ERCST EXPLANATORY NOTE: EU ETS Auctioning & REPowerEU

Author(s): Andrei Marcu, Juan Fernando López, Gabriele Romeo

General remarks:

In May, EU institutions adopted the REPowerEU Plan as a way to reduce Europe’s dependence on Russian fossil fuels and mitigate the volatility in prices driven by the energy crisis.

REPowerEU is set to be financed through the utilisation of EU Emissions Trading System’s (ETS) revenues. Starting in 2023, this funding mechanism will have direct implications for the distribution and supply of allowances in the European carbon market.

In this explanatory note, ERCST summarises the features of REPowerEU, with a direct impact on the distribution of EU ETS allowances, and expound the next steps in the policymaking process.

We shed light on the fact that REPowerEU, which was promoted as an extraordinary measure to address an extraordinary energy supply shortage and escalating energy prices, is actually setting a precedent for future interventions in the European carbon market.