An analysis of the public reports submitted by Italy to the European Commission between 2014 and 2024 highlights issues with the use of revenues generated from EU Emissions Trading System (EU ETS) auctions.
Reviewing the revenues from the ETS auctions reveals significant shortcomings in expenditure planning and fund traceability. Only nine percent of the revenues generated by the system have been allocated to measures addressing climate change.
Read the report “EU ETS auctions in Italy: transparency and traceability of revenues”
What is the EU Emissions Trading System?
The EU Emissions Trading System, better known as the EU ETS, introduces a price on greenhouse gas emissions. Active since 2005, initially for the electricity sector and energy-intensive industries, it now includes over ten thousand fixed installations in the EU (over a thousand in Italy), and with the latest regulatory amendment in 2023, will encompass the civil aviation and maritime sectors (EU ETS1).
The principle behind the system leads to a redistribution of financial resources. The cost paid by businesses to emit CO2 forms the foundation for funding emission reduction policies. This creates a virtuous mechanism that, on the one hand, adds a cost to greenhouse gas emissions, and, on the other, uses the revenues from these costs to finance the overall transition of the system, the development of renewables, energy efficiency and the transition of the industrial sectors themselves.
Starting in 2027, a carbon pricing system will also be applied to fuel and fossil fuel suppliers in the transport, buildings and small to medium-sized business sectors under the EU ETS 2 system. CO2 costs will, in effect, be transferred from fossil fuel energy suppliers to end consumers. The so-called CO2 price ‘signal’ should, therefore, lead consumers to make energy-efficient and electrification choices for their final consumption, adopting low or zero-emission solutions. The auction revenues should therefore be directed towards policies that support consumers and businesses in this process. Moreover, these costs could have disproportionate effects on certain segments of the population or businesses. For this reason, in addition to supporting policies aimed at reducing fossil fuel use, the Directive foresees the possibility of alleviating the social burden resulting from these costs, either through direct spending of auction revenues or through the Social Climate Fund, a fund expressly dedicated to protecting citizens and micro-businesses from energy poverty
Where are the ETS funds and how are they being used?
An analysis of the public reports submitted by Italy to the EU Commission between 2014 and 2024 reveals that:
- Between 2012 and 2024, EU ETS auctions generated revenues of 15.6 billion euros.
- According to an analysis of the reports alone, Italy appears to have spent only 9% of these 15.6 billion euros on climate change-related expenditures; well below the current ex-legem spending forecast of 50% of the revenues.
- Only 42% of the revenues generated during the 2012-13 biennium have actually been spent to date, twelve years later.
- The reports do not provide a clear overview of how the 3.6 billion euros in auction revenues, allocated for emergency measures to reduce household energy costs between 2021 and 2022, were utilised.
ETS: an opportunity to finance the energy transition, reduce dependence on fossil fuels and ensure competitiveness
In light of the upcoming implementation of EU ETS 2 and the amendments to EU ETS 1, which require 100% of auction revenues to be spent on climate change and on compensating for the disproportionate effects on social groups and small businesses, the analysis highlights several potential areas for improvement. These include: better planning and management of auction revenue expenditure; improved information and transparency in the actual allocation and spending of auction revenues; integration of ETS 2 revenues into the fiscal and parafiscal structures of tariffs.
Read the report “EU ETS auctions in Italy: transparency and traceability of revenues”
Photo by Anne Nygård
