With the taxonomy, the EU defines which economic activities are considered environmentally sustainable. Until now, for many packaging companies, it has been a regulation that was hotly debated in public but had no impact on day-to-day business. This could now change. This is indicated by the new draft of the taxonomy criteria for packaging. It makes it clear that our industry will also have to deal with the topic more intensively – because the planned criteria are tough. We give you a compact introduction to the topic of taxonomy, shed light on what is to come for packaging and assess the likelihood of implementation.
The EU Taxonomy is a measure set out in the EU Sustainable Finance Action Plan, codified in Regulation 2020/852 (Taxonomy Regulation). The Action Plan aims to channel capital flows into environmentally sustainable activities. The draft taxonomy criteria for packaging was published on March 30, 2022.
The background: Green Deal
In 2019, the European Union set the course for more sustainable investments with the Green Deal. Priority areas included, for example, renewable energies, biodiversity and – as “priority number 1” – circular economy.
The goal set was to achieve a climate-neutral economy in the EU by 2050. The aim is to achieve a 55 percent reduction in greenhouse gases by 2030.
To ensure a level playing field and legal certainty for all companies operating within the EU, the EU Taxonomy Regulation and the Sustainable Finance Disclosure Regulation (SFDR) were implemented.
Both laws follow the objective of the Green Deal and are based on the following key points:
- realignment of capital flows with a focus on sustainable investments.
- establishing sustainability as a component of risk management
- promoting and encouraging long-term investment and economic activity.
The EU Taxonomy in detail
The EU Taxonomy Regulation describes a framework to classify “green” or “sustainable” economic activities in a universally valid way within the EU. Previously, there was no clear definition of green, sustainable or environmentally friendly activity.
The EU taxonomy now creates clear rules and frameworks for the concept of sustainability as to when a company is operating in a sustainable or environmentally friendly manner. The legislation thus aims to reward and promote environmentally friendly business practices and technologies through an investment focus.
The focus is on the following six environmental goals:
- climate protection
- adaptation to climate change
- sustainable use and application of water or marine resources
- transition to a circular economy
- prevention or control of pollution
- protection and restoration of biodiversity and ecosystems.
A company’s business is classified as a sustainable economic activity only if it contributes to at least one of the environmental goals while not violating any of the other goals. This means, for example, that an activity that aims to protect the climate but at the same time negatively impacts biodiversity cannot be classified as sustainable.
Four criteria for classification
The classification of economic activity in terms of sustainability is based on four criteria, which build on the environmental objectives mentioned above:
- the economic activity contributes to at least one of the environmental goals
- the economic activity does not significantly harm any of the environmental goals. The “Do No Significant Harm principle” (DNSH) therefore applies here.
- the economic activity fulfills a minimum of safety standards in order to avoid a negative social impact. For example, by following the “UN Guiding Principles on Business and Human rights”.
- the economic activity meets the technical screening criteria developed by the EU Technical Expert Group.
Focus Screening Criteria
While the first three basic points were already widely known within the framework of the EU taxonomy, the “Screening Criteria” were not in the foreground – although they constitute the most effective lever of the taxonomy.
The Screening Criteria are defined in terms of the best or most efficient technologies available as a solution to reduce greenhouse gas emissions.
For investors and financial institutions, these criteria are critical when they are required to report on their investments under the EU taxonomy.
To illustrate this, here is an example:
According to the taxonomy, anyone producing gray cement clinker may emit a maximum of 0.722 metric tons of CO2 or equivalent gases per ton in the interests of climate protection. The value is calculated on the basis of the top 10 percent of the most efficient plants in the EU. To minimize the risks of water pollution at the same time, the company must also compulsorily prepare an EU environmental impact assessment for its production.
Taxonomy criteria for packaging
Proposals for new screening criteria will be developed by the Sustainable Finance platform and submitted to the Commission. The platform, which is connected to the Sustainable Finance regulation, has now presented proposals for taxonomy criteria for packaging. We summarize the most important contents for you:
- at least 85 percent of packaging should be made of recycled material. The wording proposes that “at least 85 percent of the weight of the packaging product must consist of mechanically recycled post-consumer material, chemically recycled, bio-based or CCU (Carbon Capture and Utilization)-based material.” This minimum percentage of recycled material should also apply to food and beverage packaging, regardless of material.
- packaging should allow for reuse with at least 10 cycles and a recycling rate of at least 50 percent for the materials used.
- primary food and beverage packaging shall meet the following three criteria:
- Packaging shall allow for reuse with at least 10 turns or rotations.
- At least 95 percent of the packaging is recyclable.
- Food and beverage loss is reduced by at least 50 percent. Thus, packaging may only be used if it makes technological sense by limiting food losses.
- primary, secondary and tertiary food and beverage packaging must meet the following three criteria:
- At least 85 percent of the weight of the packaging consists of mechanically or chemically recycled post-consumer material or renewable raw materials. The reference point for this is the mass balance at the batch level.
- At least 95 percent of the packaging is recyclable.
- Food loss is reduced by at least 50 percent.
Classification and evaluation
In reviewing the packaging taxonomy proposals, it is striking that they are not consistent with the goals of the Green Deal or the revision of the EU Packaging and Packaging Waste Directive (PPWD).
Illustrated by an example:
We assume that the revision of the PPWD will propose mandatory quotas for the recycled content of plastic packaging from 2030. The quotas discussed so far vary between 25 and 45 percent, as the potential for using recycled plastic varies widely depending on the type of packaging.
For food packaging in particular, strict EU regulations currently still prohibit the use of plastics other than recycled PET. It is likely that these regulations will even be tightened. At least that is what the new draft regulation No. 282/2008 on “recycled plastic materials and articles intended to come into contact with food” suggests.
Criticizing is always easier than doing it yourself, however:
- Before going public with proposals, they should be checked for policy coherence.
- Proposals can be ambitious, but a possible realistic implementation should be given.
- It always makes sense to talk to people from the industry beforehand…
We assume that the proposals on the taxonomy criteria for packaging will not make it into the new Delegated Act, which is to be published in the fall of 2022 for the further definition of environmental targets.
Nevertheless: the proposals show that the industry should be vigilant and actively participate in the discussion about the EU taxonomy criteria. Otherwise, there may be a rude awakening.