1. Introduction

A green taxonomy is a legal and regulatory classification system that identifies which economic activities can be regarded as environmentally sustainable for investment and disclosure purposes. In the electricity sector, taxonomy rules are particularly important because electricity generation, transmission, distribution, storage and related infrastructure require substantial capital and can either accelerate or obstruct the energy transition.

The central legal question is therefore not simply whether an electricity project is labelled “green”, but whether the project satisfies legally defined environmental criteria. Modern taxonomy frameworks generally examine climate contribution, environmental safeguards, technical performance, lifecycle impacts and the principle of “Do No Significant Harm” (DNSH).

The European Union has developed the most detailed legally binding taxonomy framework through Regulation (EU) 2020/852, while India has been developing a national green and sustainable finance taxonomy. The Reserve Bank of India has identified a national taxonomy as an important foundation for aligning government, regulators, financial institutions, borrowers and investors. (Reserve Bank of India)

2. Meaning and Purpose of Green Taxonomy

A green taxonomy answers a fundamental question:

What economic activities can legitimately be treated as environmentally sustainable?

Its principal purposes are:

preventing greenwashing;

directing private capital toward sustainable projects;

creating common technical standards;

improving comparability between investments;

supporting climate-policy objectives;

providing legal certainty to investors and project developers; and

connecting environmental objectives with financial regulation.

For electricity projects, this can determine whether financing can legitimately be described as supporting sustainable or green activities.

The EU Taxonomy Regulation establishes a framework for sustainable investment and delegates the Commission to establish detailed technical screening criteria for economic activities. (Finance)

3. Green Taxonomy and Electricity Projects

Electricity projects potentially covered by taxonomy systems include:

solar power plants;

wind farms;

hydropower projects;

geothermal generation;

electricity storage;

transmission infrastructure;

distribution networks;

smart grids;

renewable electricity integration;

cogeneration;

electricity generation from certain fuels;

nuclear electricity under applicable rules; and

supporting infrastructure for renewable energy.

However, being an electricity project does not automatically make it green.

A taxonomy generally requires the activity to satisfy specific technical and environmental conditions.

For example, the EU framework establishes technical screening criteria determining when an economic activity makes a substantial contribution to climate mitigation or adaptation and when it avoids significant harm to other environmental objectives. (Finance)

4. The Six Environmental Objectives

The EU Taxonomy Regulation is structured around six environmental objectives:

1. Climate-change mitigation

The electricity project should contribute substantially to reducing greenhouse-gas emissions or otherwise support decarbonisation.

2. Climate-change adaptation

The project should contribute to reducing material physical climate risks.

3. Sustainable use and protection of water and marine resources

Electricity projects—particularly hydropower and thermal generation—can have significant water impacts.

4. Transition to a circular economy

The project should consider resource efficiency, waste reduction, recycling and lifecycle impacts.

5. Pollution prevention and control

The activity should not create unacceptable levels of air, water or soil pollution.

6. Protection and restoration of biodiversity and ecosystems

Projects should avoid or appropriately manage adverse impacts on ecosystems and biodiversity.

The EU's Environmental Delegated Act expanded taxonomy criteria relating to water, circular economy, pollution and biodiversity, alongside amendments to climate-related criteria. (Finance)

5. Substantial Contribution Requirement

A central concept is the requirement of a substantial contribution.

For a renewable electricity project, this could involve demonstrating that the project contributes materially to climate-change mitigation.

For example:

Solar project → renewable electricity → displacement of higher-carbon generation → reduction in lifecycle emissions.

But the legal test is more demanding than simply demonstrating that solar energy is renewable. The project must satisfy the applicable technical screening criteria.

Consequently, taxonomy creates a distinction between:

Renewable activity
and
taxonomy-aligned sustainable activity.

That distinction is extremely important in electricity regulation.

6. The “Do No Significant Harm” Principle

One of the most important principles of taxonomy law is DNSH—Do No Significant Harm.

A project may make a substantial contribution to climate mitigation but still fail taxonomy requirements if it significantly harms another environmental objective.

For example:

Hydropower project

A hydroelectric project may produce low-carbon electricity, but its taxonomy eligibility can require consideration of:

river ecology;

biodiversity;

water flows;

fish migration;

ecosystem disruption;

climate resilience.

Solar project

A solar project may contribute to decarbonisation but can raise questions concerning:

land use;

biodiversity;

water consumption;

hazardous substances;

equipment waste;

end-of-life recycling.

Thus, taxonomy creates an integrated environmental assessment rather than a narrow carbon test.

7. Taxonomy Eligibility and Taxonomy Alignment

An important legal distinction is between eligibility and alignment.

Taxonomy eligibility

An activity falls within an economic activity described by the taxonomy.

Taxonomy alignment

The activity additionally satisfies the relevant:

substantial-contribution criteria;

DNSH criteria;

minimum safeguards; and

technical screening criteria.

Therefore:

Eligibility ≠ automatic sustainability.

This distinction is particularly important for electricity companies reporting green investments.

8. Electricity Generation and Technical Screening Criteria

Technical screening criteria translate broad environmental objectives into measurable legal requirements.

For an electricity project, they can concern:

emissions intensity;

technology;

lifecycle emissions;

efficiency;

environmental-management systems;

climate-risk assessment;

biodiversity safeguards;

pollution controls;

water-management requirements;

waste management;

compliance with environmental legislation.

This approach converts environmental policy into legally operational standards.

The European Commission expressly describes technical screening criteria as the mechanism through which the actual list of environmentally sustainable activities is established. (Finance)

9. Renewable Electricity Projects

Renewable electricity is one of the most important areas of taxonomy regulation.

Wind and solar projects generally provide a straightforward example of climate-mitigation activities, but taxonomy law still requires compliance with detailed environmental safeguards.

The EU courts have now directly considered challenges concerning wind-power generation and taxonomy criteria.

Fédération environnement durable and Others v European Commission

Case T-583/22, Judgment of 10 September 2025

The case concerned the EU taxonomy treatment of electricity generation from wind power. The applicants challenged the Commission's rejection of an internal review concerning the technical screening criteria applicable to wind-power activities.

The General Court considered questions involving:

substantial contribution to climate mitigation;

climate adaptation;

technical screening criteria; and

the requirement that activities cause no significant harm to other environmental objectives. (EUR-Lex)

Legal significance

The case demonstrates that even renewable electricity activities can become subjects of judicial scrutiny concerning:

whether the technical screening criteria adequately implement the statutory requirements of the Taxonomy Regulation.

Thus, “renewable” does not mean “immune from environmental-law review.”

10. Fossil Gas and Electricity Taxonomy

One of the most controversial areas has been the classification of certain fossil-gas electricity generation activities as transitional activities.

The EU Taxonomy framework permits certain transitional activities where they can contribute to the transition toward a climate-neutral economy under specified conditions.

This generated litigation concerning the inclusion of fossil gas and nuclear activities in the taxonomy.

Republic of Austria v European Commission

Case T-625/22, Judgment of 10 September 2025

Austria challenged the EU's decision concerning the inclusion of certain nuclear and fossil-gas activities under the Taxonomy Regulation.

The case examined issues including:

climate-change mitigation;

the transition toward carbon neutrality;

the 1.5°C objective;

the concept of low-carbon activity;

significant environmental harm;

scientific evidence;

precaution;

technical screening criteria; and

the Commission's discretion. (EUR-Lex)

Importance for electricity projects

The case illustrates that taxonomy classification is not merely an accounting exercise. It can involve judicial examination of:

scientific evidence + environmental law + delegated legislation + climate policy + administrative discretion.

This is especially significant for electricity projects involving technologies whose environmental status is contested.

11. Nuclear Electricity

Nuclear power demonstrates the difficulty of applying taxonomy principles to electricity technologies with both climate and environmental dimensions.

The legal debate involves two competing questions:

Climate perspective

Nuclear generation can produce electricity with relatively low direct operational greenhouse-gas emissions.

Environmental-risk perspective

Nuclear projects raise questions concerning:

radioactive waste;

severe accident risks;

water use;

climate-related physical risks;

long-term environmental effects.

The Austria v Commission litigation directly addressed these questions in the context of the EU Taxonomy Regulation and the inclusion of nuclear activities. (EUR-Lex)

The case therefore demonstrates that taxonomy classification requires consideration of multiple environmental objectives simultaneously, rather than evaluating electricity solely through carbon emissions.

12. Fossil Gas, Transition and the “Green” Label

Taxonomy systems distinguish between genuinely sustainable activities and certain transitional activities.

This distinction is legally important because a transitional activity does not necessarily represent the same environmental status as a renewable activity.

The controversy over fossil-gas electricity illustrates this problem. Environmental organisations challenged the EU classification of certain fossil-gas electricity activities, arguing that the classification was inconsistent with the Taxonomy Regulation and broader climate legislation. (clientearth.org)

The legal issue is therefore:

Can an activity that is not itself zero-carbon nevertheless qualify as contributing sufficiently to the transition to a climate-neutral economy?

Taxonomy law attempts to answer this through specific technical criteria rather than through an unrestricted political label.

13. Forest Biomass and Electricity Generation

Another significant issue concerns electricity generated using biomass.

Biomass may be treated as renewable under particular legal frameworks, but its environmental effects can depend heavily on:

source of biomass;

forest-management practices;

lifecycle emissions;

land-use changes;

carbon-accounting methodology;

biodiversity impacts.

ClientEarth v European Commission

Case T-579/22, Judgment of 10 September 2025

The litigation concerned the taxonomy treatment of activities involving bioenergy and forest biomass, among other activities.

The General Court considered issues concerning:

substantial contribution to climate mitigation;

transitional activities;

quantitative thresholds;

scientific evidence;

lifecycle assessment;

precautionary principles;

DNSH;

circular economy;

water and marine resources; and

pollution. (EUR-Lex)

Importance

The case demonstrates that the legal classification of an electricity-generation technology can depend on its complete environmental lifecycle, rather than merely the immediate source of electricity.

14. Electricity Transmission and Distribution

Green taxonomy should not be limited to generation.

Electricity grids are essential to the energy transition because renewable electricity requires:

transmission capacity;

distribution networks;

grid flexibility;

storage;

interconnection;

smart-grid infrastructure.

Consequently, taxonomy frameworks can influence investment decisions regarding infrastructure that facilitates renewable-energy integration.

A transmission project may therefore have environmental significance even though it does not itself generate electricity.

15. Electricity Storage

Battery storage and other energy-storage technologies can support:

renewable integration;

grid stability;

reduction of curtailment;

flexibility;

balancing;

peak management.

But taxonomy assessment can also examine:

raw-material sourcing;

battery lifecycle;

recycling;

hazardous substances;

resource efficiency;

environmental impacts of manufacturing.

This illustrates the broader principle that taxonomy regulation increasingly examines whole-system sustainability, not merely operational emissions.

16. Green Taxonomy and Green Finance

Taxonomy is closely connected with sustainable finance.

A bank or institutional investor can use taxonomy information to determine whether electricity-related investments satisfy prescribed sustainability criteria.

This can influence:

green bonds;

green loans;

project finance;

sustainable investment funds;

institutional portfolios;

sustainability disclosures;

corporate reporting.

In India, the RBI has identified green taxonomy as a key element of the sustainable-finance ecosystem and has specifically highlighted the need to address greenwashing risks. (Reserve Bank of India)

17. Indian Legal Context

India is developing its own green and sustainable finance architecture.

The RBI's framework for green deposits has used an interim list of eligible green activities pending finalisation of an official Indian green taxonomy. That list includes renewable-energy projects such as:

solar;

wind;

biomass;

hydropower; and

projects integrating generation and storage. (RBI System Health)

This demonstrates the emerging relationship between taxonomy and Indian electricity finance.

Relevant Indian legal and regulatory instruments include:

Electricity Act, 2003;

Energy Conservation Act, 2001;

regulations of the Central Electricity Regulatory Commission (CERC) and State Electricity Regulatory Commissions;

renewable-energy policies;

SEBI's sustainable-finance and disclosure framework; and

RBI's green-finance measures.

India's taxonomy architecture remains an evolving area, and the RBI has expressly described a national green/sustainable finance taxonomy as being under development. (Reserve Bank of India)

18. Important Indian Case-Law Principles

India does not yet have an extensive body of reported judgments specifically interpreting a comprehensive national green taxonomy comparable to the EU Taxonomy Regulation. However, Indian environmental and electricity jurisprudence provides important principles relevant to taxonomy-based electricity classification.

A. Vellore Citizens' Welfare Forum v Union of India

The Supreme Court recognised the precautionary principle, the polluter-pays principle, and sustainable development as important principles of Indian environmental law.

These principles are highly relevant to taxonomy because taxonomy requires environmental impacts to be assessed rather than simply accepting a project's “green” label.

B. Hanuman Laxman Aroskar v Union of India

The Supreme Court emphasised the importance of environmental decision-making, scientific assessment and procedural fairness in environmental-clearance processes.

This has relevance to taxonomy because sustainable classification increasingly depends upon scientifically supported environmental information.

C. Alembic Pharmaceuticals Ltd. v Rohit Prajapati

The Supreme Court stressed the importance of environmental safeguards and proper regulatory compliance.

The underlying principle is relevant to green-finance classification: environmental compliance cannot simply be substituted with an after-the-fact financial label.

D. Orissa Mining Corporation v Ministry of Environment & Forests

The Supreme Court recognised the significance of environmental, ecological and community-related considerations in development decisions.

This is relevant to taxonomy because sustainable electricity infrastructure can have impacts extending beyond carbon emissions.

19. Greenwashing and Taxonomy

One of the most important legal functions of taxonomy is combating greenwashing.

Greenwashing occurs when a financial product or economic activity is presented as environmentally sustainable without adequate evidence.

For electricity projects, examples could include:

describing a high-emission project as “green” without satisfying technical criteria;

ignoring lifecycle emissions;

ignoring biodiversity damage;

excluding material environmental risks from disclosures;

presenting transitional activities as equivalent to zero-emission activities.

Taxonomy addresses this problem by establishing standardised legal criteria.

The RBI has specifically identified greenwashing as a risk requiring attention within India's sustainable-finance ecosystem. (Reserve Bank of India)

20. Role of Scientific Evidence

Modern taxonomy law increasingly relies upon scientific evidence.

This creates an important relationship between:

science → technical criteria → delegated regulation → investment classification → judicial review.

The 2025 EU taxonomy judgments demonstrate the significance of scientific evidence in evaluating whether technical criteria comply with the Taxonomy Regulation. The Austria case, for example, expressly concerned scientific evidence, precaution and the Commission's margin of discretion. (EUR-Lex)

Therefore, scientific methodology becomes indirectly relevant to financial and investment law.

21. Judicial Review of Taxonomy Decisions

Taxonomy decisions can be challenged where parties allege that regulators:

exceeded delegated powers;

applied incorrect scientific standards;

failed to satisfy statutory requirements;

violated environmental principles;

failed to consider DNSH;

made a manifest error;

inadequately justified classification; or

improperly exercised administrative discretion.

The 2025 EU cases demonstrate that taxonomy has become a genuine field of environmental administrative law rather than merely a financial-reporting mechanism. (EUR-Lex)

22. Legal Challenges for Electricity Projects

Several recurring legal issues arise.

1. Scientific uncertainty

Environmental effects may be uncertain, particularly for new technologies.

2. Lifecycle assessment

A technology that appears clean during operation may have significant upstream or downstream impacts.

3. Transitional technologies

Gas, biomass and other technologies raise difficult questions about the boundary between transition and sustainability.

4. DNSH assessment

A project may substantially contribute to climate mitigation while damaging biodiversity, water resources or ecosystems.

5. Greenwashing

Investors and consumers need reliable information.

6. Administrative discretion

Regulators must translate scientific evidence into legally enforceable criteria.

7. Technology neutrality

Taxonomy systems must avoid unjustified discrimination between technologies while still recognising their different environmental characteristics.

23. Relationship Between Taxonomy and Electricity Law

Green taxonomy creates a bridge between energy law and financial law.

Traditional electricity regulation focuses on:

licensing;

generation;

transmission;

distribution;

tariffs;

grid access;

reliability;

market competition.

Taxonomy introduces another dimension:

environmental sustainability of electricity-related economic activity.

The result is an increasingly integrated regulatory framework:

Electricity regulation + environmental law + financial regulation + climate policy + disclosure law.

24. Conclusion

Green taxonomy provides a legal classification architecture for sustainable electricity investment. Its significance lies in transforming broad environmental goals into measurable criteria that investors, electricity companies, regulators and courts can apply.

For electricity projects, the central legal principles are:

substantial contribution to an environmental objective;

compliance with technical screening criteria;

Do No Significant Harm to other environmental objectives;

compliance with applicable minimum safeguards;

scientifically defensible environmental assessment;

transparent disclosure; and

protection against greenwashing.

The recent EU jurisprudence is particularly significant. Fédération environnement durable v Commission (T-583/22) demonstrates judicial scrutiny of taxonomy criteria for wind electricity; Austria v Commission (T-625/22) addresses the difficult classification of nuclear and fossil-gas activities; and ClientEarth v Commission (T-579/22) examines bioenergy and forest biomass alongside the scientific and DNSH requirements of taxonomy law. (EUR-Lex)

For India, the development of a national green taxonomy is likely to become increasingly important for determining how renewable-energy projects, electricity infrastructure, storage and other energy-transition investments are classified for sustainable finance. The RBI has already identified taxonomy as a foundational component of India's green-finance ecosystem. (Reserve Bank of India)

In essence, green taxonomy changes the question from “Is this electricity project called green?” to “Can the project demonstrate, under legally defined and scientifically supported criteria, that it is environmentally sustainable?”