EU Taxonomy: Sustainable financing risks for Business aviation
The EU Taxonomy is set to open a new chapter in the history of sustainable financing in Europe. In this article, we aim to unpack the Taxonomy framework and reflect on its risks for the Business aviation sector.
As part of the objective to channel more money into green projects, the EU is expected to exclude the Business aviation sector from the sustainable finance classification system under EU Taxonomy. If adopted, this could mean unfavorable lending conditions from financial institutions to essential economic activities that are crucial to our commitment to reach net-zero emissions by 2050.
What is EU Taxonomy?
The EU is currently negotiating rules on the long-term future of environmentally sustainable financing of different economic sectors and their activities, including the aviation sector. The EU executive is planning to forge rules around the so-called Taxonomy framework mechanism which is part of the objectives of the EU Green Deal. The EU Taxonomy is a classification system that helps companies and investors identify “environmentally sustainable” economic activities to make sustainable investment decisions. If excluded from the system, it is feared that banks and other investors will define green investments differently for that particular activity (they will need to simply apply the new rules) and this could mean unfavourable interest rates or even no green financing.
Environmentally sustainable economic activities officially described in the text are those which “make a substantial contribution to at least one of the EU’s climate and environmental objectives, while at the same time not significantly harming any of these objectives and meeting minimum safeguards.” In fact, the law on Taxonomy already entered into force, but the list of activities that can be eligible are being updated now in so-called Delegated Acts.
As an example from other parts of the transport sector, one of these Delegated Acts already classifies the assembly of zero-emission cars, vans and trucks as sustainable. That means car manufacturers which piece everything together, then market and deliver a finished vehicle, would get a green label for those activities. Most car manufacturers fall under this label as part of their commitment to achieving net-zero emissions by 2050.
Current state of play regarding the aviation sector
When it comes to the aviation sector, the picture seems more blurry. First of all, the Act concerning aviation is still under heavy negotiations and will certainly be for at least until the end of the year. Secondly, it looks like the aviation sector doesn’t get the same ‘preferential treatment’ as the car industry and third, business aviation is decoupled from the rest of the aviation sector in the currently drafted rules.
The European Commission released the draft Delegated Act on 5 April, which ultimately excludes Business aviation from the framework without any reasoning nor proper legal definition of Business aviation existing in EU legislation. The text focuses on aircraft manufacturing as the economic activity and states that, in addition to the production of zero emission electric/hydrogen aircraft or aircraft operated with a very high level of Sustainable Aviation Fuel (SAF), only “aircraft not intended for private or commercial business aviation” fall within the Taxonomy’s scope for being considered a green investment.
On the other hand, climate groups argued heavily for the whole aviation ecosystem to be excluded. The draft Delegated Act was released for public feedback recently, to which EBAA extensively contributed, voicing the key role of Business aviation in decarbonising the aviation industry.
EBAA Action and next steps
EBAA advocates in Brussels that the Delegated Act must acknowledge the positive value of Business aviation as a catalyst for innovation in the aviation industry, since discriminatorily excluding our strategic ecosystem from the framework would seriously harm the competitiveness of European business aircraft manufacturers, operators, and all the companies in the value chain. We voiced our rejection of the current text and for the reinstalment of Business aviation in the scope of taxonomy together with GAMA by addressing letters to the European Commissioner in charge of the file, consulting heavily with DG MOVE (the Commission’s transport directorate) and participating to the recent public consultation procedure. Here, we argued that such an exclusion targeting a specific sector of a broader industry is unprecedented in the EU Taxonomy for any other transport mode and is unjustified.
The Commission is due to adopt the Delegated Act very shortly, which will then be sent to the Council of the EU (Member States) and the European Parliament. They have 6 months to reject or approve the text (without the possibility of amendment). EBAA will continue monitor these crucial legislative steps, promptly informing the membership as soon as a clearer picture emerges.