Social impact of emissions trading systems : auction revenues and social expenditures in a changing world

Abstract

Auction revenues from emissions trading systems (ETSs) have rapidly grown in recent years and are becoming an increasingly important consideration for policymakers. ETS revenues can play a key role in supporting the transition to net zero emissions by improving the political acceptability of ETSs, enhancing environmental outcomes of market-based instruments and consolidating jurisdictions’ fiscal resources. Earmarking (designating funds or resources for a particular purpose) establishes a clear link between the costs of climate policies and the associated benefits, thereby contributing to increase public support for carbon pricing. A majority of ETSs earmark their revenues to finance programmes in favour of climate mitigation, industry competitiveness and innovation and social support. Studies show that allocating even a limited share of revenues to low-income households is sufficient to compensate for the negative effects of carbon pricing. Earmarking the EU ETS revenues could contribute to strengthening the European Union’s own budget and to advancing the EU carbon neutrality objective by 2050.