- Category: European Union Carbon Market Glossary
The Modernisation Fund is a funding instrument set up for the revised EU Emissions Trading System (EU ETS).
The Modernisation Fund will support investments in modernising the power sector and wider energy systems, boosting energy efficiency and renewable energy, and facilitating a just transition in carbon-dependent regions in the 10 lowest-income Member States eiligible for support (Bulgaria, the Czech Republic, Croatia, Estonia, Hungary, Latvia, Lithuania, Poland, Romania and Slovakia).
Energy generation facilities using solid fossil fuels will not be eligible for support.
An exception has been made for efficient and sustainable district heating in Member States with a GDP per capita at market prices below 30 % of the EU average in 2013 (Bulgaria and Romania).
This exception only concerns 30 % of available funds for these Member States.
The fund will be sourced with allowances corresponding to 2 % of the total quantity in phase 4, auctioned in accordance with the rules and modalities set out for auctions taking place on the common auction platform.
Depending on the extent to which the auction share is reduced for the purposes of the free allocation buffer, the amount of allowances available for the fund may increase by up to 0.5% of the total quantity of allowances (see Report of 17 December 2018 from the Commission to the European Parliament and to the Council on the functioning of the European carbon market, COM(2018) 842 final, p. 11).
European Commission Report of 26 October 2021 on the functioning of the European carbon market (COM(2021) 962 final) estimates that Modernisation Fund pools an approximate of EUR 25 billion, from the auctioning of over 643 million allowances in phase 4.
Fit for 55 amendments
European Commission Proposal of 14 July 2021 for a Directive of the European Parliament and of the Council amending Directive 2003/87/EC establishing a system for greenhouse gas emission allowance trading within the Union, Decision (EU) 2015/1814 concerning the establishment and operation of a market stability reserve for the Union greenhouse gas emission trading scheme and Regulation (EU) 2015/757 (COM(2021) 551 final, 2021/0211 (COD)) aligns the Modernisation Fund with the new climate objectives of the Union by requiring that investments are consistent with the objectives of the European Green Deal and the European Climate Law and by eliminating support to investments related to any fossil fuels, not only solid fossil fuels as is currently the case.
In addition, the proposal:
- increases the percentage of the fund that needs to be invested in priority investments;
- gives more prominence to renewable sources and energy efficiency investments in transport, buildings, waste and agriculture; targets energy efficiency as a priority area at the demand side, including industry explicitly as eligible sector; and
- includes the support of households to address energy poverty.
To address the distributional and social effects of the transition, the proposal provides for auctioning an additional 2,5 % of the cap to fund the energy transition of the Member States with GDP per capita below 65 % of the EU average in 2016-2018, through the Modernisation Fund.
The Modernisation Fund's investments
In its first year of operation, the Modernisation Fund made available €898.43 million to eight beneficiary countries to help modernise their energy systems, reduce greenhouse gas emissions in energy, industry, transport and agriculture and support them in meeting their 2030 climate and energy targets.
Investments were confirmed in Czechia (€320 million), Estonia (€24.59 million), Croatia (€2.15 million), Hungary (€34.28 million), Lithuania (€28 million), Poland (€346.40 million), Romania (€22.99 million), and Slovakia (€120 million).