EU Emission Trading System: Our 5 recommendations for a sensible use of the “Modernisation Fund”



David Donnerer

Publication date

April 19, 2016

The EU Emission Trading System (ETS), launched in 2005, is a pillar of EU climate policy and the largest system of its kind. Giving a price to carbon and a limited “right to pollute” through Greenhouse Gas (GHG) emission allowances, it should lead to widespread emission cuts. However, the EU ETS has so far failed to deliver, resulting in a carbon price of only €5 and billions of Euros of profits for carbon polluting industries. Moreover, the top-down EU ETS has not been faithful to Europe’s democratic model. In the ongoing ETS reform, it is therefore crucial to change its purpose, so it serves the locally driven energy transition.

The Modernisation Fund, a funding instrument in the framework of the ETS for the period of 2021 to 2030, is a step in the right direction. The Modernisation Fund will use 2% of the EU ETS allowances to support 10 Member States in Central and Eastern Europe in “meeting the high investment needs relating to energy efficiency and the modernisation of their energy systems” between 2021 and 2030.

The Fund is bound to generate approximately €8 billion for the eligible Member States Poland, Czech Republic, Romania, Hungary, Bulgaria, Slovakia, Croatia, Estonia, Lithuania and Latvia.

Energy Cities, endorsed by its collective members OER RomaniaEcoEnergy Bulgaria and Healthy Cities of the Czech Republic, shares its vision of how the Modernisation Fund can boost the locally driven energy transition to a low-carbon society. The ETS Modernisation Fund should rely on the five following cornerstones:

  1. Go local: the future of the energy system is decentralized!
  2. Support employment-intensive projects
  3. Invite the right people to sit at the governance table
  4. Divest carbon trading revenues to the local energy transition
  5. Make it an open and transparent process

The four years that will precede the timeline of the reformed ETS are crucial to build the foundations of a future-proof and resilient energy system. With the symbolic signing ceremony of the global climate Paris agreement merely days away and its possible early entry into force, it is paramount that the EU provides an ambitious signal that it is serious about its commitment to become carbon-free by 2050. The Modernisation Fund should support the creation of a “modern” energy system that paves the way for this societal transformation.

For more information, read our full briefing on the ETS Modernisation Fund here.

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