The revision for the fourth phase of the EU Emission Trading System (ETS), covering the period 2021 - 2030, introduced a number of changes concerning the funding mechanisms for climate and transition purposes in the system.

Three of these funding mechanisms are aimed at helping lower-income Member States to finance their transition to a low-carbon economy. Firstly, the option for some Member States to give free allocation to their energy sector for modernisation and transition purposes (“Article 10c Derogation”) was extended and updated. Secondly, a new fund, the Modernisation Fund, was introduced to support investments in lower-income Member States aimed at modernising their energy systems and improving energy efficiency. Thirdly, the Solidarity Provision, which redistributes a share of the total allowances available over phase 4 to lower-income Member States was continued and linked with the other two funding mechanisms.





This paper will:

  • provide an update on the state of play of the implementation process of the four funding mechanisms;
  • highlight some of the main takeaways from the stakeholder sentiment analysis; and
  • shed light on the decisions made by eligible Member States regarding the use of Article 10c Derogation and the flexibility mechanism.