To succeed in the socio-ecological transition, it is crucial to promote and invest in actions aligned with environmental objectives. Green taxonomy plays a key role in establishing a common language to guide these efforts. Currently focused on climate change, it will also have to integrate biodiversity to offer a more comprehensive and effective approach.
What is taxonomy and green taxonomy?
Taxonomy is a classification system that organizes the elements of a domain into distinct, hierarchical categories.
In ecology, it is used to name and classify species, playing a crucial role in the management and conservation of biodiversity. This science, which includes fauna, flora and micro-organisms, is essential to scientific research and world trade thanks to its uniform and universal denominations.
In a similar way, the economic world uses this concept to classify economic activities according to their sustainability, in what is known as green taxonomy.
Where does green taxonomy come from?
Launched by the European Commission in 2018, the Green Taxonomy is a classification system designed to identify environmentally sustainable economic activities. The system relies primarily on the definition of CO2 emission thresholds to determine which activities are considered sustainable, or "green" and "transitional". Its aim is to create a common language across Europe to guide investors and support environmental initiatives, in line with the European Green Pact.
Green taxonomy plays a key role in establishing a common language to guide transition efforts.
What does the European green taxonomy cover?
Since the first climate section came into force in January 2022, it has covered over 70 economic activities, accounting for 90% of the EU's greenhouse gas emissions. However, the project is constantly evolving, with adjustments and extensions planned to include more sectors, as well as ongoing debates concerning the inclusion of gas and nuclear power.
To ensure the robustness of this classification, a group of independent experts developed the criteria for determining whether an economic activity makes a significant contribution to climate neutrality. The European taxonomy regulation, adopted in June 2020, covers six environmental objectives: mitigating climate change, Adapting to climate change, sustainable use and protection of aquatic and marine resources, transitioning to a circular economy, preventing and reducing pollution, and protecting and restoring biodiversity.
For this last objective, European regulations consider that an economic activity makes a substantial contribution to the protection and restoration of biodiversity if it enables :
conserve nature and biodiversity,
use and manage land sustainably,
implement sustainable agricultural practices,
manage forests sustainably.
Conversely, an activity is considered detrimental to the objectives if it adversely affects the health and resilience of ecosystems and the conservation status of habitats and species.
Does green taxonomy exist only in Europe?
Similar initiatives are appearing in other jurisdictions such as China, the UK and Canada, highlighting the need for a global, flexible approach to tackling ecological challenges.
Where do Canada and Quebec stand today?
Canada has recognized the urgent need to develop a taxonomy of climate investments to guide investors and financial institutions in assessing environmental impacts and preventing greenwashing.
Currently focused on climate change, Canadian taxonomy will also have to integrate biodiversity to offer a more comprehensive and effective approach.
The Sustainable Finance Action Council (SFAC) is leading the development of the taxonomy in Canada, as outlined in the report published in March 2023. The framework distinguishes two categories: "green" for low-emission projects, such as green hydrogen production, and "transition" for high-emission sectors undergoing decarbonization, such as the oil sands and steel production. The aim is to guide investment while balancing ecological transition with economic stability.
The Canadian taxonomy is expected to be unveiled this fall by the Canadian government.
Although Quebec does not yet have a specific provincial framework, national and federal initiatives should be harmonized to meet the challenges of climate change and halt the decline in biodiversity.
Challenges and limits of Canadian green taxonomy
Unlike the European Union, which favors a green taxonomy with limited transition elements, Canada takes a broader approach, incorporating substantial transition activities. This difference reflects Canada's dependence on natural resources and the importance of supporting decarbonization in these sectors. Criticism of this approach focuses on the controversial inclusion of oil sands and blue hydrogen in the "transition" category, despite environmental concerns about their residual emissions.
Given the urgency to act, the lack of a precise timetable and the non-binding nature of this taxonomy also pose challenges.
What's more, the Canadian taxonomy project does not yet cover biodiversity, and focuses mainly on climate investments. Yet, at COP15, the Canadian government pledged to increase its efforts to protect biodiversity, especially given the importance of biodiversity to the resilience of our society and economy.
Why integrate biodiversity into green taxonomy?
The importance of biodiversity cannot be underestimated. The ecosystem services it provides are valued at between 125,000 and 140,000 billion US dollars a year, or around one and a half times global GDP (United Nations, n. d.; OECD, 2008).
Biodiversity is essential to the resilience of our society and economy.
According to the World Economic Forum, biodiversity loss is the fourth most serious long-term global risk. In fifty years, almost 70% of wild animal populations have disappeared, underlining the crucial link between biodiversity and global warming. The latest IUCN Red List indicates that 44,016 species are threatened, including 41% of amphibians and 26% of mammals.
Biodiversity is essential to human needs. As well as providing natural resources that we use directly, it filters air and water, regulates the climate, supports agriculture thanks to pollinators, and enriches medical research with numerous medicines inspired by nature. In addition, it plays a crucial role in protecting against environmental risks (IPBES, 2019; Office français de la Biodiversité [OFB], n. d.).
How does taxonomy affect the private sector?
Initiatives to achieve carbon neutrality are multiplying, particularly in the financial sector, with an estimated 6.35 trillion euros of annual investment needed to meet the Paris Agreement targets by 2030. Mobilizing financial institutions and private capital is crucial, as public commitments alone are not enough. Although green taxonomy is still under development, it plays a key role in environmental transition by defining rules and incentives to guide this mobilization.
In the case of biodiversity, the funding gap was estimated at between US$722 and US$967 billion in 2019 (Deutz et al., 2020; Paulson Institute et al., 2021; Tobin-de la Puente and Mitchell, 2021). According to an OECD study published in 2020, entitled "Global overview of biodiversity funding", global biodiversity funding from public and private sources was estimated at between US$78 and US$91 billion per year for the period 2015 to 2017. The study indicates that the majority of domestic funding, around US$67.8 billion per year, comes from the public sector, according to a survey of 81 countries conducted by BIOFIN. International funding is estimated at around $6.1 billion a year, while the private sector contributes much less, with estimates ranging from $6.6 billion to $13.6 billion
The mobilization of the private and financial sector is therefore all the more essential, given its close links with and dependence on biodiversity.
The Kunming-Montreal Accord of 2022 has set targets to reverse this trend and increase financing. Green taxonomy will help the private sector to better orient and mobilize these resources by facilitating financial flows. These frameworks and associated regulations aim to increase the amounts currently allocated to financing nature. The mobilization of the private and financial sector is therefore all the more essential, given its close links with and dependence on biodiversity.
Conclusions and recommendations
Green taxonomy can be a powerful lever for ensuring a just transition, but more work remains to be done;
Green taxonomy is crucial to directing investments towards sustainable activities, but the integration of biodiversity remains insufficient for the time being.
Taxonomy needs to cover more than just the energy transition, since other sectors such as agriculture, forestry, fishing and construction generate direct pressures on ecosystems
Canada can draw inspiration from the European Union, with its ambitious habitat restoration targets and regulations, to include biodiversity in its future taxonomy and support these standards with appropriate legislation (cf. European Nature Restoration Regulation adopted in 2024).
It is crucial to follow federal developments to align provincial efforts, while involving businesses, the financial sector and institutions in a concerted approach to a successful transition.
Taxonomy must reflect social issues to ensure a fair and equitable transition.
To find out more :
For further information:
Émilie Le Beuze, collaborator
Ateliers pour la biodiversité
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