The EU ETS is a significant source of financial flow for Poland

• Between 2012 and 2025, the Polish government and Polish entities received over PLN 200 billion from the EU ETS. These funds came not only from domestic allowance auctions, but also from the Modernisation Fund, the Innovation Fund and the RePowerEU programme under the National Recovery and Resilience Plan (NRRP).
• In 2024, funding from the EU ETS accounted for the equivalent of approximately 45 per cent of expenditure on the Family 800+ programme. It also corresponded to 10 per cent of VAT revenue, 30 per cent of personal income tax revenue, and nearly 50 per cent of corporation tax revenue. Between 2019 and 2024, these funds accounted, on average, for the equivalent of around 7 per cent of total annual investment expenditure in Poland.
• In recent years, annual financial flow from the EU ETS has exceeded government expenditure in many individual sectors, including agriculture, forestry, hunting and fisheries, housing and local government, as well as unemployment benefits and housing allowances.
• Although EU ETS funds in Poland do not constitute a large proportion of total government expenditure, they have a noticeable impact on the state of public finances, including the level of the annual budget deficit. Between 2019 and 2024, revenue from domestic auctions and EU funds ranged from PLN 11 to 37 billion. By comparison, annual expenditure from the state budget ranged from PLN 414 to 834 billion, while the annual budget deficit stood at between PLN 17 and 237 billion.

An incomplete picture of the EU ETS balance sheet in Poland

• The term “ETS gap”, which is popular in public debate, does not reflect the full picture of the system’s potential benefits for Poland and therefore overstates the negative balance.
• The estimate of the EU ETS financial balance for Poland depends on the scope of the cash flows taken into account:
  • if we take into account revenue from domestic auctions, EU funds, free allocation of allowances and the potential return of allowances transferred to the Market Stability Reserve (MSR), Poland received approximately PLN 13 billion less from the EU ETS between 2021 and 2025 than Polish entities spent on purchasing emission allowances;
  • excluding the return of contributions to the MSR, Poland recorded a deficit of around PLN 27 billion over the last five years, of which approximately PLN 1.5 billion was attributable to 2024.
  • In both cases, these are relatively small deficits. They are significantly lower than the estimates circulating in the public domain, which suggest losses of several billion PLN a year for Poland.
• This deficit does not imply an automatic transfer of these funds to other Member States. This is due to the structure of the entire EU ETS system and the functioning of the MSR mechanism, including the cancellation of surplus allowances in the reserve. The reserve is designed to eliminate the oversupply of allowances in circulation. Consequently, Polish and other European companies must make up for shortfalls through transactions on the secondary market by purchasing allowances from entities that have accumulated surpluses. The redistribution associated with the “ETS gap” therefore does not take place directly between Polish companies and other European countries selling allowances.
• Some of the allowances held in the MSR may return to the Polish auction market in the event of a supply shortage. As a result, the overall balance of benefits of the EU ETS for Poland in recent years will be more favourable. Furthermore, the European Commission’s proposal abolishes the mechanism for cancelling allowances in the reserve, thereby increasing the pool of allowances that may return to Poland in the future.

Maximising the benefits requires an active government policy

• The future balance of benefits and costs of the EU ETS for Poland will depend to a large extent on the outcome of the ongoing negotiations at EU level. It is therefore crucial that Poland plays an active role in the work on reforming the system. This concerns, amongst other things, the rules governing the market stability mechanism, the rules for the allocation of free allowances, and the mechanism for increasing price predictability.
• In the coming years, the Polish government can expect further significant revenue from the EU ETS. By 2032, the Polish government will have as much as PLN 200 billion at its disposal from national EU ETS auctions and the Modernisation Fund. This amount could be even higher if the Modernisation Fund is maintained beyond 2030 and favourable rules for access to the ETS Investment Booster are established.
• An additional source of funding could be provided by the extension of the EU ETS to the buildings and road transport sectors (ETS2) and the implementation of the Social Climate Fund. Taking these into account, the total pool of funds available from the EU ETS and ETS2 to the Polish government could amount to approximately PLN 327 billion by 2032.
• To fully realise this potential, the efficiency and transparency of spending EU ETS funds must be improved. To this end, an Energy Transition Fund should be established, accompanied by a multi-year spending plan agreed upon by societcy.