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Modernisation Fund

Modernisation Fund

ETS-driven (2021-2030)

Funded by revenues from the auction of emission allowances from the EU’s Emissions Trading System, the Modernisation Fund aims to support thirteen EU countries with lower-income to meet 2030 energy targets by helping to modernise energy systems and improve energy efficiency, including in the transport sector.

The original beneficiary countries are Bulgaria, Croatia, Czechia, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, and Slovakia. Based on the provisional deal on the strengthened EU Emissions Trading System from late 2022, the Fund has increased its size as of 2024, providing financial assistance to three additional Member States – Portugal, Greece and Slovenia.

Fund operates under the responsibility of the beneficiary Member States in close cooperation with the European Commission and the European Investment Bank. The majority of the resources (referred to as ‘priority investments’) of the Modernisation Fund (at least 70%) must be invested in priority areas specified in Article 10d(2) of the ETS Directive. One of such investments is the improvement of energy efficiency in transport.

The supported investments in the area of transport should primarily focus on increasing the energy efficiency of public transport, accelerating the transition to renewable energy and electric and hydrogen propelled vehicles, vessels, and rolling stock.

To obtain financing, the beneficiary Member State has to predominantly demonstrate that the investment complies with the Fund requirements set in the ETS Directive and the Implementing Regulation, as well as to provide evidence that the investment proposal is in line with the EU State aid rules.

Since the revision of the ETS Directive in June 2023, infrastructure for zero-emission mobility is now explicitly considered as a priority investment under the Modernisation Fund. This covers charging and refuelling stations for ‘alternative fuels for zero-emission vehicles, trains, vessels or aircraft’ within the meaning of Article 2(4) of AFIR. The Modernisation Fund does not restrict the type of beneficiary (public or private entities can be beneficiaries), nor does it impose a minimum co-financing rate, yet the relevant investment proposal has to be presented by the beneficiary Member State where the action is located.

The Modernisation Fund is funded from the revenues from the auctioning of 2% of the total allowances for 2021-30 under the EU Emissions Trading System (EU ETS), as well as any additional allowances transferred to the Modernisation Fund by beneficiary Member States. In its first year of operation (2021), the Fund made available €898 million to eight beneficiary countries. In its second year of operation (2022), the Modernisation Fund has disbursed a total of €4.1 billion in support of 61 projects in eight beneficiary countries. The beneficiary member states can determine the form of support, using grants, premiums, guarantee instruments, loans or capital injections. By end 2023, the Fund has disbursed €9.6 billion of EU ETS revenues since its launch.

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