Good practice:

Auctioning of CO2 emission allowances as RES sector funding source

Latvia has established and implemented a state budget programme, the Climate Change Financial Instrument (CCFI), within which funding for projects supporting prevention of global climate change, adaptation to the effects of climate change and contributing to the reduction of CO2 emissions is obtained from the sale of state-owned fixed quantity units through the international emissions trading system.
During 2007-2015, ~208 MEUR were granted towards following support areas: energy efficiency, RES technologies, complex solutions, technologies development and informing the public, transport. CCFI’s funding stems from the Proceeds from the Assigned Amount Units (AAU) Purchase Agreements, as in the Kyoto Protocol for the enforcement of obligations Latvia did not need all available AAU.
Currently, the same scheme has been applied through Emission Allowance Auction Instrument (EAAI), providing funding for the same priorities.
As the proceeds from emissions trading are directed towards the development of RES sector, it further increases the savings of its emission allowances, which it can market in auctions and generate more financial resources for future RES development programmes.
The project applicants for this funding are both local municipalities and companies owned by municipalities, state institutions, merchants and private households. To secure total project funding, it is common to combine this funding with loans from banks and/or the State Treasury.

The total CCFI funding available under the tenders was EUR 204.16 MEUR. The necessary funding for administrative costs was ~4 MEUR.

All of CCFI funding has been invested in projects, incl. appr. half (106.58 MEUR) in supporting complex solutions, i.e., both installation of RES technologies and energy efficiency, and 24.21 MEUR – in supporting transition from fossil energy resources to RES technologies, e.g., solar panels, heat pumps. The overall 3300 concluded agreements on project implementation have contributed significantly to development of the national RES and energy efficiency sector.

Harmonization of the instrument’s investments with state aid requirements put forward by the European Commission in order to ensure compliance with state aid conditions in different sectors.

Good practice example on how to secure additional funding for activities related to prevention of global climate change, adaptation to the effects of climate change and contribution to the reduction of greenhouse gas emissions by exceeding the previously set climate targets.