Sustainable Manufacturing

Definition

Sustainable Manufacturing is the manufacturing of products, key components, equipment and machinery in long-term sustainable manner

Manufacturing is the second largest contributor to CO2e emissions but is also be able to produce the products and technologies that can contribute to GHG emissions reductions in other sectors of the economy and is thus a fundamental part of the low-carbon economy.

The manufacturing section of the Taxonomy therefore includes both the manufacturing of low-carbon technologies as well as energy intensive and hard-to-abate manufacturing sectors. It aims to give support to those economic activities that are low in carbon emissions and first movers who are engaging in a transformational shift.

Subjects covered

The economic activities covered in this first Taxonomy development include both ‘greening of’ and ‘greening by’ activities. ‘Greening of’ activities include: the manufacturing of aluminium (NACE 24.42); the manufacturing of iron and steel (NACE 24.1, 24.2, 24.3); the manufacturing of cement (NACE 23.51); and the manufacturing of chemicals (NACE 20.13, 20.14, 20.15, 20.16). These sectors account for a high share of industrial GHG emissions and offer large potential for GHG emissions reductions.

‘Greening by’ activities include:

• the manufacturing of products, key components, equipment and machinery that are essential to a number of key renewable energy technologies (geothermal power, hydropower, concentrated solar power (CSP), solar photovoltaic (PV) technology, wind energy and Ocean Energy);
• the manufacturing of low-carbon transport vehicles, fleets and vessels;
• the manufacturing of energy efficiency equipment for buildings and other low-carbon technologies that result in substantial GHG emission reductions in further sectors of the economy (including private households).

Due to the nature of manufacturing, and in order to undertake a proper systemic value chain approach in the Taxonomy, close linkages have been made with the energy, transport, agriculture and building sectors. Where possible, circularity considerations (in so far as they affect GHG emissions) and a broader value chain approach have been taken into account.

Criteria and Thresholds

For ‘greening by’ activities, the criteria identify a number of defined products, components, equipment and technologies that qualify. For these, no criteria on the GHG emissions from manufacturing are given because the benefits these lead to are considered to outweigh their emissions. This uncomprehensive list is complemented by additional criteria that allow any other product, component, equipment or technology to be considered eligible if the overall benefits in terms of GHG emissions reductions are proven by life cycle carbon footprinting.

For ‘greening of’ activities, the criteria focus instead on reducing the GHG emissions caused by manufacturing activities up to the levels of performance achieved by best performers. The criteria cover in general both scope 1 and 2.

These activities are considered to make a substantial contribution to climate change mitigation if the specific thresholds set for each activity are reached (e.g. producing cement with GHG emissions lower than 0.498 tCO2e/t of cement). The EU ETS benchmarks have been the main reference for setting such thresholds, as they correspond to the level of performance achieved by the 10% best installations in the EU.

Additionally, the Taxonomy also supports the transition of economic activities in these high emitting sectors towards reaching the defined thresholds. It recognises expenditures in energy efficiency measures, process improvements and all other mitigation measures in these sectors as eligible if the measures support closing the gap between the current level of efficiency and the level considered ‘substantially contributing to mitigation objectives’ as defined by the thresholds. This has two implications for users of the Taxonomy:

1. For private finance users of the Taxonomy, where revenues from Taxonomy eligible activities count, such as equities (the share of a corporation would be considered eligible based on the share of revenues from Taxonomy-eligible activities): only manufacturing activities complying with the activity threshold would be considered eligible.
2. For the uses of the Taxonomy where expenditures in Taxonomy-eligible measures count (such as for financing projects, green mortgages, the use of proceeds from green bonds or simply counting how much a corporation has invested in climate mitigation): all the investments needed to reach the activity threshold would be considered eligible. This means that measures are eligible once they are implemented entirely and the threshold is reached, as well as if the individual investments in different measures are implemented over a defined time span (e.g. 5 or 10 years) as part of a multi-annual investment plan aimed at meeting the threshold that must be verified by a third party. The TEG suggests that further consideration will need to be taken by the platform on the usability of such an approach by small and medium-sized enterprises as well as the possible use of a similar approach for those sectors not currently covered in the manufacturing section of the Taxonomy.

Whilst many manufacturing activities are not currently covered in the Taxonomy and therefore cannot be recognized as green within, it is not assumed that all omitted activities are non-green or brown. Due to limited time, the TEG has focused its attention on those economic activities likely to play the biggest role in leading Europe down a low-carbon pathway to meet its Paris Agreement and 2050 climate neutrality goals. Therefore, the first round of sectors included in the manufacturing section of the Taxonomy are either those energy intensive and hard-to-abate sectors that emit the most greenhouse gas emissions or those enabling manufacturing sectors that are clearly necessary for Europe’s low-carbon economic transformation. This means that other manufacturing sectors (including other energy-intensive sectors) are not currently included even if they are significant in their impact.

In the manufacturing sector, certain processes are difficult to reduce to very low carbon levels, particularly in the metals, minerals and chemical sectors. In those cases, switching to renewable energy sources and energy efficient measures are not feasible options and very low carbon levels may only be achieved by either implementing an alternative manufacturing process, like switching to the production of alternative products, or due to the introduction of carbon capture and storage (CCS) technologies, which are addressed in another section of the Taxonomy. Additionally, if CCS enables an economic activity in the manufacturing sector to meet its screening criteria, the installation of CCS technology can be considered Taxonomy eligible once the screening criteria has been met. This also applies to overall economic activity. Carbon Capture and Utilisation (CCU), where the captured CO2 is utilized as a feed stock (e.g. for a chemical process), may also qualify, if substantial mitigation impacts can be demonstrated by reducing emissions towards meeting the activity criteria (e.g. the use of CO 2 for enhanced oil extraction would not qualify).

The thresholds set for the ‘greening of’ manufacturing sectors are predominantly tied to EU ETS benchmarks. That means that the thresholds reflect the average performance of the 10% most efficient installations in a particular sector. EU ETS benchmarks have been selected because they are the most robust benchmarks that currently exist and data calculated according to the boundaries set are readily available for all installations within the EU that are part of the EU ETS scheme. Although not necessarily readily available for non-EU installations, these can also be calculated univocally. Additionally, the EU ETS benchmarks are periodically updated, meaning that the thresholds that refer to them will not be static over time but automatically continue to represent the performance of the 10% best performing plants.

The TEG recognizes that there are disadvantages to using the EU ETS benchmarks. The benchmarks are based on EU historic trends rather than global data. Moreover, EU ETS benchmarks do not consider the full lifecycle of a process or product but are focused on scope 1 and/or scope 2 GHG emissions. Therefore, EU ETS benchmarks do not directly support recycling or improvement in upstream emissions. The TEG has actively looked for equally robust data sources, acknowledging the limitations of the EU ETS benchmarks. However, better data sources were not identified. In a number of sectors, the requirement to limit GHG emissions to the level set in the EU ETS benchmarks has been complemented by other thresholds (e.g. on the energy efficiency and carbon intensity of the electricity used) or by alternative qualitative criteria (e.g. making production of recycled aluminium eligible).

Within the ‘greening by’ activities, resource efficiency is also considered because it contributes to meeting the criterion of proving substantial emissions reductions through lifecycle carbon footprinting.

The TEG recommends that the Platform on Sustainable Finance undertake deeper analysis to explore how to further support resource efficiency measures that can lead to significant GHG emissions reductions, since it is a critical aspect of the Paris Agreement objectives. In addition, the TEG recommends that the future platform consider establishing screening criteria and thresholds on the basis of alternative data sources with a broader scope in terms of overall production processes and/or life cycle emissions than the EU ETS benchmarks when better data is identified.