In an effort to cut carbon emissions, the EU has been working on a classification scheme for sustainable investments, called a taxonomy, seeking to appeal to climate-conscious investors and boost the $200 billion (160 billion pounds) market for green bonds.
An EU official said most of the 28 EU states had agreed to the criteria which were likely to be approved on Wednesday, as world leaders meet to discuss climate change in New York.
Germany, Austria and Luxembourg, which want stricter rules, do not have the numbers to veto the plans, the official said.
The criteria do not rule out any sector from green labelling, EU documents show, a compromise that aims to allay concerns of countries such as France, which relies on nuclear energy, and east European nations, which still depend heavily on coal, a major polluter.
Applying the new rules would be postponed until December 2022, a delay of more than two years from the deadline originally envisaged, according to the EU documents that were prepared by Finland, now holder of the EU’s rotating presidency.
Under the criteria, governments would have more power to decide what is green, thwarting proposals made by the European Commission which had sought to give independent experts a bigger role in deciding which projects were environmentally friendly.
The latest version of the criteria also waters down proposals made by the European Parliament, which wanted to exclude from any green list projects involving coal or nuclear energy, or those related to cars running on fossil fuels.
Under the new rules, a project that sought to reduce rather than remove carbon emissions might be deemed green, officials said.
Without criteria in place, some firms have been able to “greenwash” projects, claiming environmental credentials that critics say they do not deserve. This has made investors wary.
The market for green bonds is mostly denominated in euros, unlike most other assets which are priced in dollars, so expanding the green bond market could help make the euro a stronger global currency, bankers say.
Germany, the EU’s biggest economy, with Austria and Luxembourg said in a joint statement that the compromises could pave the way for nuclear energy to qualify as sustainable, an outcome that they said would make the taxonomy “flawed”.
But the statement made no mention of coal or diesel cars. Germany, home to major carmakers, still operates coal mines and coal-fired power plants, which it plans to phase out by 2038.