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ETS revenues: opportunities for Belgian energy projects

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Belgium

Introduction

Emission Trading System (ETS) auctions bring about revenues for governments. What do Belgian governments do with it and how can your company benefit? In 2021, the EU Commission has announced that €14.4 billion of overall EU ETS revenues in 2020 was registered, with 76% of these revenues used or planned to be used for climate and energy purposes. Belgium went past the bar of the €1.7 billion from ETS allowances auction registered in overall in January 2021. Carbon prices have never been as high. 

One question comes to mind: How are the EU ETS revenues used, and more specifically how can they be mobilised within the Belgian institutional system to the benefit of climate and energy projects?
This newsletter addresses, after a brief recall of the basics of the functioning of the ETS auctions at EU level, the use of the ETS revenues within the Belgian regional entities.

1. The ETS auctions: How did it work again? 

1.1 EU auctioning mechanism

EU ETS auctions are organized in the Member States on a same platform: the EEX. 
There are two auctions at EU level for the 2021-2030 period:
(a) General allowances auction.
(b) Aviation allowances auction.
57% of general allowances is to be auctioned as of 2021 (15% for aviation) and the rest is provided free. The free ETS allowances will be each year less and less, and thus more and more will be auctioned.

1.2 ETS revenues for Belgium: Distribution of revenues between the governments

Article 39 of the cooperation agreement of 12 February 2018 between the federal entity and the regions allocates the revenues of the auctioned allowances. In 2020, a total € 374.428.905 of auctioning revenues was distributed between the federal and the regional entities according to the following repartition key:
 
  For the first 326 million of revenues For all the other revenues up to 2020 Revenues per entity for the auctions of 2020
Federal authority 10% 9.05% € 36.982.815
Flemish region 53% 52.76% € 198.331.090
Walloon region 30% 30.65% € 112.643.459
Brussels region 7% 7.54% € 26.471.539


2. Use of the auctions revenues in Belgium

2.1 Federal 

The ETS revenues destined to the federal state have been allocated to a federal Fund called "Fonds destin√© √† la responsabilisation climat" or "Fonds bestemd voor de klimaatresponsabilisering". 

Each year since financial year 2016, an amount of this Fund has been allocated via a  bonus system to the Regions, namely to the region having exceeded its target in the year before. These amounts are determined on the basis of the difference between the greenhouse gas emissions and the respective targets of the regions in the year preceding the budget year, multiplied by the average price per emission allowance on an annual basis of the emission allowances auctioned by Belgium in the year in which the difference occurred.
 
2.2 Flanders

The ETS revenues distributed to Flanders are allocated within the so-called "Vlaams Klimaatfonds".
These amounts could, among others, be used:
  1. for the co-financing of the internal Flemish climate policy to achieve the Flemish greenhouse gas emission reduction targets, contributing to the Flemish non-ETS reduction target or to the Flemish LULUCF sector; 
  2. for the implementation of the policy on the flexibility mechanisms; 
  3. to the remediation of loss of competitiveness by Flemish companies as a result of European or international climate policy; 
  4. to all policy costs related to the preparation, organization, or contributions to climate auctions.
The Flemish Government has made the pledge in its political agreement on Climate for 2019-2024 to implement the co-financing principle, in the non-ETS sectors (Heat pumps, sun boilers, EVs, use of residual heat). This principle requires that non-ETS projects can be only partly financed by the Klimaatfonds: this restriction must create leverage and incentivize private investments both in EU ETS and non-EU ETS sectors in measures destined to reduce CO2 equivalent emissions. Renewable electricity projects are not eligible for support from the Vlaams Klimaatfonds (initially in order to avoid double subsidies).

In 2021, the Flemish Government has announced that € 68.8 million is going to be released from the Klimaatfonds for:
  • Pursuing an energy-saving approach to the building stock in the welfare sector, health sector and family sector (Financing of an energy scan via VIPA);
  • Supporting local Energy and Climate Pact and expanding of neighbourhood bonus (in the framework of the Local Energy and Climate Pact ('Pact'), € 14,824,010 is provided for co-financing for local governments to carry out decisive climate actions in the Flemish non-ETS and LULUCF sectors.)
  • Subsidies for energy efficient renovations in social housing (€ 5.9 million– social housing companies (SHMs) receive subsidies in the form of grants for improving the thermal performance of the building envelope, of the heating systems of existing rental housing and for the application of sustainable energy techniques in renovations or replacement construction);
  • Mobility and buildings action plans (€ 5.4 million- to mobility (mainly charging infrastructure) and real estate (energy interventions in VAC Hasselt and VAC Mechelen, among others));
During the past years, multiple calls were launched by the Flemish Government, including for the energy sector (eg Stroomversnelling project), but as well on the deployment of charging points. We expect a new notice from the Flemish Government on the ETS revenues allocation for 2022, and are curious to see how concrete the plans would go to support innovative projects in hydrogen, energy communities and charging points.

2.3 Wallonia

The ETS revenues, distributed to Wallonia, are allocated within the "Fonds wallon Kyoto". 

These funds have been used for, among others: 
  1. promotion of activities and projects to reduce/sustainably store greenhouse gases (GHG); 
  2. verification of GHG emissions; 
  3. climate adaptation measures; 
  4. measures to fund research and development on limiting greenhouse gas emissions and adapting to the impact of climate change; 
  5. financing of actions, figuring in the 'PACE' (Energy, Air and Climate Plan), as it has been submitted by the Government to the Parliament.
The Walloon energy Minister Henry has announced that 111 million euros should be released from the Fund in 2021, with € 61.000.000 made available in form of loans, and € 50.000.000 as direct subsidies according with specific topics, notably:
  • support for Hydrogen development: € 6 million Loan-€ 10 million subsidies;
  • energy transition via cooperatives: € 8,5 million Loan;
  • energy efficiency and energy transition of companies: € 35 million Loan- € 12,5 million  subsidies;
  • energy communities: € 2,5 million ;
  • deployment of charging points: € 2,5 million .
The method of deployment of these revenues can vary, as the Walloon Government is competent to determine eligibility criteria, procedures and modalities of the financing of the activities subject to the subsidies from the Kyoto Fund. For instance, a 25M€ (partly from Kyoto Fund) subsidized call for project around specific hydrogen development, and another call for projects around Geothermia (€ 7,5 million) were launched by the Walloon Energy Minister in August 2021, with a deadline for participations in the end of October 2021.

2.4 Brussels

The ETS revenues contribution for Brussels has been allocated to the Brussels "Fond Climat". 
The fund's resources have notably been used for: (1) measures relating to buildings, installations and products and aimed at reducing greenhouse gas emissions, in particular personnel costs, IT costs and expertise costs; (2) measures relating to transport and mobility and aimed at reducing greenhouse gas emissions. This fund has not been subject yet, to our knowledge, to any call for project or "ad hoc" subsidies related to particular projects. 

3. Useful Links

The news regarding the calls for projects or the repartition of the revenues of the Flemish Klimaatfonds is accessible on the Website Energiesparen.
As for the Walloon side, information is available on the website of AWAC (Walloon Agency for Air and Climate) and on the website of SPW for the projects calls.
At least, the Brussels administration website can be a good source of information as for eventual calls for projects.

Reach out to our team: 
David HaverbekeWouter Vandorpe, and Guillian Baclin

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