Division and use of revenues in Phase 4 of the EU ETS - options to operationalise the December 2020 EUCO conclusions

Date: 8 February 2021

Author(s): Domien Vangenechten and Andrei Marcu

This paper intends to capture the state of debate regarding the use of revenues from EU ETS allowances, as well as how revenues are to be divided among Member States. Special attention is given to the recent European Council conclusions from December 10/11, 2020.

The paper puts forward three options to operationalise relevant elements in the Council conclusions:

  1. Increase the size of the Modernisation Fund;
  2. Introduction of a new, separate pool of allowances; or
  3. Change in the allocation key used to divide auctioned allowances between EUMember States.

This paper further outlines three main questions that should be considered by stakeholders and policymakers when deciding on the division and use of revenues in the EU ETS:

  1. What share of the Member State’s investment needs should be covered through (re)distributing auctioned allowances?
  2. Which elements or principles should be taken into account in the allocation key to (re)distribute auctioned allowances between Member States?
  3. Should the current spending rules for revenues from auctioned allowances or ETS funds be revisited?