FAQ EU Emissions Trading System Revenues

The EU Emissions Trading System (EU ETS) requires companies in power, heavy industry, aviation, and shipping to purchase emission allowances via auctions, with revenues distributed to 30 covered countries. While the 2023 reform mandates that revenues be spent on climate-related activities, historical data from 2013-2021 shows €25 billion was not spent on climate action and €12 billion went to projects that were not climate-sensible or could have increased emissions. The system utilizes a mix of auctioning and free allocations to prevent carbon leakage, though free allocations for aviation will end in 2026 and for heavy industry by 2034. Key funding mechanisms supported by these revenues include the Innovation Fund, expected to raise over €57 billion by 2030, and the Modernisation Fund, expected to invest €69.5 billion in 13 lower-income member states between 2021 and 2030.

• Under the 2023 reform, member states are required to spend EU ETS revenues on climate-related activities, which include reducing emissions, avoiding deforestation, fostering renewables, energy efficiency, cleaner mobility and heating technologies, carbon capture and storage, carbon removals, and protecting vulnerable households from electricity cost increases.
• Between 2013 and 2021, member states failed to invest a significant portion of EU ETS revenues in climate action, with €25 billion not spent on climate action and €12 billion spent on projects that were either not climate-sensible or potentially increased emissions.
• The EU ETS utilizes two major funding mechanisms for the energy transition between 2021 and 2030: the Innovation Fund, which is expected to raise over €57 billion for clean technology scaling, and the Modernisation Fund, which is expected to raise and invest €69.5 billion to support 13 lower-income member states.
• Free allocation of allowances, intended to prevent carbon leakage, is being phased out: aviation free allocations will end in 2026, and the system for heavy industry will be fully phased out by 2034.
• Historical over-allocation of free allowances to heavy industry, particularly in the steel, cement, and petrochemical sectors, led to windfall profits. In the 2013-2020 period, 4.3 billion allowances were distributed for free to cover 4.1 billion EUAs, resulting in a net over-allocation of 200 million allowances.

APA

Tamellini, L. (2024). FAQ EU Emissions Trading System Revenues. Carbon Market Watch. https://carbonmarketwatch.org/2024/07/11/faq-eu-emissions-trading-system-revenues/

Chicago

Tamellini, Lidia. FAQ EU Emissions Trading System Revenues. Carbon Market Watch, 2024. https://carbonmarketwatch.org/2024/07/11/faq-eu-emissions-trading-system-revenues/.

Wikipedia

{{cite report |last1=Tamellini |first1=Lidia |title=FAQ EU Emissions Trading System Revenues |publisher=Carbon Market Watch |date=11 July 2024 |url=https://carbonmarketwatch.org/2024/07/11/faq-eu-emissions-trading-system-revenues/ |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{tamellini2024faq, author = {Tamellini, Lidia}, title = {{FAQ EU Emissions Trading System Revenues}}, institution = {Carbon Market Watch}, year = {2024}, month = jul, url = {https://carbonmarketwatch.org/2024/07/11/faq-eu-emissions-trading-system-revenues/}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }