Using EU ETS Auctioning Revenues for Climate Action

The European Union Emission Trading Scheme (EU ETS) is facing serious problems. Clear decisions are necessary to ensure that the EU ETS will realise its double potential during the third EU ETS period as a key instrument for reducing emissions and generating revenues for national and international climate action. The ETS revenues could become an essential funding source already during the second and then the third EU ETS period (with the appropriate framework conditions). The paper will shed light on the potential of the EU ETS as a finance instrument. And it will “reactivate” the question regarding earmarking the EU ETS revenues.

Therefore it focuses on the earmarking approach and whether earmarking is a sensible means. We present Germany as a case study of earmarking ETS revenues for climate finance. In addition, the paper contains the case studies of six EU member states: the state of play of the use of EU ETS revenues is presented and the suitability of earmarking in each respective country is discussed. Our country case studies show that these EU Member States have prepared plans for the use of the EU ETS revenues (in line with the ETS directive). However, in some countries the spending plans are still under discussion.

In these seven EU Member States at least, the EU ETS could also work as an innovative finance source for climate action. But this would require the necessary decisions for repairing the ETS to be taken soon.