Main messages:

• Depending on the price of allowances, Poland could obtain approx. PLN 40-100 billion (Eur 10-25 billion) from ETS auctions in 2021-2030. Poland will also have two additional mechanisms for supporting low-emission modernization: derogations for energy generation (PLN 20-40 billion – Eur 5-10 billion) and the Modernization Fund (PLN 8-20 billion – Eur 2-5 billion).
• Well-designed redistribution of auction revenues may trigger modernization of the Polish economy, especially in selected areas of energy generation and energy efficiency.
• Domestic decision is required on how the auction revenues are to be distributed for two general purposes: support of energy transformation and support for the national budget.
• The ETS Directive recommends that at least a half of the auction revenues should be used for low-emission modernization. However, Poland’s investment needs in this area weigh in favor of spending all the funds for financing of the broadly understood energy transformation.
• Auction revenues should support decreasing emission intensity of Poland’s energy mix and improvement of the energy efficiency. At least 75% of auction revenues should be spent for financing these areas.
• The funds should be spent for the development of the transmission infrastructure, improvement of the energy efficiency in buildings, heating sector modernization and support for development of distributed energy generation. In addition, the scale of available financing weighs in favor of supporting the development of electromobility, which could contribute to emission reduction in transport and improvement of urban air quality.
• Large-scale electricity generation should be financed from the derogation mechanism within ETS, designed specifically for this purpose.
• Auction revenues may be also spent for preventing carbon leakage from energy-intensive industry. Compensation of indirect costs of emission can consume as much as 20-25% of auction revenues. The mechanism should encourage the development of innovation and improvement of energy efficiency. Assessment of actual demand of the individual industries for carbon leakage protection is of importance, including after the implementation of support measures.
• Approximately 2-3% of auction revenues should be spent for supporting restructuring of regional economies (including silesia) indirectly affected by technological changes in energy generation. The pool is also worth considering to be spent for supporting the development of competency and expert framework for the energy transformation, including on the local level.
• Spending of ETS auction revenues should be coordinated both with the activity of the Modernization Fund and with support from structural Funds before and after 2020.

Title of analysis: "Revenues from ETS auctioning as source of financing for low-emission modernization in Poland"