The proceeds from the auction sale of European Union Allowances (EUAs) has become a major financial driver for sustainable projects. With the rising carbon prices since the inception of the European Emissions Trading Scheme (EU ETS), the EU is increasingly relying on this financial resource. Since the EU ETS's inception, it has raised around €152 billion through auctions. Of this, 90% is redistributed to EU member states, while the remaining 10% supporting specialized funds like the Innovation Fund and the Modernisation Fund.
In 2023, the EU ETS generated approximately €43.5 billion from EUA sales. This sum was allocated as follows:
As you can see, the majority of EUA revenue—€33.04 billion—was distributed to individual member states. These funds are fundamental for national climate and energy projects, like developing renewable energy sources and enhancing energy efficiency. They contribute to the member states’ local decarbonization and for individual countries to meet their national environmental targets. For example, Germany's revenue grew from about €1.15 billion in 2016 to over €7.65 billion in 2023, reflecting both the increasing price of EUAs and the increasing scale of the EU carbon market. Similarly, Spain and Italy experienced substantial revenue growth, enabling them to fund a broader range of environmental programs and expand their scope.
The Innovation Fund, with €1.74 billion collected in 2023, allocates funds for technological advancements for more sustainable production operations. This fund supports projects that focus on reducing CO2 emissions through innovations in renewable energy, energy storage, and carbon capture and storage (CCS) for example.
The Modernisation Fund received €5.65 billion in 2023 and targets energy system modernization and efficiency improvements in lower-income EU member states. This fund helps bridge the gap between economically diverse regions, to make sure that there is a more equitable transition to a low-carbon economy at the European Scale.
The RepowerEU package, having received €3.04 billion in 2023, is an EU initiative aimed at strengthening the European Union's energy security and independence. Created in response to the war in Ukraine and resulting energy supply challenges, it leverages funds from different sources, notably from the sale of carbon allowances.
Expected EUA revenues are projected to reach around €40.6 billion by the end of 2024, assuming an average EUA price of €60. This is lower than anticipated, mostly due to the drop in prices during 2023 and the early months of 2024. For example, regulators had originally projected an average EUA price of €75 for the RepowerEU package's anticipated revenues.
As carbon prices increase, so do carbon revenues, which in turn boost funding for sustainable projects. Starting in 2024, all revenues will be directed towards climate investments, enhancing the EU ETS's effectiveness as a decarbonization tool.
Share it with your network and introduce Homaio to those interested in impact investing!
A newsletter to help you understand the key challenges of climate finance.
Dive into the world of carbon markets, where economics, finance, and environmental science converge. Get your ultimate guide now.
.avif)
Share it with your network and introduce Homaio to those interested in impact investing!
.jpg)
.jpg)
