AUTHORS: Jane Desbarats – Tomas Badura – Patrick ten Brink

The current demand for climate finance warrants careful consideration of the revenue available through auctioning under the EU-ETS.

The text of the Cancun Agreements from the COP XVI UNFCCC negotiations urged all Parties to the Kyoto Protocol to mobilise climate funds in the order of $100 billion per annum up to 2020 to address adaptation to climate change in developing countries. Based on an ideal scenario where the estimated carbon price of EUAs is €30/tonne, the total amount of revenue generated in Phase III of the Scheme (2013-2020) could be as high as €31 billion.

Both the EU and individual Member States have the potential to benefit from auctioning revenue if they implement auctioning platforms. All market based instruments have the ability to generate revenue, but the volume and specific utilisation of this revenue can vary. The potential to ‘earmark’ revenue varies between instruments, given their different objectives and the national circumstances surrounding their implementation. In Germany, 100 per cent of European Union Allowance (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.

Member States should consider arguments supporting both effective earmarking practices and the benefits of involving civil society in the allocation and expenditure of earmarked revenue. To do so, more guidance outlining earmarking best practice needs to be developed.

Read a summary of the report.