Analysis of the impact of the EU Taxonomy on investments in District Heating

Abstract

If policy meets its intended goals or not is important in the context of energy transition. We explore if a policy, the EU Taxonomy, designed to foster green investments, meets its intent. We built an overall understanding about the EU Taxonomy by reviewing literature and EU Taxonomy documents. Additionally, we test constraints from the EU Taxonomy on CO₂ emissions and on new investments in fossil fuel-based technologies on a case study (district heating: DH). We find that the EU Taxonomy is complex, open to interpretation and that the policy maker needs to build capacity in the economic activity of DH. We also identify that future EU Taxonomy changes to DH activities need to be well thought through and tested as they can have negative impact on investment appetite in DH as well as lead to investments with minor sustainability additions. We also find that in terms of policy focus, the EU Taxonomy is policy output oriented rather than targeting to reshape financial structures to support energy transition, which is troublesome to foster DH investments. A major conclusion is that the EU Taxonomy can have the intended effect in some DH markets, but it can also be redundant in others.