Use of auctioning revenues generated under the EU Emissions Trading System

Most of the emission allowances under the EU Emissions Trading System (ETS) are auctioned. Revenues from these auctions are primarily distributed to countries covered by the ETS and dedicated European Union level funds. As carbon prices have increased significantly since 2017, so too have the revenues that EU Member States collect from the ETS auctions, from EUR 5 billion in 2017 to EUR 33 billion in 2023. This increasing trend is expected to continue.

Figure 1. Auctioning revenues and reported usage, (Billion EUR), 2013-2022, scope EU-27

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The EU ETS is a ‘cap and trade’ system covering the electricity and heat generation, energy-intensive industries, maritime transport and aviation within the European Economic Area, including flights to Switzerland and the United Kingdom. Expressed in allowances, the cap limits the total amount of greenhouse emissions cumulatively emitted by companies covered by the EU ETS. Each company must surrender enough allowances to account for their greenhouse gas emissions annually. A share of the allowances is freely allocated, yet the majority are auctioned in a public authority led process. Companies can trade allowances, effectively establishing a European carbon market.

Several amendments to the EU ETS Directive have been adopted to achieve the goals set out in the European Climate Law. In particular, Member States are now obliged to use 100% of the revenue collected (or a financial equivalent) to support specific climate action and energy transformation purposes, except for any revenue that Member States spend in aid for electricity-intensive industries for indirect carbon costs .This applies from June 2023, whereas beforehand, Member States were encouraged to spend at least 50% of their revenues on those purposes.

Purposes for which Member States can spend these revenues are:

industrial decarbonisation;
energy transformation;
clean tech technologies;
adaptation to climate change;
decarbonisation of the transport sector;
actions for just transition.

Revenues generated from auctioning EU ETS allowances are an increasing source of income for Member States, having significantly risen since 2017 along with carbon prices. The price reached an annual average of €83 per tonne of carbon dioxide (tCO₂) in 2023, up from an annual average of €5/tCO₂ in 2017 and €25/tCO₂ in 2020.

Total auctioning revenues generated under the ETS system amounted to €43,6 billion in 2023, of which €33 billion went directly to Member States. The remaining to the Innovation Fund, the Modernisation Fund (€7.4 billion), the EFTA countries and Northern Ireland (€0,3 billion).

Over the last decade, EU Member States used most of their auction revenues on domestic actions. Data on spending in 2023 shows revenue used for domestic purpose by category of action. In this year, 67% of revenue used domestically went to domains of energy supply, grids and storage (e.g. renewables, self-consumers), and public transport and active mobility. Overall, the amounts spent on projects at international level – mostly benefiting developing countries via multilateral funds and institutions - have remained small and relatively unchanged since 2018 (at around €100-€200 million per year). Between 2013 and 2022, around 75% of auctioning revenues were reported as committed or disbursed for climate- and energy-related purposes across the EU-27, well above the 50% target.

Figure 2. Auctioning revenues and reported usage, (Million EUR), in 2023, for each Member State

From June 2023, all relevant ETS revenue must be spent on climate and energy related actions, but this money does not need to be fully spent in the year of generation. Member States reported already having disbursed 72% of the year’s revenue for energy and climate purposes in 2023. Additional disbursements of 2023 revenues are expected in 2024. Therefore, the percentage share will be updated in 2024, and Figure 2 does not fully represent how all 2023 revenues will have been spent.

Of the EU Member States, Germany generated the highest EU ETS auctioning revenue in 2023, at €7.6 billion, followed by Poland (€5.4 billion), and Spain and Italy (€3.6 and €3.5 billion respectively). Together, these high generating Member States account for about 60% of the auctioning revenues that went directly to all EU-27 Member States in 2023. Eleven Member States have declared to already meet the 100% target. Other's data are expected for updating in 2024.

Supporting information

DefinitionMethodology

Member States report annually on the use of auctioning revenues for climate change- and energy-related purposes, under Article 17 of Regulation (EU) No 525/2013. Member States shall report on the amounts and the use of auctioning revenues under the Regulation on the Governance of the Energy Union and Climate Action (2018/1999, Article 19(2)) and, from 2021 to 2023, under Annex II of Implementing Regulation 2020/1208, and from 2024, under Implementing regulation 2024/1281. These data have been used to estimate the share of revenues used for climate change- and energy-related purposes as shown in this indicator.

Note that Figures 1 and 2 above shows only the EU ETS revenues share that went directly to Member States (e.g. in 2021, the total EU ETS auctioning revenues amounted to €31 billion, of which €25 billion went directly to the 27 Member States).

Data from 2013 to 2022:

Annual reporting does not necessarily cover on how the revenues of that year are spent, but the spending of revenues during that year, i.e. it can include revenues from earlier years.

Spending is understood as comited and disbursed money in a given year.

Member States only report on spending for the purposes of addressing climate change and energy, but this does not mean that the amount not covered in the report is necessarily spent for other purposes: it is also possible that revenues are spent later, or used to fund many projects/activities, only part of which are linked to climate change and energy, or that a certain amount has been set aside for climate and energy but not all of it has yet been formally attributed to specific projects.

Additionally, multiple Member States do not earmark their auction revenues for a specific purpose, but instead attribute part or all of their revenues to a broad budget such as the general budget, that is funded by multiple sources. The general budget can then be spent on both climate change and energy and other purposes. Often, in such cases example projects funded by the broad budget are reported, but a direct link to auctioning revenues cannot be made. Reported spending can also be higher than the revenues of that year, if either it includes spending of previous years’ revenues or if the reported projects were co-funded with other funds. For the purposes of the estimated shares spent on climate and energy, the annual shares have been capped at 100% in order to avoid distortion of the figures.

Data from 2023:

The data include only the spending (disbused money) in 2023 from the revenues generated in 2023 (revenues from earlier years spent in 2023 are not included).

Specific methodological notes on individual country data are available in the Commission’s " Climate Action Progress Report 2024".

Policy/environmental relevanceAccuracy and uncertaintiesData sources and providers

Metadata

DPSIRTopicsTagsTemporal coverageGeographic coverage

TypologyUN SDGsUnit of measureFrequency of dissemination

References and footnotes

The EU ETS Directive permits Member States to provide compensation to the most electricity-intensive sectors to offset higher electricity costs resulting from the EU ETS. This can be done through national state aid programs, with the aim reduce the risk of “carbon leakage”, where companies relocate production to countries outside the EU where less ambitious climate policies are in place. Member States are encouraged to allocate no more than 25% of auctioning revenues for this purpose. If they exceed this limit, they must provide justification.
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The different purpose are listed in the EU ETS Directive.
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The remaining 25% is not necessarily spent on actions not related to climate or [sustainable] energy. It is reported as unspecified and thus it is unknown how it was or might be spent.
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