COMMISSION STAFF WORKING DOCUMENT EXECUTIVE SUMMARY OF THE EVALUATION on the operating rules of the Modernisation Fund
Date: 2026-07-17
Institutions: Directorate-General for Climate Action, European Commission
Subjects: EU Emissions Trading Scheme, EU emission allowance, EU financial instrument, EU investment, auction sale, energy efficiency, greenhouse gas, reduction of gas emissions, renewable energy, tradeable emission permit

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   EUROPEAN COMMISSION  Brussels, 17.7.2026  SWD(2026) 198 final  COMMISSION STAFF WORKING DOCUMENT  EXECUTIVE SUMMARY OF THE EVALUATION  on the operating rules of the Modernisation Fund {SWD(2026) 197 final}  
 
 
The  Modernisation  Fund  was  established  through  the  2018  revision  of  the  EU  ETS 
Directive1 as a solidarity instrument to support the modernisation of energy systems and 
improve energy efficiency in lower income EU Member States between 2020-2030. The 
Fund currently re-distributes revenues from the auctioning of EU ETS allowances to 13 
beneficiary Member States, as Portugal, Greece and Slovenia were added to the original 
10 Member2 States as a result of the 2023 revision of the EU ETS Directive3.   

This evaluation was conducted according to Article 10d(11) of the EU ETS Directive and 
Article  15(1)  of  the  Fund’s  Implementing  Regulation4.  It  covers  the  five  compulsory 
evaluation  criteria  of  the  Better  Regulation  Guidelines.  Conducted  halfway  through  the 
Fund’s ten-year lifetime and based on data for the first four and half years, the evaluation’s 
focus is the design and governance of the Fund. It was underpinned by a supporting study 
by  external  experts,  combining  desk  research,  surveys,  interviews,  case  studies, 
quantitative data  analysis and stakeholder  consultations during 2025. The results of the 
evaluation  will  inform  the  impact  assessment  of  the  upcoming  revision of  the  EU  ETS 
Directive and related Commission proposal.  

EFFECTIVENESS 

The Fund effectively supports investments to meet the 2030 climate and energy targets. 
By  mid-2025,  it  backed  194  projects  across  12  Member  States,  disbursing  EUR  18.9 
billion, or 33% of the Fund’s total budget. Investment approvals have grown steadily since 
2021. By the end of 2024, 55% of the amount disbursed to beneficiary Member States had 
been contracted to end-beneficiaries and 11% paid, with variations across Member States.  

By  end  of  2024,  early  impacts  were  modest  with  two  investments  completed  and  44% 
under construction. The pace of implementation differs across beneficiary Member States, 
due to differences in institutional preparedness and experience with the Fund.  

The governance of the Fund, and more specifically the distinction between priority and 
non-priority areas5 fosters investments aligned with the EU climate and energy targets. The 
Investment Committee efficiently manages non-priority investment approvals and voting 
rights granted to non-beneficiary Member States help maintain the integrity of the Fund.  

Investments  are  expected  to  generate  substantial  climate  benefits:  1.15  billion  MWh  of 
energy savings and 25 GW of renewable capacity over the 10-year fund lifetime and across 
beneficiary  Member  States.  GHG  reductions  are  estimated  at  83.7MtCO₂eq  average 
annually,  or  32%  of  emissions  from  electricity,  gas,  steam  and  air-conditioning  sectors 
emissions  in  2020.  However,  data  comparability  on  environmental  impacts  is  low  and 
developed by Member States without a harmonised methodology making comparisons of 

(1)  Directive (EU) 2018/410 of the European Parliament and of the Council of 14 March 2018 amending Directive 2003/87/EC to 

enhance cost-effective emission reductions and low-carbon investments, and Decision (EU) 2015/1814. 

(2)   Bulgaria, Czechia, Estonia, Croatia, Latvia, Lithuania, Hungary, Poland, Romania, Slovakia. 

(3)   Directive  (EU) 2023/959  of  the  European  Parliament  and  of  the  Council  of  10 May  2023  amending  Directive 2003/87/EC 
establishing a system for greenhouse gas emission allowance trading within the Union and Decision (EU) 2015/1814 concerning 
the establishment and operation of a market stability reserve for the Union greenhouse gas emission trading system 

(4)  Regulation (EU) 2020/1001 of the European Parliament and of the Council of 20 June 2020 establishing measures necessary for 

climate target implementation 

(5)  

Investments in generation and use of energy (electricity, heating and cooling) from renewable sources; energy efficiency; energy 
storage  and  the  modernisation  of  energy  networks  (including  demand-side  management,  district  heating  pipelines,  grids  for 
electricity transmission, the increase of interconnections between Member States and infrastructure for zero-emission mobility); 
support for low-income households to address energy poverty; and a just transition in carbon-dependent regions are listed in the 
EU ETS Directive as investments in priority areas. 

 
 
 
 
effectiveness  more  difficult.  Similarly,  figures  on  private  co-financing  are  largely 
underestimated as this data is not mandatory to report.  

EFFICIENCY 

The administrative burden for approving investments corresponds to their alignment with 
the EU climate framework. Priority investments have a streamlined process whereasnon-
priority  investment  proposals  face  stricter  requirements  to  ensure  contribution  to  the 
Fund’s objectives and EU climate and energy targets.  

Beneficiary  Member  States  have  set  up  efficient  structures,  and  end  beneficiaries  are 
broadly satisfied with national implementation. First payments to end beneficiaries occur 
on  average  eight  months  after  signing  the  contract.  Improvements  to  reduce  end 
beneficiaries’ burden include digitalisation and streamlined reporting. 

Administrative costs at Member States’ level compares to 0.13% of the total Fund, varying 
across Member States. Some face challenges due to limited staff or administrative capacity. 
The Fund does not cover national-level administrative costs. Doing so could reduce the 
funds available for projects and diminish overall efficiency. Most end beneficiaries found 
complying with national monitoring requirements moderately burdensome and spend on 
average 10 working days applying to the Fund. 

COHERENCE, RELEVANCE AND EU ADDED VALUE 

Within  the  EU  ETS  context,  the  Modernisation  Fund  is  one  of  several  solidarity 
mechanism designed for redistribution to lower-income EU Member States. It is also part 
of a broader funding ecosystem including Cohesion Policy, the Recovery and Resilience 
Facility (RRF) and national funding sources, which can partially fund similar activities. 
Beneficiary  Member  States  use  them  in  a  complementary  way,  depending  on  internal 
coordination mechanism.  

Fund-supported  investments  are  strongly  aligned  with  the  EU’s  climate  and  energy 
framework and the National Energy and Climate Plans. Beneficiary Member States can 
also  use  the  EU  ETS  revenues  for  similar  purposes.  When  transferring  their  own  ETS 
revenues  to  the  Fund,  investments  are  automatically  strongly  aligned  with  EU  climate 
objectives. 

The  design  of  the  MF  is  balancing  considerations  of  solidarity  and  the  need  for 
convergence.  Priority  investments  represent  94%  of  funds  disbursed,  significantly 
exceeding  the  regulatory  minimum.  Non-priority  investments  have  declined  and  are 
concentrated in four Member States. The 2023 EU ETS revision further aligned the Fund 
with  EU  policy  objectives  by  reducing  the  possible  share  of  non-priority  investments, 
limiting  importantlygas-supporting  investments  and  requiring  application  of  the  Do  No 
Significant Harm principle.  

High estimated investment needs to achieve the 2030 target underscore the EU added value 
of the Fund, particularly for lower-income Member States. The Fund corresponds to 49% 
of the estimated additional investment needs in the relevant energy sectors identified in the 

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2015  Impact  Assessment6  underpinning  the  2018  EU  ETS  revision.  However,  in  the 
context of  the  Fit for 55-package,  REPowerEU,  the 2040  and 2050 climate targets,  the 
estimated investment needs have further increased. Seventy percent of end beneficiaries 
stated their projects would not proceed without its support. 

CONCLUSION  

In conclusion, the Modernisation Fund is an important solidarity instrument under the EU 
ETS and crucial  for addressing the 2030 climate and energy investment needs of  lower 
income  Member  States.  Beneficiary  Member  States,  still  substantially  reliant  on  fossil 
fuels, require substantial clean energy transition support. Redistributing revenues from the 
auctioning of EU ETS allowances, the Fund serves as a tool that ensures lower income 
Member States receive focused financial assistance.  

The  evaluation  highlights  options  for  improvements  regarding  comparability  of 
environmental impact data, which lack a harmonised methodology among Member States, 
affecting conclusions drawn on GHG emissions, energy savings, and renewable capacity. 
Although  the  Fund's  governance  functions  well,  data  quality  can  improve,  specifically 
regarding Green Deal indicators and abatement costs. Private co-financing datawould also 
benefit from more systematic reporting. 

(6)   Proposal for a Directive of the European Parliament and of the Council amending Directive 2003/87/EC to enhance cost-effective 

emissions reductions and low-carbon investments (COM(2015) 337 final) of 15 July 2015 

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