By Kate Abnett, Joanna Plucinska and Tim Hepher
BRUSSELS - The European Commission is divided over investment rules for aviation as airlines fight to avoid being left out of a coveted 'green' category, months after a similar row over energy, according to people familiar with the matter and a document seen by Reuters.
The debate concerns a legal proposal expected this year to expand the European Union's "taxonomy" - a list of climate-friendly investments designed to direct funds towards sectors that contribute most to environmental goals.
The EU scheme does not ban ineligible investments, but restricts which investments can be labelled and marked as green. It aims to provide a gold standard for sustainable investing, but became mired in disagreement last year when the EU labelled some gas and nuclear investments green.
People familiar with the talks said the Commission was split over whether to declare certain aviation investments green - with some officials in favour if they meet strict environmental standards, and others opposed to giving any climate-friendly badge to a sector with a high carbon footprint.
"It's clear that putting aviation in the taxonomy would further undermine its green pretensions," one EU official said, speaking about internal talks on condition of anonymity.
Two of the sources said some aviation investments were likely to be included, based on recent Commission discussions.
"The high-level decision within the Commission seems to be quite clear that (aviation) should be in for the upcoming delegated act," an EU official said, referring to a type of technical EU rules that complement a broader law.
Aviation produces 2%-3% of global CO2 emissions - a share expected to expand if left unchecked - and is seen as one of the most difficult sectors to decarbonise.
With zero-emission aircraft not expected for over a decade - and only for small regional planes - options to reduce emissions include switching to more efficient planes and using sustainable aviation fuel (SAF), which is not yet mass-produced.
The question facing the Commission is whether to grant a climate-friendly label to currently produced aircraft, which emit CO2 but to a lesser extent than the older aircraft they replace, to encourage a faster transition.
'IN TRANSITION'
Industry groups, including Airlines for Europe and the International Air Transport Association, wrote to the Commission this month urging it to label certain aviation investments as green, and not delay the decision until after the upcoming law.
Excluding aviation would hurt the sector's ability to raise money for cleaner technologies, they said.
"We are strongly of the view that it would impede the sector's decarbonisation efforts and undercut sustainability objectives," the Jan. 18 letter, seen by Reuters, said.
Industry sources fear losing the tag could make it harder to secure finance for deliveries of new planes and drive up broader funding costs - a particular concern for leasing companies whose strategies rely on competitive funding.
The green investment rules are designed to prevent greenwashing, or unsubstantiated environmental claims, but have angered some environmental groups who say the regime includes activities that harm the planet.
For sectors such as aviation that have no zero-emission technologies available, the EU rules offer a "transitional" label to investments that meet certain "best-in-class" criteria.
EU advisers last year said Brussels should give this label to certain aviation investments. For example, investments in leasing aircraft could be labelled green if a plane has zero CO2 emissions, or if it replaces a higher-emitting plane in the fleet. The advisers proposed separate criteria for airlines and manufacturers.
The industry letter urged the Commission to accept these proposals, which fall short of airlines' worst-case scenario.
The Commission said it had not taken a final decision.
"We are currently reflecting about the scope of the activities to be covered in the future delegated act," a spokesperson said.
The first part of the EU taxonomy was agreed last year but only after a drawn-out battle between countries at odds over which sectors deserved the "green" label.
That has left the Commission under pressure to ensure its upcoming proposal is legally watertight.
It already faces two lawsuits. One, brought by Austria, seeks to annul the EU's "green" label for nuclear investments. Another, brought by NGOs, says the EU violated its own climate laws by labelling investments in gas, a fossil fuel, as green.
