Nuclear power has long been a topic of often heated debate. Although it remains a meaningful component of the global energy mix, accounting for about 10% of electricity production worldwide,1 some doubts about its sustainability remain. In July 2022, the European Commission took the decision to include nuclear power, along with natural gas, in the European Union’s Environmental Taxonomy. This is a list of economic activities that the Commission deems to be environmentally sustainable, which was developed alongside the EU’s Sustainable Finance Disclosure Regulation (SFDR).2 Unsurprisingly, the ruling generated some controversy: critics labelled it ‘greenwashing’ due to concerns over waste storage and related environmental impacts, and suggested it could undermine the transition towards greener energy systems. Meanwhile, advocates of nuclear see it as an important way of smoothing the bumpy path towards a lower-carbon economy – and a potential element of a low-carbon grid. In this article, we examine the arguments both for and against nuclear as a transition fuel, the rationale for its inclusion in the EU Taxonomy, and potential implications for investors.
A reliable source of energy in volatile times
The transformation required to decarbonise the world’s energy systems in line with commitments from more than 70 countries to reach Net Zero by 2050 is no small undertaking at the best of times. With global energy demand forecast to increase by 50% by the same 2050 deadline, and the ongoing conflict in Ukraine raising concerns about energy security, there is a need to ensure continued energy availability if the transition is to be successful. Renewable energy alone cannot currently meet demand, and as inherently intermittent sources of supply, renewables need to be supported by baseload power – the fewer renewables, the more baseload needed. In this context, existing nuclear plants can provide a reliable source of power which helps to weather energy supply volatility. This is one of nuclear power’s main advantages as a component of the transition – which will be challenging enough without eliminating a major source of efficient low-carbon power – and part of the reason why nuclear is included in a number of global scenarios for reaching Net Zero.
Crucially, nuclear is clearly a low-carbon source of electricity. It easily meets the European Commission’s screening criteria requirement of emitting under 100g of CO2 per kWh during the energy generation phase.3 Average lifecycle greenhouse gas emissions for nuclear have been found to be comparable to values for wind, solar and hydropower. As a result, the European Commission’s expert group described nuclear power’s contribution to the Taxonomy objective of climate change mitigation as ‘extensive and clear’.4 There is even some potential for nuclear power to act as a credible long-term solution, as a permanent fixture in a low-carbon economy. Some estimates suggest that up to 3.69Gt of GHG emissions – about the same as the total GHG emissions of India, Germany and South Korea combined5 – could be avoided between 2020 and 2050 in a scenario where nuclear continues to make up a proportion of the global energy mix.6
Finally, the conclusion from the European Commission’s expert groups was that they did not find any evidence of nuclear power doing more harm to human health or to the environment than other electricity production technologies already included in the Taxonomy as activities supporting climate change mitigation. Concerns over nuclear power’s safety are not unfounded: damage wrought by nuclear accidents has been extensive, and this has understandably contributed to significant public wariness around the energy source. However, despite its persistent association in the public imagination with high-profile nuclear accidents such as those at Chernobyl, Fukushima and Three-Mile Island, nuclear power ultimately has one of the lowest overall fatality rates when compared to other energy sources. Fatalities at nuclear power plants were found to be much fewer than any fossil fuel-based method of electricity production, comparable to those associated with solar.7 In practice, only Generation III reactors – incorporating severe accident prevention and mitigation – are now being commissioned and constructed.
The case against
The environmental case against nuclear power largely relates to potential adverse environmental impacts and the long-term storage of high-level waste. This is the main rationale behind accusations of ‘greenwashing’ following the inclusion of nuclear in the EU Taxonomy. Environmental concerns centre around issues such as thermal pollution of lakes and rivers, inappropriate site selection and land use, and the mining, milling and reprocessing of uranium for nuclear fuel – given that the fuel supply chain is responsible for more than 60% of the climate change impact of nuclear power.8 These concerns can largely be managed and mitigated through appropriate regulation and oversight of nuclear plant construction and operation – but they are important considerations to bear in mind nonetheless. In addition, the fact remains that regardless of attitudes towards nuclear, there are often very high costs associated with the financing and construction of power plants – which reduce its viability as a generalised energy source and potentially its attractiveness as an investment.
What does this mean for investors
The recent track record of new nuclear plants builds has been characterised by significant budget overruns and missed deadlines. The three newest nuclear projects in Europe – Flamanville in France, Olkiluoto in Finland and Hinkley Point C in the UK– have all taken longer to build and cost more than originally anticipated. The incentives for investors to allocate capital to unwieldy and unpredictable projects of this kind is reduced as a result. With that said, new nuclear power plants offer a potentially stable earnings stream under a regulated model, which when coupled with a long asset life may make them somewhat more attractive than existing plants, which have more volatile earnings and will be decommissioned sooner. One key question is whether new nuclear construction has a logical place in a country’s electricity grid, and whether targeted government support might therefore reduce the cost of financing to more manageable levels. Indeed, new nuclear development would likely require significant and unequivocal government support in order to be genuinely viable, given the increased level of risk that arises from conflicting views on nuclear. Opportunities for investment in the nuclear power value chain – for example, in continued research into waste storage solutions – may also be a possible route, given that a range of these related activities are also covered under the transition provision in the EU Taxonomy. Ultimately, the poor financial track record of recent nuclear projects does not inspire confidence in a case for direct investment, but we recognise the regional nuances and possibilities for nuclear to play a role in energy system decarbonisation in arenas other than Europe.
Moreover, the question of nuclear waste storage has not been entirely resolved. Spent fuel and high-level waste contain long-lived radionuclides which can remain radioactive over 100,000 years or more.9 The broad consensus is that final disposal in deep geological repositories is the most effective and safest feasible solution to ensure no significant harm to human life or the environment. This requires a stable geological formation several hundred metres below ground level. However, today we do not have a real-life example of a waste facility that spans this entire foreseen timespan, although close experimental approximations suggest such a solution would be sufficient. Continuing innovation, for example around increasing the recyclability of spent nuclear fuel, reducing the radiotoxicity of high level waste, and installation of geological storage facilities, may make it possible to address this issue. As of yet, though, we are not at a stage where the considerations around nuclear waste storage have been addressed to universal satisfaction.
Concerns around adverse impacts mean that nuclear risks falling foul of the Do No Significant Harm (DNSH) criterion of EU SFDR, which states that an economic activity – even if deemed sustainable – cannot be defined as such if it is found to undermine any other Taxonomy objective. Due to these reservations, the European Commission’s expert group ultimately found themselves unable to immediately recommend the inclusion of nuclear power in the Taxonomy. At the European Commission’s request, a second report into the DNSH aspect of nuclear power, by the Joint Research Centre (JRC), produced another set of detailed conclusions which were generally positive towards the case for nuclear with regards to DNSH principles.
Nuclear power’s role in the Taxonomy is to support the transition, not to be the centre of it
The EU’s Taxonomy Regulation lays out three categories of sustainable activities: low-carbon, transitional and enabling. It’s important to note that nuclear power is being considered as a transitional energy source, contributing to the Taxonomy objective of climate change mitigation. The EU’s idea is that it can help to bridge the gap between a fossil fuel- and renewables-based energy system, facilitating the deployment of renewables whilst not hampering their development. As such, its inclusion in the Taxonomy is apparently intended to be for a limited time only: no new nuclear power plant projects will be approved after 2045 – although plants in operation by this date can continue to run until they are decommissioned.
Nuclear power will also be subject to specific conditions, outlined in a set of screening criteria proposed by the European Commission and encompassing a wide range of requirements relating to detailed decommissioning plans, comprehensive safety reviews, secure waste disposal and strict local regulatory adherence, among a number of other aspects. The regulation is clear that, whilst contributing to the objective of climate change mitigation, nuclear power cannot be found to do significant harm to any of the Taxonomy’s other five environmental objectives. Its role in the transition, from the European Commission’s perspective, is to be a supporting player in a shift to renewables, and not the main act.
Nuclear power is already a significant part of the electricity mix in some European countries. France has embraced it as a source of power, relying on it for up to 70% of its electricity generation,10 and the UK is hoping to further increase its capacity – up to 25% of total electricity generation11 – with a number of large-scale projects in the pipeline. The EU’s green stamp of approval for nuclear may also lead to some expansion of the opportunity set for sustainable investors in Europe. Already, we’re seeing the emergence of ‘nuclear green bonds’ whereby energy providers are looking to finance nuclear projects with money earmarked specifically for green undertakings.
But nuclear power’s impact on the overall sustainable investment market is likely to be low for the time being. Although the path to financing for nuclear projects is clearer than before, views on nuclear power and its sustainable credentials remain divided. In particular, Germany largely maintains its historically strong opposition to the power source, and many investors will share that opinion. For those who want to consider including nuclear as part of a sustainable allocation, the options will expand – but since many asset managers operate according to in-house exclusion frameworks and investor preferences, the Commission’s decision won’t necessarily result in changes unless investors want it to. Going forwards, transparency around how and why asset managers may be including nuclear in their portfolios, and how they are engaging with companies around the relevant issues, will be key.
Views are hard to reconcile, and likely to stay that way
Ultimately, whilst there is clear evidence to support the argument for nuclear power’s place in the energy transition – and therefore in the Green Taxonomy – there are also valid points against. Nuclear power may be one of the most effective solutions at our disposal to help make the vital transition to a low-carbon economy and mitigate the increasingly destructive effects of global warming. The rigorous legal framework around nuclear power as an energy source that the European Commission has produced is a reassuring safeguard and best-in-class model. However, nuclear is unlikely ever to be completely uncontentious – and it should not become a distraction from the need for investment in renewables and other routes to energy system decarbonisation.
2 Link to Understanding SFDR webpages
3 United Nations Economic Commission for Europe, ‘Life Cycle Assessment of Electricity Generation Options’ (2021)
4 European Commission Technical Expert Group
5 Global Carbon Atlas
6 Project Drawdown
7 JRC Technical Assessment of nuclear energy with respect to the ‘Do No Significant Harm’ criterion of regulation (EU) 2020/852 ‘Taxonomy Regulation’ (2021)
8 United Nations Economic Commission for Europe, ‘Life Cycle Assessment of Electricity Generation Options’ (2021)
9 JRC Technical Assessment of nuclear energy with respect to the ‘Do No Significant Harm’ criterion of regulation (EU) 2020/852 ‘Taxonomy Regulation’ (2021)
10 World Economic Forum
11 UK Energy Security Strategy (April 2022)