Especially the connection to two funds available under the European Union Emissions Trading System (EU ETS; derogation Article 10c and auction revenues) are in focus. Two key questions are addresses: (1) How did Poland benefit from the derogation laid down in Article 10c of Directive 2003/87/WE?, (2) How were the revenues from the sold emission allowances invested in decarbonisation?

In the analysed period (2013-2020) the EU ETS Directive foresaw two main mechanisms that could have a substantial impact on investments and infrastructure.  A derogation from the general rules on no free allocation for electricity production was provided by Article 10c of the Directive, in which ten lower-income Member States (MS), including Poland, could grant free allocation to electricity producers covered by the EU ETS in order to help finance projects aimed at modernising and decarbonising the energy mix. Phase 3 saw the introduction of Article 10c, and it continues under Phase 4. Article 10c requires the relevant MS  to submit a national plan for investments.

Auction revenues represent the latter of the two funding mechanisms analysed. According to Article 10(3) , MS are required to allocate at least 50% of auctioning revenues (or the national equivalent in financial value) to a range of outlined measures that, among others, aim at: reducing GHG emissions, developing renewable energies, avoiding deforestation, and increasing energy efficiency. Importantly, EU countries are obliged to report annually on the amounts and use of the revenues generated.

The Polish case study's main goal was to evaluate Poland's usage of the financial mechanisms to assist the EU's energy transition goals as outlined in the EU ETS Directive. The study's findings show that none of the two processes significantly contributed to Poland's growth of low-carbon energy sources. This is evidenced by the low amount of funds allocated to this purpose and the fact that the funds disbursed from auction revenues were used for investments in existing support systems (without the additionality effect). The funding also provided only a small amount of help for the energy transition, for example, through infrastructure expansions and renovations. The wide definition of the catalogue and the non-earmarked income in the case of auction proceeds made it feasible to report a wide range of activities that did not meet the additionality principle. Moreover, some of the activities reported by Poland raise doubts about compliance with the Directive.

Additionally, the case study demonstrates that the derogation mechanism was not future-proof since, despite promises that competition would not be affected, the electricity generation sector saw consolidation. Its stated goal was to diversify the energy mix, however, the examination of reported investments, the majority of which were focused on upgrading conventional producing capacity, shows that this goal was already disregarded during the approval stage.

Download the case study here.

Read more about the overview report here.