ETS Revenues: How Governments Use Auction Proceeds
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This document discusses revenue from emissions trading systems and how it is used. It provides information on allocation design options for allowances and the advantages and disadvantages of auctioning. Auctioning raises revenue for governments but does not protect high-emitting industries from carbon leakage. The document then examines how revenues from ETS auctions have been used in the EU, RGGI, California, and other programs, often to fund climate and clean energy programs. Sources of additional information on carbon pricing and ETS programs from the International Carbon Action Partnership are also listed.
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ETS Revenues: How Governments Use Auction Proceeds
- 1. International Carbon Action Partnership 1 Emissions Trading System Revenues Stefano De Clara Head of Secretariat, ICAP 14 December 2021
- 2. International Carbon Action Partnership 2 An international forum of 39 national & subnational governments to exchange knowledge and experiences on emissions trading systems (ETS) International Carbon Action Partnership 2 About the International Carbon Action Partnership (ICAP) • Share best practice & learn from each others’ experiences • Facilitate linking of carbon markets • Explore the role of carbon pricing in climate policy
- 3. International Carbon Action Partnership 3 International Carbon Action Partnership 3 Allocation design options ETS creates valuable allowances – climate rent … but who gains that value? Auctioning Grandfathering / Benchmarking Public rent Private rent
- 4. International Carbon Action Partnership 4 • Manage the transition to an ETS – some permits have been allocated freely as a means of compensation • Carbon leakage concerns – free allocation can be used to protect industries exposed to external competition • Raising revenue – auctioning can generate significant public revenues • Preserving incentives – the allocation method can have implications for incentives to reduce emissions. International Carbon Action Partnership 4 Allocation: Policy objectives
- 5. International Carbon Action Partnership 5 Advantages Disadvantages Raises revenue Does not provide protection from carbon leakage More simple and fair – less political influence Does not provide compensation for stranded assets Reduces risk of distortions Facilitates price discovery and market liquidity Rewards early action International Carbon Action Partnership 5 Allocation: Auctioning
- 6. International Carbon Action Partnership 6 International Carbon Action Partnership 6 ETS is expanding as an effective and economically sensible component of climate mitigation policy 24 8 14
- 7. International Carbon Action Partnership 7 International Carbon Action Partnership 7 Different shapes of ETS EU ETS SWISS ETS KOREA ETS QUÉBEC CALIFORNIA RGGI
- 8. International Carbon Action Partnership 8 International Carbon Action Partnership 8 Auctioning in practice
- 9. International Carbon Action Partnership 9 International Carbon Action Partnership 9 Auctioning Revenues total billion since 2009 $103 Massachusetts $27 million Since 2018 Chinese Pilots $215 million Since 2013 Nova Scotia $21 million Since 2020
- 10. International Carbon Action Partnership 10 ➢ Earmarking: Outside of the fiscal budget • Dedicated funds make a clear link between revenue and spending • Easy to communicate spending - foster public support • Avoids the ‘extra tax’ debate • Can be considered additional international climate finance – ‘innovative source’ ➢ Tax reform: Incorporated into fiscal budget • Potential for government to have greater control of revenues • Potential for efficiency gains through tax reform – double dividend International Carbon Action Partnership 10 Using auction revenue
- 11. International Carbon Action Partnership 11 International Carbon Action Partnership 11 Using auction revenue Spending depends on the policy objectives of the jurisdiction Can build political support among the public and other constituencies RGGI, California, Québec EU, RGGI, California, Québec Small % RGGI, California
- 12. International Carbon Action Partnership 12 ➢ Focus on climate funding – Member States decide how to use their auction revenue – Min. 50% should go towards climate action – World’s largest programs for low-carbon innovation: the NER 300 (in 2021 it was replaced by the Innovation and Modernization Funds, which finance low- carbon technology innovation, modernization of energy systems and energy efficiency in 10 lower-income MSs) International Carbon Action Partnership 12 EU auctioning revenues
- 13. International Carbon Action Partnership 13 ▪ RGGI considered a “Cap and invest” program – emphasis on investment ▪ RGGI states decide how they invest RGGI revenues ▪ Approx. 80% of proceeds have so far been invested in consumer benefit programs International Carbon Action Partnership 13 RGGI auctioning revenues
- 14. International Carbon Action Partnership 14 ➢ Most of California’s revenue goes to the Greenhouse Gas Reduction Fund (GGRF) – At least 35% must benefit low-income households or communities – Projects that reduce GHG emissions – Investments through the GGRF are generated through state-owned allowances and referred to as California Climate Investments. – Additional revenue from allowances allocated to utilities but auctioned on their behalf must benefit their ratepayers or reduce emissions. International Carbon Action Partnership 14 California auctioning revenues (I)
- 15. International Carbon Action Partnership 15 ➢ ETS Briefs: Allocation, Revenues – https://icapcarbonaction.com/es/?option=com_attach&task=download&id=646 – https://icapcarbonaction.com/en/?option=com_attach&task=download&id=780 – https://icapcarbonaction.com/en/?option=com_attach&task=download&id=781 ➢ ICAP Status Report 2021 – https://icapcarbonaction.com/en/?option=com_attach&task=download&id=724 International Carbon Action Partnership 15 Sources
- 16. International Carbon Action Partnership 16 ICAP ETS Resources ICAP Interactive Map ETS state of play worldwide (3-monthly updates) Infographics Visualization of key ETS trends ETS briefs Introduction of the basics of cap-and-trade News Objective coverage on all regulatory ETS developments as they occur Allowance Price Explorer Historical and current carbon prices worldwide Publications Key reference material on ETS
- 17. International Carbon Action Partnership 17 Thank you for your attention! Stefano.declara@icapcarbonaction.com https://icapcarbonaction.com/ International Carbon Action Partnership @ICAPSecretariat