A number of Central and Eastern European countries have called on the European Commission, in a joint letter, to increase funding for the Modernisation Fund. The fund serves as a tool to provide financial support to less affluent countries in their transition to clean energy and the reduction of greenhouse gas emissions. These calls come as the European Commission prepares to review the EU Emissions Trading System (EU ETS).
This was reported by Reuters.
Greater challenges — greater costs
The letter was signed by government officials from 12 countries receiving funding from the Modernisation Fund. These are Poland, the Czech Republic, Estonia, Latvia, Lithuania, Romania, Bulgaria, Hungary, Croatia, Slovakia, Slovenia and Greece.
The Modernisation Fund itself is financed by revenue from the sale of carbon emission allowances under the EU ETS. Since 2021, over €20 billion has already been invested in the fund to help poorer EU member states phase out fossil fuels.
“In the current political and economic context, which is characterised by elevated geopolitical risks and uncertainty, predictable financing mechanisms remain a critical condition for the success of the EU's energy transition. We call for a significant increase in the scale of funding in line with the growing challenges of the transition period,” the letter states.
Pleasing everyone
By July 15, the European Commission must submit proposals to review the EU ETS. The bloc's leadership has to maneuver between conflicting demands from industry and member states.
While the European Union aims to align the CBAM mechanism with pan-European emission reduction targets by 2040, several governments are calling for a weakening of the carbon market. The main argument of the critics is the need to reduce short-term costs for local industry, which in turn should help support business competitiveness.
At the same time, a weakening of the EU ETS will inevitably lead to reduced carbon revenues, which also partly fund the Modernisation Fund. In recent years, it has mainly been used to increase energy efficiency in the public sector, such as the reconstruction of thermal baths in Hungary and Poland's “Clean Air” programme aimed at insulating homes and phasing out “dirty” heating systems.
EkoPolitic previously reported that European industry could receive additional free emission allowances by the end of the year. This highlights the uncertainty in the discussion around the emissions trading system, as earlier sources in the European Commission had told journalists about the ineffectiveness of free allowances.
