How EU’s carbon market can scale up international climate finance

The EU can use its Emission Trading System (ETS) to provide an innovative and substantial source of international climate finance much needed in developing countries. The ongoing EU ETS revision provides a great opportunity to establish a new ETS International Climate Action Reserve, which could channel over €3 billion per year to the Green Climate Fund.

The rate of climate change impacts vulnerable countries are suffering from calls for scaled up climate action that needs to be supported by climate finance, in order to put the world on the Paris Agreement 1.5 C pathway. Developed countries need to deliver on their Copenhagen commitment to mobilize USD 100 billion per year by 2020. However, climate finance commitments after 2020 are unclear. How will developed countries, with the EU in the forefront, extend and increase their commitments post-2020?

The world’s biggest emissions trading market – the EU Emission Trading System (EU ETS) could be a new promising source of climate finance. The EU ETS directive already calls for Member States to spend half of allowance auction revenues on climate and energy related purposes. Exactly how and whether these revenues should be spent on domestic or international finance is currently however left open.

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A new climate action reserve

Revenue from the EU ETS could provide a substantial source of finance for climate action and could amount to over €3 billion per year. In fact, a number of NGOs are calling for EU ETS to have direct earmarking of auctioning revenues for international climate finance, such as the Green Climate Fund[1], generated through establishment of a new ETS International Climate Action Reserve. According to Oxfam, setting aside 10% of EU ETS revenues for the reserve could more than double the EU contribution, raising it from €2.5 to 6 billion.

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The ongoing EU ETS revision provides an important opportunity to fulfil Paris commitments and enhance predictability of climate finance needed in the developing world. In this regard, Global South countries also have a stake in the EU legislative process. Therefore, Carbon Market Watch, together with Oxfam, drafted an open letter to Members of the European Parliament (MEP), explaining why developing countries’ input should also be heard in the EU ETS revision and calling MEPs to push for earmarking EU ETS auctioning revenues for international climate finance. We hope that this letter, signed by 60 organisations and network from 23 countries, will contribute to both making the EU ETS debate more visible for international civil society and strengthening the EU’s climate ambition!

[1] See Oxfam’s briefing

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By Urska Trunk, Policy Officer – Climate Finance 


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