The European Commission has made changes to proposed investment criteria for hydropower as part of a new regulatory regime for sustainable finance, with the move welcomed by industry body the International Hydropower Association (IHA).
The update to EU Taxonomy Climate Delegated Act, a classification system for environmentally sustainable economic activities, means it is now aligned with hydropower sector good practice requirements described in the Hydropower Sustainability ESG Gap Analysis Tool, compliance with which is necessary to secure green bond financing through the Climate Bonds Initiative. The update comes after IHA and other respondents raised concerns with the proposed requirements as originally drafted.
“This welcome update means that the EU Taxonomy, Climate Bonds Initiative, International Finance Corporation and World Bank requirements for infrastructure are all now aligned with the Hydropower Sustainability ESG Gap Analysis Tool,” said Eddie Rich, Chief Executive of IHA. “In practice, this means that hydropower projects that commission an assessment using the tool can now demonstrate alignment with all of these classifications.”
The criteria for hydropower are now more context specific. Run-of-river plants or plants with a power density above 5W/m2 will not have to undertake a life cycle based GHG emission assessment to prove that they comply with the 100g threshold. Plants with a reservoir and a power density below 5W/m2 will have to confirm that they meet the threshold.
Importantly, the Act also now recognises all types of pumped storage hydropower as making a substantial contribution to climate change mitigation.
According to the European Commission, these changes achieve a better balance in protecting the environment, while promoting hydropower and avoiding excessive administration.