EU taxonomy
The EU taxonomy consists of the Sustainable Finance Disclosure Regulation and the Taxonomy Regulation, and is a classification system that the EU has introduced to determine the sustainability of an economic activity. In Norway, the EU taxonomy is applied through the Act relating to the disclosure of sustainability information in the financial sector and a framework for sustainable investments. The Act entered into force on 1 January 2023. This entails that there is no reporting requirement for the 2022 financial year. However, in line with the Ministry of Finance’s request to Norwegian companies, Hafslund has chosen to include taxonomy-related information in Hafslund’s annual report for the 2022 financial year. The reporting for the year is based on Hafslund’s interpretation of the EU taxonomy in accordance with the framework and associated guidelines as of the reporting date.
An economic activity must make a substantial contribution to the attainment of at least one of the six environmental objectives in the EU taxonomy in order for it to be defined as sustainable. In addition, it must avoid significant harm to the other environmental objectives and satisfy minimum requirements for social standards, as set out in the United Nations Guiding Principles on Business and Human Rights and the OECD Guidelines for Multinational Enterprises.
The European Commission shall develop technical screening criteria for each environmental objective, which the economic activity has to satisfy. The Commission has thus far developed technical screening criteria for Objective 1 (climate change mitigation) and Objective 2 (climate change adaptation).
Hydropower production is one of the economic activities that has been assigned technical screening criteria, on the basis of the fact that hydropower can make a substantial contribution to achieving Environmental Objective 1.
In 2022, Hafslund assessed which of the Group’s activities can be defined as eligible, and carried out an assessment of whether the activities align with the EU taxonomy criteria. Hafslund assessed that the Group’s hydropower production, and the production and distribution of district heating/cooling, can be defined as eligible. Only assets of consolidated companies have been considered for eligibility. The Group’s activities in Hafslund Vekst were not included in the assessments for the 2022 financial year, and are therefore classified as not eligible. These activities will be assessed during 2023. Hafslund Vekst currently accounts for a small share of the Group’s three performance indicators of turnover, capital expenditure (CapEx) and operating expenses (OpEx). It is therefore not expected that the performance indicators will be significantly affected. Below we have included an overview of Hafslund’s approach to the taxonomy criteria, and how we assess these for hydropower production and the production and distribution of district heating/cooling.
Taxonomy table
| Economic activities | Code | Proportion of turnover | Proportion of CapEx | Proportion of OpEx |
|---|---|---|---|---|
| A.TAXONOMY-ELIGIBLE ACTIVITIES | % | % | % | |
| A.1. Environmentally sustainable activities (taxonomy aligned) | ||||
| 4.5 Electricity generation from hydropower | 35.11 | 93% | 61% | 48% |
| 4.15 District heating/cooling distribution | 35.30 | 5% | 19% | 21% |
| Total of environmentally sustainable activities (Taxonomy-aligned) (A.1) | 99% | 80% | 69% | |
| A.2 Taxonomy-Eligible but not environmentally sustainable activities (not Taxonomy-aligned activities) | ||||
| 4.5 Electricity generation from hydropower | 35.11 | 0% | 0% | 0% |
| 4.15 District heating/cooling distribution | 35.30 | 0% | 2% | 0% |
| Total of Taxonomy-eligible but not environmentally sustainable activities (not Taxonomy-aligned activities) (A.2) | 0% | 2% | 0% | |
| Total (A.1 + A.2) | 99% | 82% | 69% | |
| B. TAXONOMY-NON-ELIGIBLE ACTIVITIES | ||||
| Total of Taxonomy-non-eligible activities (B) | ||||
| Waste incineration | 1% | 7% | 18% | |
| Electricity generation using waste | 1% | 1% | 0% | |
| Other (incl. CCS) | 0% | 8% | 0% | |
| Fiber (ICT) | 0% | 2% | 0% | |
| Hafslund Vekst and Hafslund AS (not assessed) | 0% | 0% | 13% | |
| Total (A + B) | 100% | 100% | 100% |
Download full EU taxonomy table as PDF.
Our approach to the taxonomy criteria: Hydropower
Assessment of substantial contribution to Environmental Objective 1 (climate change mitigation)
In order for hydropower to make a substantial contribution to achieving Environmental Objective 1 (climate change mitigation), one of the following criteria has to be met:
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The power production comes from a run-of-river hydropower plant, which does not have an artificial reservoir.
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The power density of the power generation is above 5 W/m2.
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Greenhouse gas emissions from the power production’s life cycle are lower than 100gCO2e/kWh.
As recommended in Renewables Norway’s guide “Taxonomy requirements for hydropower”, the approach in SINTEF’s memo “Assessment of greenhouse gas emissions from hydropower for the EU taxonomy” has been used to document a substantial contribution to Environmental Objective 1. In this memo, calculating power density (W/m2) is the recommended approach if the power plant is not a run-of-river hydropower plant.
A run-of-river hydropower plant is defined as a power plant with an upstream reservoir storage capacity below the 24-hour mean water flow. SINTEF recommends that run-of-river hydropower plants that are in a system with one or more other power plants and reservoirs should be analysed in combination with these, and thereby included in the calculation of installed capacity for further calculation of power density. Furthermore, it is recommended to set the system boundary at catchment areas, including water transfers from neighbouring fields, for a system of hydroelectric power plants, reservoirs and upstream catchment areas.
Based on these assumptions, we have chosen to divide reservoirs and power plants into four large watercourses in accordance with catchment areas and division into utility owners’ associations. These are the Glomma watercourse with Gudbrandsdalslågen, Hallingdal watercourse down to and including Nes power plant, Begna watercourse down to and including Eid power plant, and Aurland watercourse. We also have three smaller watercourses in Brødbøl, Trysil and Dokka. All regulating reservoirs and power plants that fall within these system boundaries are taken into consideration when calculating power density.
For most reservoirs, gross area (total area) is used in the calculations. For those reservoirs that are measured by depth, net area is used as a basis. Data on installed capacity is obtained from the Norwegian Water Resources and Energy Directorate’s (NVE) hydropower database for all power plants.
Based on the definition of run-of-river hydropower plants, there are a total of 11 power plants spread over the various production areas that are not included in the calculation of power density. They are not in the “system” and do not use, or use only very low quantities of, reservoir water.
Based on this approach, with the exception of the Trysil and Brødbøl watercourses, Hafslund’s entire production of hydropower makes a substantial contribution towards achieving Environmental Objective 1, in accordance with the EU taxonomy.
Assessment of significant harm to Environmental Objectives 2 to 6
In order to comply with the taxonomy, the activity must “do no significant harm” (DNSH) to the five other environmental objectives. For hydropower, this assessment is relevant for Environmental Objective 2 (climate change adaptation), Environmental Objective 3 (water and marine resources) and Environmental Objective 6 (biodiversity and ecosystems). There are no DNSH criteria for hydropower linked to Environmental Objective 4 (transition to a circular economy) or Environmental Objective 5 (pollution prevention and control).
Climate change adaptation (DNSH 2): In order to meet the taxonomy’s technical screening criteria for Environmental Objective 2 (climate change adaptation), a physical climate risk analysis must be carried out to identify the physical climate risks that are of significance to the activity. An action plan is required for identified risks. The measures must be implemented within five years for existing facilities, and before the start of operations for new facilities.
A climate risk analysis for hydropower production in the Hafslund Group was carried out in autumn 2022. Physical climate risks were identified and assessed as part of the analysis. Risk and vulnerability analyses were also carried out for all of our hydropower plants. Furthermore, all dams are subject to government supervision through the Norwegian Dam Safety Regulations. The risk of increased precipitation and major flooding has been assessed and taken into consideration when assessing the safety of the dam facilities. Dam facilities are often dimensioned for 1,000-year floods, and the calculations include climate surcharges set by the NVE. Based on this, Hafslund finds that the criteria for Environmental Objective 2 have been met for all of our regulations and power plants.
Water and marine resources (DNSH 3): The technical screening criteria for the environmental objective relating to sustainable use and protection of water and marine resources are linked to the Water Framework Directive, which has been implemented into Norwegian law through the Regulations relating to the framework for water management (the Water Regulations). Norway is divided into water regions. Pursuant to the Water Regulations, there is a comprehensive water management plan for each region, with environmental objectives for all bodies of water and associated action programmes that are updated every six years. The Norwegian authorities administer the Water Framework Directive and action programmes that stipulate environmental objectives for each body of water. The provisions in the Water Framework Directive have been taken into consideration in all licensing processes since 2007. However, all hydropower activities, including those that do not require a licence and activities with older licences granted prior to 2007, are still covered by the water management plans and associated action programmes.
In accordance with the taxonomy’s technical screening criteria, necessary measures to reduce the harmful impact of the activities need to be implemented, cf. Articles 4 and 11 of the Water Framework Directive. Article 4 includes the provisions relating to environmental objectives, while Article 11 applies to requirements for action programmes. As a general rule, the condition of the bodies of water must be protected from degradation, and improvements must be made with a view to achieving the environmental objectives of good ecological status or good ecological potential. Article 4 of the Water Framework Directive also permits deferred deadlines for the achievement of objectives, less stringent environmental objectives, and exemptions for new interventions and new activity. The provisions in Article 4 are also covered by the technical screening criteria in the taxonomy.
Most bodies of water that are impacted by Hafslund’s hydropower activities have achieved environmental objectives in accordance with the Water Framework Directive. At the same time, many bodies of water are covered by ongoing audits, and the earliest point at which they will achieve the environmental objective is when the audit is completed. For the remaining bodies of water that have not achieved their environmental objective and are not being audited, active efforts are being made to acquire knowledge and to plan and implement measures that are necessary for achieving the environmental objective. We would also note that, for many of the bodies of water that have already achieved the environmental objective, more work is being done on measures to make further environmental improvements.
The Water Framework Directive presupposes that efforts to improve the water conditions are ongoing processes in which government authorities must ensure, through sectoral legislation, that there are continual improvements in the water condition, as well as doing cost-benefit assessments of issues such as whether social considerations may lead to the use of deadline extensions or less stringent environmental objectives. Hydropower plays an important function as a source of renewable energy (substantial contribution to Environmental Objective 1) and ensuring the supply of energy to the Norwegian and European markets. Therefore, the governmental authorities have an obligation to take both environmental considerations into account and carry out societal assessments when processing the necessary permits and approvals for power production.
Biodiversity and ecosystems (DNSH 6): The technical screening criteria for the environmental objective relating to biodiversity and ecosystems are particularly linked to the Environmental Impact Assessment Directive (the EIA Directive, which in Norway has been implemented through the Impact Assessment Regulations). We have assumed that requirements for environmental impact assessments will only apply to new power plants, and that existing power plants are already expected to have been subject to adequate impact assessments.
Those of our installations that are located in or near particularly vulnerable areas satisfy the requirements of the Preservation Regulations for the relevant area. We assume that the management of particularly vulnerable areas will be adequately carried out by the Norwegian authorities.
We are also of the view that the criterion relating to biodiversity and ecosystems will be satisfied if we make the expected contributions in processes with the Norwegian authorities concerning impact assessments. Based on this, it is our opinion that this criterion has been satisfied for our hydropower activities.
Our approach to the taxonomy criteria: District heating/cooling
Hafslund’s interpretation of the taxonomy is that activities related to both the production and distribution of district heating/cooling are included in economic activity 4.15 “District heating/cooling distribution”. The reason for this interpretation is that all revenues from district heating come from the distribution of heating/cooling to commercial buildings and households, and is based on the guidance provided by the European Commission (page 9, final sentence of the second paragraph under FAQ 8)* which states that “Operators that are active in several sectors across the value chain of one product or technology but generate revenue from that product only under one activity, must disclose only under that specific revenue-generating activity.”
Assessment of substantial contribution to Environmental Objective 1
The Group’s heating/cooling activities make a substantial contribution to Environmental Goal 1 by satisfying the requirements for efficient district heating and cooling systems stipulated in Article 2, paragraph 41 of Directive 2012/27/EU*: “Efficient district heating and cooling means a district heating or cooling system using at least 50% renewable energy, 50% waste heat, 75% cogenerated heat or 50% of a combination of such energy and heat.”
In 2022, the energy mix for district heating distributed in Hafslund Oslo Celsio’s system consisted of 55.3 per cent waste heat from waste incineration, 12.5 per cent from electric boilers, 11 per cent from heat pumps (of which 3.3 per cent was electricity, while the remainder was excess heat), 11.4 per cent from wood pellets, 8.3 per cent from biooil/ biodiesel, 1.5 per cent from LNG and 0.1 per cent from heating oil. Hafslund Oslo Celsio’s district heating system therefore satisfies the definition of an efficient district heating system in 2022, because 86 per cent of the heat is produced using waste heat from waste incineration, heat pumps, wood pellets (renewable energy) and various biofuels (renewable energy).
If waste heat from waste incineration is excluded from the calculation, the district heating system still satisfies the definition of an efficient district heating system because the proportion of heat from cogenerated heat, other waste heat, wood pellets and biofuel collectively amounts to 68 per cent. The cogenerated heat is based on waste heat from waste incineration (55 per cent of the total), but does not include energy from wood pellets, heat pumps or other biofuels (i.e. there is no double counting).
Assessment of the EU taxonomy’s classification of waste heat from waste incineration
Waste incineration is not currently included in the EU taxonomy (“not eligible”). Based on this, we have classified revenues, investments and operating expenses associated with waste incineration activities as “not eligible”. In this assessment, we distinguished between waste incineration as a necessary process for treating residual waste, and the utilisation of the waste heat produced from the incineration process in an associated district heating system. These are different industries with different industry codes.
As stated above, our interpretation of the EU taxonomy is that all revenues from district heating and cooling operations, which both produce and distribute energy, can be included in the EU taxonomy’s economic activity 4.15 “District heating/cooling distribution”. On this basis, the revenues, investments and operating expenses associated with this activity are classified as “eligible”. We have not classified revenues, investments and operating expenses as “eligible” under any “production” activities (for example, electricity produced by turbines in the waste incineration plant). Activity 4.15 “District heating/cooling distribution”, does not include criteria for not causing significant harm to Environmental Objective 4 (transition to a circular economy).*
As previously stated, the criteria for a substantial contribution to Environmental Objective 1 for economic activity 4.15 “District heating/cooling distribution” require that the system satisfies the definition of efficient district heating and cooling systems stipulated in Article 2, paragraph 41, of the Energy Efficiency Directive (Directive 2012/27/EU). Article 2 of the Energy Efficiency Directive refers to “waste heat”, but the EU Taxonomy Regulation and the Energy Efficiency Directive do not define “waste heat”. However, “waste heat” is defined in Article 2(9)** of the Renewable Energy Directive (Directive (EU) 2018/2001), which does not appear to exclude waste heat from waste incineration. In Annex IX of the Energy Efficiency Directive (EED), waste heat from waste incineration is explicitly referred to as an energy source that each country should utilise as much as possible to achieve efficient district heating systems. In light of this, we interpret this to mean that the utilisation of waste heat from waste incineration can be included in the assessment of whether the heating and cooling activities satisfy the definition of an efficient district heating system.
It is also worth noting that the Norwegian energy authorities recognise and encourage the use of waste heat from waste incineration. It is classified in the same manner as other sources of waste heat.*** Waste incineration is the only lawful option for the treatment of residual waste (volumes left over from sorting processes) in Norway, because disposal is prohibited. The primary purpose of incineration is to treat residual waste, while energy utilisation is an important secondary service. If waste heat is not used, the amount of residual waste, and thereby also the incineration process, will still be necessary and have the same CO2 emissions. The waste heat currently used in the district heating system would then have to be replaced by other sources of energy, which would have had either a direct or an indirect adverse effect on climate and nature.
*It is our interpretation that compliance with the technical screening criteria established by the Delegated Climate Act (Regulation (EU) 2021/2139) can be used to determine whether an activity is “environmentally sustainable” and that further assessment under Article 3(b) of the EU taxonomy is not necessary.
**“Waste heat and cold” means unavoidable heat or cold generated as a by-product in industrial or power generation installations, or in the tertiary sector, which would be dissipated unused in air or water without access to a district heating or cooling system, where a cogeneration process has been used or will be used or where cogeneration is not feasible:
***https://nve.no/nytt-fra-nve/nyheter-energi/stort-potensiale-for-mer-effektiv-oppvarming-og-bruk-av-spillvarme/ https://publikasjoner.nve.no/eksternrapport/2020/eksternrapport2020_08.pdf
Assessment of significant harm to Environmental Objectives 2 to 6
Climate change adaptation (DNSH 2): In 2022, Hafslund carried out a physical climate risk analysis for its heating and cooling activities in accordance with EU taxonomy requirements. An important principal finding was a potential risk for parts of the district heating grid located closest to the sea. This is because, when viewed from a long-term perspective, the sea waters will rise and the infrastructure will be under water. Hafslund Oslo Celsio is aware of this risk and has the opportunity to implement measures to mitigate this well in advance.
Sustainable use and protection of water and marine resources (DNSH 3): All of our facilities were subject to regulatory approval processes during construction, and environmental impact assessments have been carried out when required by the Norwegian authorities. Necessary mitigating measures have been implemented for all facilities.
Statutory supervision of the facilities is carried out during the operational phase. This includes inspections and annual reporting on sustainability performance. A risk register has been established which includes relevant risks relating to the potential for incidents that may lead to impact on water. The district heating and cooling business is ISO 14001-certified, and life cycle assessments of the district heating business have been carried out.
Based on the fact that the activity is carried out in accordance with all relevant legislation, it is our assessment that all district heating and cooling activities satisfy the criterion.
Pollution prevention and control (DNSH 5): An independent technical review of the criterion has been carried out by technical experts at Sweco, with legal assistance from MSA. The “EU Taxonomy Review” report was developed by Sweco for Hafslund Oslo Celsio and concerned the applicability of this criterion.
The report concludes that this criterion is not relevant for assessing whether district heating (distribution and production) does significant harm to the objective of “pollution prevention and control”. The listed equipment does not impact the pollution levels from the production of district heating. The report also documents that the distribution of district heating does not generally result in a significant increase in emissions of environmental pollutants into the air, water or land when compared to the situation prior to when the activity started. Finally, the report notes that replacing specified equipment for the purpose of achieving a better energy label will lead to increased emissions from a life cycle perspective, because existing equipment does not impact pollution levels, while the production of new equipment will result in the use of resources and energy for production. Sweco’s conclusions are supported by Hafslund.
Sweco’s conclusions are also in line with the conclusions presented in the annex to the TEG report** (page 256) published in March 2020, which states that “when concerning the operation of the district heating grids, the potential significant impact is considered low”. Based on this, our assessment is that district heating distribution does not cause significant harm to the environmental objective of pollution prevention and control.
Protection and restoration of biodiversity and ecosystems (DNSH 6): All of our facilities were subject to regulatory approval processes during construction, and environmental impact assessments have been carried out when required by the Norwegian authorities. Necessary mitigating measures have been implemented for all facilities.
Statutory supervision of the facilities is carried out during the operational phase. This includes inspections and annual reporting on sustainability performance. The district heating and cooling business is ISO 14001- certified, and life cycle assessments of the district heating business have been carried out.
The main facilities are located in urban or industrial areas that are not close to vulnerable nature. For smaller facilities that pass through areas that are of significant importance to biodiversity (for example, one of the main pipelines constructed in 2009), several measurements are carried out in order to protect the surrounding areas (For example, the pipe has an electronic leak alarm system). Some district heating systems are located near rivers and streams. All of these are equipped with protection systems that prevent oil and chemicals from leaking out in the event of an accident.
Based on the fact that the activity is carried out in accordance with all relevant legislation, it is our assessment that all district heating and cooling activities satisfy the criterion.
Minimum requirements for social standards
The minimum requirements for social standards in the EU taxonomy entail that Hafslund’s financial activities need to be in compliance with the OECD Guidelines for Multinational Enterprises and the United Nations Guiding Principles on Business and Human Rights. This includes compliance with the principles and rights stipulated in the eight fundamental conventions identified in the International Labor Organization’s “Declaration on Fundamental Principles and Rights at Work” and the “International Declaration of Human Rights.” Our assessment is that Hafslund complies with the minimum requirements for social standards. This assessment is based on our understanding of the OECD Guidelines for Multinational Enterprises and the United Nations Guiding Principles on Business, which emphasise that the implementation of the principles must be adapted to the conditions, including the size, complexity and context of a company’s activities (proportionality principle). See our discussion on compliance with the Transparency Act here.