eastern and southern Europe. This releases CO2 and methane. The European Commission must take action here and utilise the savings potential offered by waste-to-energy. This will only succeed with a European circular economy system that enables waste volumes to be transported between EU member states to already existing plants. This would also prevent lock-in effects and illegal waste tips. In addition, increased use of recyclate would lower demand for landfill capacity.
Energy in the form of electricity, district heating and process steam generated by the thermal treatment of non-recyclable waste is green energy. In the past, energy generated by waste incineration was seen as a by-product, since waste disposal was the primary aim. Today, the focus is on further improving the provision of electricity and heat from waste combustion by efficiently pairing production and individual demand via various sectors .
Waste is an essential component of the energy mix for a sustainable and reliable energy supply. Non-recyclable waste has a high energy content, making it virtually predestined for energy generation. EEW’s technically sophisticated and highly efficient thermal waste treatment plants optimally exploit the energy potential of the waste. A large majority of the plants work with CHP technology. This means that the steam can not only be used for power generation, it can also be fed into the district heating grid as needed and supplied to industrial companies as process steam.
With the first delegated act on climate taxonomy, the European Union has established which economic activities should be classified as environmentally sustainable. The capital market is now also integrated into the European Green Deal.
In the European Commission’s most recent delegated act, thermal waste recovery is not yet formally part of the taxonomy. Nevertheless, EEW, as a leading player in the European thermal waste recovery segment, is already active on the capital market and was the first company from this sector to issue a Green Bond in June 2021.
EEW impressed the international capital market with its sustainable business model and the EEW Green Financing Framework, which is aligned with recognised market principles for green investments. This confirmed that thermal waste recovery is an important and appropriate strategic lever for Germany’s path to climate neutrality by 2045.
EEW debuted on the capital market with the issuance of a €400 million Green Bond and received clear feedback from investors that all business areas and the corresponding projects contribute to climate and resource protection and correspond to the UN climate goals. Therefore, it is reasonable and necessary to include thermal waste recovery in the taxonomy with reference to the six environmental objectives.
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Dr Joachim Manns
Chief Operating Officer (COO)
EEW Energy from Waste GmbH
Schöninger Str. 2–3
38350 Helmstedt, Germany
+49 5351 18-2327
published: , 7|2022
Keywords: Policy Tax Instruments, EU