Under the EU Emissions Trading System (EU ETS), the majority of emission allowances are auctioned to companies participating in the EU carbon market. As carbon prices have grown significantly in recent years, so too have the revenues from these auctions – rising from EUR5 billion in 2017 to EUR30 billion in 2022. This increasing trend is expected to continue. The revenues from auctioning are used by Member States, which report that 76% of the total revenue between 2013 and 2022 was spent on climate, renewable energy and energy efficiency related purposes.

Figure 1. Auctioning revenues and reported usage, EU-27

Auctioning revenues and reported usage, EU-27

The EU Emissions Trading System (EU ETS) is a ‘cap and trade’ system covering the power sector, energy-intensive industries and aviation. The cap, expressed in allowances, limits the total amount of greenhouse emissions that can be emitted by all EU ETS operators together. Individually, each company covered by the EU ETS must surrender enough allowances to account for their greenhouse gas emissions. Allowances are allocated freely or through auctioning by the public authority. Companies can trade allowances, effectively establishing a European carbon market.

Total auctioning revenues generated under the ETS system amounted to EUR38.8 billion in 2022, of which EUR29.7 billion went directly to EU Member States. The remaining went to the Innovation Fund (EUR3.2 billion) and the Modernisation Fund (EUR5.4 billion), further details here, as well as to EFTA countries (EUR239 million) and Northern Ireland (EUR168 million).

Mid-2023 requirement was that Member States spend at least 50% of auctioning revenues and 100% of aviation allowance revenues for climate- and energy-related purposes, such as:

  • GHG emission mitigation; climate change adaptation;
  • research and development projects;
  • renewable energy development;
  • transitioning to a low-carbon economy;
  • preventing deforestation;
  • improving energy efficiency.

Between 2013 and 2020, 75% of revenues were reported as used for climate- and energy-related purposes across the EU-27, and 76% in 2021 and 2022. No information was reported on how the remaining 24% was spent, and may include spending on climate- and energy-related purposes that were not fully decided at the time of the reporting.

Most of the spending of auctioning revenues was reported for actions at domestic or EU level between 2013 and 2022. In absolute terms, the amount directed to projects at the international level – mostly benefiting developing countries via multilateral funds and institutions – remained relatively unchanged since 2018 (around EUR200 million per year).

The European Climate Law of July 2021, set new binding EU-wide climate targets for 2030 and 2050. To achieve these, the Fit for 55 package was proposed in 2021 and, as part of it, several amendments to the EU-ETS Directive were adopted in the first half of 2023, with the following:

  • including maritime transport from 2024 onwards in the current ETS system, while carbon pricing will be extended to fuel use in buildings and road transport from 2027. This is accompanied by the creation of a Social Climate Fund;
  • making emission reduction targets for EU ETS sectors more ambitious, increasing the target for 2030 from a 43% reduction to a 62% reduction, compared with 2005 levels;
  • a requirement for Member States to use all auctioning revenues for climate- and energy-related purposes (100% instead of 50%), starting in mid-2023.

These adjustments mean that fewer allowances will be available to EU ETS sectors, partly explaining recent carbon price increases.

Figure 2. Auctioning revenues and reported usage in 2022, for each Member State

Of the EU Member States, Germany generated the highest EU ETS auctioning revenue in 2022, at EUR6.8 billion, followed by Poland, at EUR5.0 billion, and Italy and Spain, at EUR3.2 billion each. Together, these Member States account for about 60% of the auctioning revenues that went directly to the EU-27 Member States in 2022.

Almost all the Member States have reported data showing they have spent more than 50% of ETS auctioning revenues on climate and energy related actions in 2022. Seventeen of the Member States reported a spending level in 2022 that was close to, or already aligned with, the new requirement of 100% on climate and energy related actions.