Funded by revenues from the auction of emission allowances from the EU’s Emissions Trading System, the Modernisation Fund aims to support ten 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 beneficiary countries are Bulgaria, Croatia, Czechia, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, and Slovakia. In the provisional deal reached on the strengthened EU Emissions Trading System from December 2022, the Fund will increase its size, providing financial assistance to three additional Member States with their transition – 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.
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.
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