How to optimise the EU ETS transition funds?

Analysing options for Article 10c derogations, the Modernisation Fund, and for Solidarity & Growth provisions

19th June 2019

This year, several EU Member States must make critical decisions on the implementation of the EU Emissions Trading Scheme (EU-ETS) for the whole of Phase 4 (2021-2030). Specifically, qualifying Member States, mostly in Central Eastern Europe, must notify the EU Commission on decisions regarding their use of the Article 10c derogation, the Modernisation Fund and the Solidarity Provision. The deadline for this is 30th September 2019.


In this short briefing:

  • We analyse the small-print from the European Commission[1] to assess the investment options possible for Article 10c and the Modernisation Fund.
  • We analyse the available options for each eligible Member State and the financial impact of these decisions. We quantify the action the MSR (Market Stability Reserve) on auction volumes – and how this may change as a result of Member State decisions.


Key Finding: The Modernisation Fund offers much better investment prospects than Article 10c

Contact for comment

We already know that the Article 10c derogation cannot be used to subsidise coal investment like it was in this decade, but the criteria for its use in the next phase of the ETS are so strict that governments should instead transfer those allowances  to maximise the Modernisation Fund.

The Modernisation Fund could be a very influential source of funding for cutting emissions in Central and Eastern Europe. On our calculations, the fund could be worth €50 billion in the next decade if the ten eligible countries choose to maximise their contribution.”


Power & Carbon Analyst, Sandbag