FOSSIL GAS IN
TAXONOMIES:
WHAT LIESBENEATH

Prepared by the Climate Bonds Initiative
Fossil gas in taxonomies: what lies beneath Climate Bonds Initiative

1

Key messages• Recent studies confirm that fugitive emissions fromfossil gas operations double the lifecycle emissions of fossil
gas-fired generation, when correctly calculated, making its
climate impact comparable to that of oil- and coal-fired generation.
• Most green or sustainable taxonomies do not consider
any hydrocarbon-related activities to be green or sustainable.
Where fossil gas electricity generation is included, it is generally
subject to rigorous carbon intensity thresholds and its use limitedby time constraints.
• Compliance with the EU criteria for fossil gas generation
renders the creation of a new power plant economicallyunviable when compared with existing alternatives in the field of
renewable energy.

Fossil gas and energy transition
In 2023, global methane emission
levels in the atmospherereached record highs, at morethan two and a half times theirpre-industrial level.1 One of the
major causes identified was theincreased extraction, transportation, and utilisationof fossil gas, which cause unintended and often
significant leakages of methane (fugitive emissions)
across the supply chain. Recent studies put the
average US leakage rate between 1.4% and 3.7%.2
In Canada, the fugitive emissions rate is at least
2.7%, which is double that previously thought.3
Satellite detection of fugitive emissions via
continuous monitoring of oil and gas operations

on a global scale confirms that methane emissions
are much higher than previously reported.4 Adding
fugitive emissions to the life-cycle assessment ofenergy-generation emissions intensity significantly
changes the profile for fossil gas-based generation.5
While a modern combined cycle gas turbine(CCGT) plant has an average emissions intensityof 360–380 gCO2e/kWh, the addition of just 3%
of fugitive emissions makes fossil gas generation
almost comparable in its greenhouse potential tocoal.6 Research conducted by a consortium of US
scientists found that on a 100-year timeframe, theeffects of life-cycle GHGs from fossil gas with anapproximate 5% leakage rate are on a par with lowmethane content coal mines, and 7.6% leakage ison a par with average coal mine methane leakage.7

In 2022, Climate Bonds Initiative(Climate Bonds) released Accelerating
the Fossil Gas Transition to Net-Zero to
draw attention to the hidden danger
within fossil gas operations; methane,
which threatens the energy transition andclimate goals of the Paris Agreement.9 The
policy paper demonstrated how fossil gas,
which mostly consists of methane, cannot
be called a credible transition fuel and mustbe phased out to avoid the catastrophic
consequences of the worst climate-change
scenarios. The paper provided a sciencebased examination of the risks and hidden
emissions of fossil gas infrastructure
and investments, providing key policy
recommendations on how these risks can
be avoided. It also identified that methane
emissions from the energy sector were
70% higher than official figures and called
for urgent leakage mitigation measuresin all fossil gas operations. These findings
have been confirmed by further researchand studies since then, whichhave putthe extent
of methane
emissionseven higher.10

Figure 1. Average lifecycle CO2 equivalent emissions by energy type, gCO2/kWh
Hard coal

Hydro

Nuclear

1000

Average for each emission type
Natural gas

Hard coal

Natural gas

Emission intensity range

CSP

PV

Wind

800

Emission intensity

600
400
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Source: Volker Quaschning

Fossil gas in taxonomies: what lies beneath Climate Bonds Initiative

2

The consequences of fugitive methane
emissions may erase years of energetic andambitious climate policy. In 2020, a study
conducted by the Environmental Defense
Fund found that 3.7% of natural gas producedin the US Permian Basin had leaked into theatmosphere, which alone was enough to erase
the greenhouse gas benefits of the coal-to-gas
switching programme that, on paper, allowed
the US to substantially cut its emissions.8

As a result, government policies based oninternational climate science are addressing
this alarming growth in excess methane
emissions. The Inflation Reduction Act (IRA),
enacted in 2022 in the US, imposes methane
emission fees of USD900 (by 2024) to USD1500(post-2026) per tonne, equivalent to USD36
and USD60 per metric ton of CO2. It allocates
USD850m for methane reduction technology
and USD700m for conventional well emissions.

This was followed by the EU which voted in
May 2023 to enhance leak detection and repair
requirements, extending them to all exporters
by 2026, as part of broader decarbonisation
policies adopted by developed countries likethe US, Germany, and China. Increasingly, thekey pillars of national decarbonisation policies
are based on green and sustainable taxonomies
which do not recognise any operations withfossil fuels as green or sustainable.

Fossil fuels in world taxonomies
Taxonomies have gained thestatus of an effective tool
for the implementation of
government policy because
they provide a system forclassifying activities into
different categories related to their placein the transition to net zero by 2050. Thesetaxonomies serve as a dual-purpose guide,classifying activities to attract investments thatalign with climate objectives while avoiding
the perpetuation of outdated technologies,
particularly in the energy sector, which is a major
contributor to global greenhouse gas emissions.
The table below reviews three main sourcesof fossil energy (coal, oil, and gas) and four
categories of activities: extraction of fossil fuels,
processing or transportation of fossil fuels;
inclusion of construction of natural gas or oil
pipelines; creation of new capacities involved in
the generation of electricity, heating, and coolingfrom fossil fuels; retrofitting of existing facilities,
including fossil fuels infrastructure and power
plants, to reduce emissions.
Despite the many other uses of fossil fuels within
industry (e.g., as a feedstock for chemicals or asa heat source in industrial processes) the vast
majority of emissions, both direct and indirect,

Fossil gas and the Canadian Taxonomy
A recent Climate Bonds
white paper The role offossil fuels in taxonomies:
Canada case study took adeep dive into the futurecontent of the Canadian
Taxonomy where thedebate on the inclusion of fossil fuels,
particularly fossil gas where Canada is theworld’s fifth-largest producer, has presented
a major stumbling block. The controversy
centres on whether fossil gas should
contribute to a decarbonisation pathway as
an interim or a transitional fuel, or be phasedout completely.

arise from these types of usage, so this tableprovides an accurate summary.
While the majority of taxonomies excludehydrocarbon-related activity from green, fossil gas
appears the exception in some cases. However, inthe countries where it is included in the taxonomy,
none do so without significant restrictions.
The most common restrictions are an emission
threshold of 100g CO2e/kWh (which would require

The white paper provides guidance on how
to structure the future taxonomy to make it
consistent with global best practices, anddefine its principles and objectives. It isestimated that the country needs CAD115bn
per year to implement the decarbonisation
policy, and a taxonomy is a proven means of
attracting private capital to this task, including
foreign direct investment.
A review of the taxonomies of 12 countries or
trading blocs with different economic structures
was conducted for the purpose of the research,
informed by a discussion from the perspectiveof Canada’s three key economic partners:
China, Germany, and the US.
the power plant owner to make investments that
render the project uneconomical), a so-called
sunset date (after which fossil gas generation can nolonger be considered eligible, currently defined as2030–2035), and the removal of gas-fired generationfrom the green category to a transitional category toindicate its status. Some taxonomies (e.g., China andKazakhstan) also allow for a deep modernisationof existing fossil fuel capacity to reduce emission
intensity and switch from coal and oil to fossil gas.

Table 1. Fossil fuels in world taxonomies (Continued over page)
EU Taxonomy
A sustainable financetaxonomy with transition
activities, but a single
compliance label
Climate Bonds Taxonomy
A green taxonomy withtransition activities, but asingle compliance label

Oil

Gas

Coal

Extraction

Extraction

Extraction

Processing/transportation

Processing/transportation

Processing/transportation

Electricity/heating/cooling generation

Electricity/heating/cooling generation

Electricity/heating/cooling generation

Retrofitting

Retrofitting

Retrofitting

Extraction

Extraction

Extraction

Processing/transportation

Processing/transportation

Processing/transportation

Electricity/heating/cooling generation

Electricity/heating/cooling generation

Electricity/heating/cooling generation

Retrofitting

Retrofitting

Retrofitting

Ineligible and non-compliant

Eligible with additional criteria (impossible or very hard to meet)

Eligible with additional criteria (easy to meet)

Eligible and compliant with minimal or no criteria

Fossil gas in taxonomies: what lies beneath Climate Bonds Initiative3

Table 1. Fossil fuels in world taxonomies (Continued)
Chinese Green Bonds
Project Catalogue 2021
A white list of eligible
activities and technologies
with a single label
Colombian Green
Taxonomy
A green taxonomy with asingle label

Russian Taxonomy
A green taxonomy with asingle label plus a catalogue
of energy efficiency measures

ASEAN Taxonomy
A three-tier green andtransition taxonomy with asingle label (a tick or crossapplies to all three tiers)
South African Taxonomy
A green taxonomy withtransition activities and asingle label

Kazakhstan Taxonomy
A sustainable taxonomy withenergy efficiency activities
and a single label

Thailand Taxonomy
A green and transition
taxonomy with two separate
labels

Mexican Taxonomy
A green taxonomy witha single label

South Korean Taxonomy
A sustainable financetaxonomy with transition
activities but a single
compliance label
Singapore-Asia
Taxonomy (draft)
A green and transition
taxonomy with two
separate labels

Oil

Gas

Coal

Extraction

Extraction

Extraction

Processing/transportation

Processing/transportation

Processing/transportation

Electricity/heating/cooling generation

Electricity/heating/cooling generation

Electricity/heating/cooling generation

Retrofitting

Retrofitting

Retrofitting

Extraction

Extraction

Extraction

Processing/transportation

Processing/transportation

Processing/transportation

Electricity/heating/cooling generation

Electricity/heating/cooling generation

Electricity/heating/cooling generation

Retrofitting

Retrofitting

Retrofitting

Extraction

Extraction

Extraction

Processing/transportation

Processing/transportation

Processing/transportation

Electricity/heating/cooling generation

Electricity/heating/cooling generation

Electricity/heating/cooling generation

Retrofitting

Retrofitting

Retrofitting

Extraction

Extraction

Extraction

Processing/transportation

Processing/transportation

Processing/transportation

Electricity/heating/cooling generation

Electricity/heating/cooling generation

Electricity/heating/cooling generation

Retrofitting

Retrofitting

Retrofitting

Extraction

Extraction

Extraction

Processing

Processing

Processing

Electricity/heating/cooling generation

Electricity/heating/cooling generation

Electricity/heating/cooling generation

Retrofitting

Retrofitting

Retrofitting

Extraction

Extraction

Extraction

Processing/transportation

Processing/transportation

Processing/transportation

Electricity/heating/cooling generation

Electricity/heating/cooling generation

Electricity/heating/cooling generation

Retrofitting

Retrofitting

Retrofitting

Extraction

Extraction

Extraction

Processing/transportation

Processing/transportation

Processing/transportation

Electricity/heating/cooling generation

Electricity/heating/cooling generation

Electricity/heating/cooling generation

Retrofitting

Retrofitting

Retrofitting

Extraction

Extraction

Extraction

Processing/transportation

Processing/transportation

Processing/transportation

Electricity/heating/cooling generation

Electricity/heating/cooling generation

Electricity/heating/cooling generation

Retrofitting

Retrofitting

Retrofitting

Extraction

Extraction

Extraction

Processing/transportation

Processing/transportation

Processing/transportation

Electricity/heating/cooling generation

Electricity/heating/cooling generation

Electricity/heating/cooling generation

Retrofitting

Retrofitting

Retrofitting

Extraction

Extraction

Extraction

Processing/transportation

Processing/transportation

Processing/transportation

Electricity/heating/cooling generation

Electricity/heating/cooling generation

Electricity/heating/cooling generation

Retrofitting

Retrofitting

Retrofitting

Ineligible and non-compliant

Eligible with additional criteria (impossible or very hard to meet)

Eligible with additional criteria (easy to meet)

Eligible and compliant with minimal or no criteria

Fossil gas in taxonomies: what lies beneath Climate Bonds Initiative

4

The EU Taxonomy gas criteria

Fortunately, the criteria for these two activities
are so specific and limiting in nature, that it isunlikely that any green financial products willalign with the requirements. The criteria specify
that the activity in question must comply witheither a 100g CO2e/kWh threshold or comply
with all requirements on an extensive list,
which includes a 270g CO2e/kWh threshold(alternatively 550kg CO2e/kWh on average over 20
years). The threshold of 100 gCO2/kWh lifecycle
emissions as well as the threshold of 270 gCO2e/
kWh of direct (scope 1) emissions are currently
unachievable by gas-powered plants unless fittedwith additional CCS/CCUS installations. Current
best-in-class combined-cycle gas turbines (CCGT)
have direct emissions of approximately 320–350g
CO2/KWh (see Figure 2) to achieve lower
emissions than currently possible through further
efficiency gains via H2 blending or with CCS. Realworld emissions can be much higher.

Figure 2. Specific emissions from electricity generation,
considering leakages
gCO2/kWh el

1400

gCO2-eq/kWh el

1439

1200
1000

1049
898

867

800

682

600
Emissions gCO2/kWh

The inclusion of fossil gas
criteria in the European
Taxonomy in early 2022 raised
serious concerns among
the international climate
community, not least the riskthat many developing countries might follow thislead by diluting requirements to allow gas-fired
generation to be classified as green. When thefirst draft was published in June 2020, fossil
gas-related activities were not in scope. It was
the adoption of a subsequent Complementary
Climate Delegated Act that permitted theinclusion of two fossil gas-related activities:
activity 4.29 Electricity generation from fossil
gaseous fuels and activity 4.30 High-efficiency
co-generation of heat/cool and power fromfossil gaseous fuels.11 When these activities were
included under a transitional category of theTaxonomy Regulation, the justification provided
by the European Commission was that it would‘allow us to accelerate the shift from morepolluting activities, such as coal generation,
towards a climate-neutral future, mostly basedon renewable energy sources.’12

466

400

574

358
200
0
LigniteHard
CoalNatural
Gas

1%

2%

3%

5%

10%

Natural gas including leakage losses of:Source: UNECE

Detailed 2022 data on the emissions intensityof different types of fossil fuels, calculated by
the German Federal Agency for Environmental
Protection, clearly shows direct CO2 emissions
from natural gas in relation to the primary energy
content of around 358g CO2e/kWh.13 The average
efficiency of modern fossil gas power plants (basedon German data) varies between 39% (turbine) and
59% (CCGT).14 Consequently, the real emissions
intensity of these types of installations fluctuatesfrom 512–340 gCO2/kWh of direct emissions
respectively.15 The United Nations Economic
Convention for Europe gives similar numbers:
434 gCO2e/kWh on average of direct emissions forunabated gas power plants (CCGT) and 128 gCO2e/
kWh for natural gas plants (CCGT) with CCS.16
Importantly, the first entry within the EU
Taxonomy fossil gas criteria limits emissions not
only to 100g CO2e/kWh but also on a lifecycle(LCA) basis, which requires taking accountof the emissions during fossil gas extraction,transportation, storage, and utilisation. This
makes it challenging for any company to comply
with the EU Taxonomy gas generation criteria
without deploying the most up-to-date CCS
installations. Research conducted by the Institutefor Energy Economics and Financial Analysis
estimates the levelised cost of energy for gas with
CCS power plants to be significantly higher thanthat of ordinary gas power plants and almost
two times above current alternatives such as
renewable energy plus storage.17

Fossil gas in taxonomies: what lies beneath Climate Bonds Initiative

Although the alternative average annual directemissions threshold of 550kg CO2e/kW ofcapacity over 20 years initially appears feasible,
it still creates investment risk. Compliance withthe threshold requires a justified projectionof future emissions that together add up to
550gCO2e/kWh on average over the 20-year
horizon, which may not be demonstrable. Even
if it were (many financial professionals question
its feasibility) the owner of the activity is also
required to prove compliance with a further
eight requirements.18 As a consequence, theseobligations make the project so expensive andcumbersome (no existing gas-powered plantmeeting the requirements was identified at thetime of writing) that the taxonomy can hardly becalled gas-friendly.

5Outlook
While the debate continues
on the future phase-out of
the harmful climate effects
related to oil and coal, fossil
gas has been perceived asa safer and cleaner fuel.
However, increasing atmospheric concentrationsof methane emitted in huge quantities during theextraction and utilisation of fossil fuels highlights
the risks that this poses to the energy transitionand climate goals of the Paris Agreement. Methane
accounts for 12% of GHG emissions and is shorterlived than CO2 but is 84 times more potent in its
ability to absorb heat over a 20-year period.19

Fossil fuels are not only a climate problem,
but also a political one, given that Russia was
the largest supplier of natural gas imports tothe EU before 2022.20 This underlines the needto transition away from fossil energy sources
to renewables and increase energy efficiency
measures through the adoption of credible
transition plans.

Endnotes
1. https://www.noaa.gov/news-release/greenhouse-gases-continuedto-increase-rapidly-in-2022
2. https://www.scientificamerican.com/article/methane-leaks-erasesome-of-the-climate-benefits-of-natural-gas/
3. https://taf.ca/custom/uploads/2022/05/TAF_Fugitive-methaneguidelines_2022-2.pdf
4. https://seas.harvard.edu/news/2023/02/methanes-role-climatechange#:~:text=And%20because%20of%20its%20chemical,only%20
about%2010%E2%80%9320%20years.
5. https://www.volker-quaschning.de/datserv/CO2-spez/index_e.php
6. https://www.volker-quaschning.de/datserv/CO2-spez/index_e.php
7. https://iopscience.iop.org/article/10.1088/1748-9326/ace3db/pdf

8. https://www.scientificamerican.com/article/methane-leaks-erasesome-of-the-climate-benefits-of-natural-gas/
9. https://www.climatebonds.net/files/page/files/cbi_
gaspolicy_2022_01d.pdf
10. https://cpree.princeton.edu/news/2023/uk-substantiallyunderestimates-its-methane-emissions-oil-and-gas-production
11. https://eur-lex.europa.eu/legal-content/EN/
TXT/?uri=uriserv:OJ.L_.2022.188.01.0001.01.ENG
12. https://ec.europa.eu/commission/presscorner/detail/en/ip_22_711
13. https://www.volker-quaschning.de/datserv/CO2-spez/index_e.php
14. Combined cycle gas turbine, a more modern and effective versionof fossil gas power generation device

Prepared by the Climate Bonds Initiative

15. Ibid.
16. https://unece.org/sites/default/files/2022-04/LCA_3_FINAL%20
March%202022.pdf
17. https://ieefa.org/resources/ccs-power-yet-stack-against-alternatives
18. https://clarity.ai/research-and-insights/eu-taxonomy-how-toreport-on-fossil-gas-related-activities/
19. https://www.climatebonds.net/climate-change-101
20. https://www.euronews.com/green/2023/02/24/europes-energywar-in-data-how-have-eu-imports-changed-since-russias-invasionof-ukraine

This report was produced by Climate Bonds in consultation
with and support from the Insurance Bureau of Canada

Authors: Mikhail Korostikov and Bridget Boule
Editorial support: Stephanie Edghill, Caroline Harrison
Design: Godfrey Design, Joel Milstead© Published by Climate Bonds Initiative, November 2023
www.climatebonds.net
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Fossil gas in taxonomies: what lies beneath Climate Bonds Initiative

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