EU Decision on Green Taxonomy on Natural Gas Damage Risks

Press release – February 10, 2022

EU decision on green taxonomy for natural gas risks hurting renewable energy investment

Following the European Commission’s decision to include natural gas in the EU green taxonomy, an EDHECinfra research note, “The Cost of Capital of Brown Gas”, argues that natural gas already has a very attractive cost of capital, and this decision could have unfavorable consequences for investing in renewable energies.

In a new research note, “The cost of capital of brown gas”, EDHECinfra shows that excluding natural gas production from the EU green taxonomy would not increase its cost of capital and therefore create no risk of underinvestment in natural gas, the ‘fuel transition’ of choice. Conversely, the inclusion of gas in the Green Taxonomy creates a real price distortion and a perverse incentive to limit future investments in renewable energy technologies.

Without coal and with limited and unreliable renewable energy, natural gas is now the “producer of last resort”: it is a very attractive option, and its cost of capital should be low. Indeed, it has happened before: natural gas is doing perfectly well in terms of earnings and dividends. The past five years have been bumper years and the cost of capital for these gas producers is already at historic lows. Even though renewable energies have developed, investments in fossil fuels are doing very well. The comparison of the profitability of coal, gas and renewable energy projects in Europe over the last five years shows that renewable energies in Europe are the most profitable but also that gas-fired electricity projects have experienced a significant increase in their profitability, while such as coal projects.

Frédéric Blanc-Brude, Managing Director of EDHECinfra, said: “The cost of capital for gas projects in Europe has been close to its lowest levels in recent years. There is therefore no reason to assert that the gas “must be green” so that we have enough investment in “transition fuels”. Everything indicates that gas is already able to secure all the capital it needs. Conversely, by saying gas is green, you can slow down investment in renewables, including energy storage, and make gas even more valuable.”

The research note:

The cost of brown gas capital, EDHECinfra publication, January 2022

EDHECinfra will organize a short webinar (20 minutes) on February 17 to discuss this research note. Record:

WEBINAR: Would excluding natural gas from the green taxonomy prevent funding transition fuels? February 17, 2022, 9:30 a.m. in London

About EDHEC Infrastructure Institute Singapore (EDHECinfra):
EDHECbelow, a company of the renowned international business school EDHEC, is a provider of index data, benchmarks, analysis and research for investors in the universe of unlisted infrastructure. We have built the largest and most representative database of underlying infrastructure investments in the world. The indices we provide help investors measure the risk-adjusted performance of private infrastructure debt and equities within their portfolios. Our indices use the latest market information to measure the fair value of thousands of unlisted debt and infrastructure stocks in 25 countries. We can also create custom benchmarks for individual investors who need specific TICCS® slants in their portfolio benchmark. Our Research Center, a team of experts who create and maintain our indices, is based in Singapore. We also have a business center in London to serve the financial community in Europe and North America.