Using revenue raised from the EU Emission Trading Scheme

Revenue raised through the auctioning of European Union Allowances (EUAs) from the EU emission trading scheme (EU-ETS) provides an opportunity to fund environmental improvements throughout the EU (provided the price of carbon remains high) and to meet the shortfall in international climate finance. To this end, IEEP recently completed a report for the European and Economic Social Committee looking at the potential of a range of market-based instruments to fund environmental improvements, while offering the potential to engage with civil society. The study focussed largely on the role of EU-ETS auctioning revenue, and analysed the potential to earmark revenue more specifically.

Some Member States maintain that earmarking results in rigid, long-term fiscal obligations. In the UK for example, there is no intention to earmark auctioning revenue from the EU-ETS, while in Germany 100 per cent of EUA auctioning revenue raised in Phases II and III of the scheme will be invested in projects that improve the environment. In 2012, this represented a total of €780 million. Our research indicates that earmarking can be effective in cases where revenue streams are predictable, where the volume of revenue is manageable and where the right type of governance structure has been put in place as part of a longer term fund management strategy. Earmarking is also intrinsically transparent, thus providing an overview of the investment of funds into environmental improvements, while also providing a key entry point for civil society engagement.

For more information please contact Jane Desbarats.