Billions from Europe’s carbon market raise questions over where the money goes

The EU’s carbon market has generated hundreds of billions of euros for member states, but questions are growing over whether the money is being used effectively to drive the green transition. A new proposal would introduce more specific requirements for how ETS revenues are spent, putting greater emphasis on transparency, investment and the link between carbon-market income and the energy transition.

Poland offers one of the clearest examples of the problem. The country earned more than €112 million from a single auction of CO₂ emission allowances, while the same system is increasing costs for its energy sector and industry. The bigger question is what the state does with the billions generated by the sale of emission allowances.

Poland earned more than €112 million from a single auction of CO₂ emission allowances. Yet the same system that generates billions for governments is also increasing costs for Poland’s energy sector and industry. The bigger question is what states actually do with the money raised through Europe’s carbon market.

The EU Emissions Trading System (EU ETS) is built around a straightforward principle: companies that emit CO₂ need allowances, while the number of available allowances decreases over time, putting pressure on businesses to invest in cleaner technologies. The system covers power generation, energy-intensive industries, aviation and, since 2024, shipping, together accounting for around 40% of EU greenhouse gas emissions.

Since the current ETS was established in 2013, member states have collected around €270 billion from allowance sales.

“There’s very little transparency about how this money is being used,” said Greg Van Elsen, senior coordinator for industrial policy at CAN Europe, when asked whether Europe is spending the revenues from its climate policy wisely. His answer was blunt: no.

Billions disappear into national budgets

The revised ETS directive requires member states to use revenues from the system, or an equivalent amount, for climate action and the energy transition, with an exception for compensation to energy-intensive industries for indirect emission costs.

But Van Elsen argues that the rules are not sufficiently detailed and are therefore difficult to enforce. In practice, much of the money flows into general state budgets.

That issue is now returning to the EU legislative agenda. The word “revenues” appears 130 times in the ETS review proposal. Under the new approach, states would face a more specific obligation to allocate 50% of revenues to designated sectors, primarily industrial decarbonisation and cleaner energy.

Governments would also have to set out how the money will be spent in their five-year National Energy and Climate Plans (NECPs), which Van Elsen says should improve oversight.

But questions remain over the other half of the revenues. In Germany, he notes, there are plans to redirect half of the revenues from 2027 towards social spending and pensions. Meanwhile, the sectors targeted by the first half leave less room for measures supporting a just transition or directly helping households, such as assistance with purchasing heat pumps.

The result can be a perception of double financing, as industry receives support while also benefiting from free allowances, without the use of ETS revenues being clearly linked to the carbon price paid.

Poland’s economy

In a report published in 2024, Poland’s Supreme Audit Office (NIK) found that the country received almost PLN 94 billion (almost €22 billion) from ETS allowance sales between 2013 and 2023. Of that amount, 98.7% went into the general state budget, while only 1.3% was allocated to the energy transition and climate objectives.

The audit concluded that ETS revenues were therefore used primarily to finance current state expenditure rather than clean-energy investment.

NIK also found that the ministry responsible for climate and environment lacked reliable data showing how individual institutions had actually used ETS funds. According to the audit office, the lack of appropriately targeted financing for the energy transition undermined the competitiveness of the Polish economy and did not deliver emissions reductions sufficient for the scale of the transition required.

The European Commission has also warned that the costs of climate policy could increasingly fall on lower-income households if revenues are not directed towards targeted compensation, energy efficiency and access to cleaner heating and transport.

Brussels vs Central and Eastern Europe

For Central and Eastern European countries that remain heavily dependent on hydrocarbon-based energy, ETS revenues are expected to become a tangible driver of change for consumers.

Kuba Gogolewski, programme director at Mission Possible, calls criticism of the ETS from national parliaments “incredible hypocrisy” when the system is attacked while its revenues are treated as ordinary budget income that “goes anywhere”.

Central and Eastern European countries, including Poland, sought to delay the introduction of ETS2, which will extend carbon pricing to buildings and road transport, citing concerns about rising costs. A one-year delay was achieved, Gogolewski says, but the additional time has not been matched by sufficient planning or preparation.

“You could say it’s a wasted year,” he argues.

He also describes the ETS debate as partly a narrative problem. Unlike reconstruction funds or European Investment Bank investments, whose projects are clearly identified, ETS money can “disappear” into national budgets, making it difficult to show what was created with it.

That allows national and local governments to take credit for positive results while the EU is blamed for unpopular measures.

Gogolewski says more than PLN 200 billion (around €46.5 billion) from the ETS has already been spent in Poland and asks what the impact could have been if the money had been directed towards additional public transport, clean transport and insulated buildings.

Populism, prices and the silent strike of capital

Van Elsen argues that rational arguments for the transition – greater independence from fossil fuels, resilience to external shocks and protection against geopolitical risks — are not sufficiently reaching the public.

The problem is timing. Investments made today may take a decade to translate into lower energy prices, while fuel and electricity bills influence political decisions immediately.

He also points to proposed investment conditionality in the allocation of allowances and what he calls a “capital strike”.

Large industrial companies are often reluctant to make major investments in Europe, while planned clean-technology projects do not always reach final investment decisions that would create jobs and build public support for the transition.

Van Elsen cites the European bicycle industry, which generates 1.35 million jobs in small and medium-sized businesses, as an example of how investment can support the economy. He also points to Poland’s “very dynamic” cleantech sector, although it remains less organised and less visible in the media.

Water saving

This summer’s exceptionally high temperatures and falling river levels have also highlighted the energy sector’s dependence on water for cooling power plants.

Gogolewski points to European Environment Agency data covering 2015-2023, which show Poland leading in reducing water abstraction for cooling in the energy sector, thanks to the phase-out of coal units and the expansion of wind and solar power.

“It’s a story that is rarely told,” he says.

A report on Europe’s water resilience prepared for the European Parliament in April 2025 also found that wind and solar require 10 to 75 times less water over their full life cycle than conventional large-scale thermal energy sources, including coal, gas, nuclear and biomass.

For Gogolewski, this demonstrates that the ETS has produced benefits beyond direct emissions reductions. Without the system, he argues, countries would still have been investing heavily in coal and gas.

Processes that will decide

The key question for Polish climate policy is whether recurring ETS revenues can deliver measurable reductions in coal dependence, lower household vulnerability to energy prices, modernised grids and viable alternatives for coal regions.

The approach under discussion includes stronger solidarity mechanisms, including an “investment booster” giving countries with lower GDP per capita privileged access to investment financing.

Similar solutions are expected to apply to the Innovation Fund, which Van Elsen says is most frequently used by traditional industrial economies in Western Europe. Greater technical support for member states, including Poland, is intended to increase support for the ETS and confidence in the system.

Another idea is the introduction of “ETS labels” showing that a project – from a bridge or bus to the thermal renovation of a building – was financed from emissions trading revenues.

The article in Polish by EUalive’s partnet FocusEurope.pl can be found here.

Caption: Image for illustrative purposes only. Pixabay