EU ETS auctions generate revenues for EU member states to finance the green transition and sustainable projects. Investing in carbon allowances (EUAs) can help fight climate change by supporting these projects and increasing EUA prices, bolstering revenues allocated for climate-related initiatives and responsible investing. Individuals can contribute to responsible savings, green finance, and ethical investment by investing in EUAs.
The revenues from the European Union Emissions Trading System (EU ETS) auctions stem from the sale of European Union Allowances (EUAs). The generated funds are directed towards financing the green transition within the European Union. Over recent years, EU ETS revenues have been steadily growing, reaching €43.5 billion in 2023. Member states receive their EU ETS revenues based on predetermined proportions. A part of the EU ETS auction revenues go to the innovation and modernization funds - those facilitate technological transitions towards sustainability in Europe. By investing in EUAs, individuals can directly contribute to fighting climate change. This is done by supporting member states' efforts and bringing upward EUA price pressure, by tightening the market and bolstering revenues allocated for climate-related projects.
European Union Allowances (EUAs) are issued by the European Commission - this is what we call the carbon primary market. They are either allocated for free to industrial installations, or are sold through auctions. The European Energy Exchange (EEX) platform holds the common auctions for all EU member states (excluding Poland and Germany, which have opted to conduct their own auctions). Sales of EUAs occur daily as per a predetermined calendar schedule.
In recent years, EU ETS revenues have increased, following the escalating prices of carbon allowances. In 2022, the total EU ETS revenues were €30 billion, increasing to €43.5 billion in 2023 (Member States Revenues + Innovation and Modernization Funds). In that year, a total of 517,587,000 EUAs were auctioned at an average price of €84.
Proceeds from the common auctions are pooled by EEX and then distributed among member states. In 2022, the top five beneficiaries of revenues from EUA auctions were
Some of the revenues are allocated to innovation and modernization funds (the social climate fund to also be included in the years to come), which assist member states in financing their technological transitions toward more sustainable practices.
How are the EU ETS revenues used?
Until the end of 2023, 50% of auctioning revenues (for stationary installations) had to be allocated for climate action by member states. In reality, a higher proportion of proceeds was allocated to climate action - between 2013 and 2022, countries dedicated 76% of their EU ETS revenues to sustainability-related projects. From 2024 on, 100% of the proceeds from the cap-and-trade scheme will be used for sustainable projects, according to the newly adopted directives.
In total, €43 477 308 000 were raised from EU ETS auctions in 2023, split as follows:
France allocates its EU ETS revenues for climate action through the "ma prime renov '' program which funds energy renovation projects. After 2018, the government imposed a cap on investments in this program, and the rest of the proceeds from carbon markets are allocated to the general public budget for climate action.
In Italy, 50% of EU ETS revenues are directed towards climate projects, the remainder going into the general budget. Projects funded include the PREPAC program for retrofitting government buildings and initiatives promoting sustainable transportation.
Germany is the country that receives the most EU ETS auction proceeds. It allocates all the funds to various climate action projects. The invested money is used for building retrofitting, grants for electric vehicles, renewable heating programs, compensation for electricity-intensive industries, and measures to promote electromobility.
If we consider the average EUA price since the beginning of the year (€60), in total, €40 636 440 000 are expected to be raised from EU ETS auctions in 2024, split as follows:
As discussed earlier, there has been a decline in carbon market prices in recent months. It is mainly attributed to regulatory adjustments in response to the Ukraine conflict and the energy crisis. As a result, despite an increase in the issuance of EUAs in 2024, member states are experiencing reduced revenues from auctions.
By buying and holding EUAs, individual investors can help member states' efforts to combat climate change. Becoming a carbon investor has a dual impact. First, the generated proceeds are directly channeled into green projects as outlined above. The projects are verified and accepted by EU regulators, so the use of the money is transparent. No hidden terms or agendas.
Second, by increasing demand, individual investors contribute to tightening the market - they introduce a new type of demand with increased volumes. This leads to an upward pressure on prices. A € 1 decrease in EUA prices annually equates to a substantial loss of € 677,274,000 in EU revenues allocated for climate-related projects.
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