The Green Tank has provided comments on the progress of the Modernisation Fund as part of the evaluation conducted by the European Commission’s Directorate-General for Climate Action (DG Clima).
The Modernisation Fund (MF) pools resources from the auctioning of emission allowances under the European Emissions Trading System (EU ETS) to finance investments for the modernisation of energy systems in the economically weaker Member States. It has been operational since the start of the 4th EU ETS phase in 2021 and concerns 10 Member States (Poland, Bulgaria, Romania, Czech Republic, Slovakia, Hungary, Estonia, Lithuania, Latvia, Croatia). However, with the latest revision of the EU ETS Directive in 2023, a second MF was created, from which three additional Member States (Slovenia, Portugal, Greece) receive funds for the period 2024-2030.
So far (period 2021-2024) approximately €15 billion has been disbursed for all eligible Member States, while Greece’s share of the second Modernisation Fund is approximately 20 million allowances, which, at an average carbon price of €75/tonne, will yield a total of €1.5 billion in revenue for the entire period. According to an announcement by the Ministry of Environment and Energy, in March 2025 the European Investment Bank (EIB) approved Greece’s first 4 investment proposals worth €208 million, two for electric and hydrogen buses, and two for heat pumps in greenhouses and municipal swimming pools. This amount corresponds approximately to Greece’s revenue from the MF for 2024, the first year of the period for which the country is eligible for funding from the new fund.
In its comments, the Green Tank highlighted transparency gaps in the way the funds are channeled. Specifically:
- The distinction between priority and non-priority projects is unclear. As the recent report by CEE Bankwatch titled “Keeping the flame alive with emission revenues” revealed there are cases where fossil-fuel projects funded by the MF are characterized as priority under the “energy efficiency” label, but also similar projects funded as “non-priority”. This effectively blurs the line in favor of new fossil fuel investments.
- The information on approved investments is also unclear. The same report identified 2.6 billion (17 per cent) of the 15 billion that have been allocated so far in total, as allocated to a ‘mixed’ category that includes 26 schemes. This classification reflects the current lack of transparency around the final technology choices within these schemes. These investments could ultimately support fossil fuels (12 schemes), unsustainable renewables (20 schemes, including biomass burning and new hydropower), and waste incineration (3 schemes), or a combination of these.
- The EIB’s confirmation decisions do not contain the basic technical and financial information justifying the decision. For example, in cases of funding fossil fuel plants as priority investments, the confirmation decisions do not contain information on the expected improvement in energy efficiency or the reduction in greenhouse gas emissions that will result from the implementation of the project.
- The current rules of public participation that the Member States need to apply as outlined in the Implementation Regulation on the Modernisation Fund are both vague and weak. As a result, there are big differences between Member States in the completeness of their annual reports. Differences include who is invited to comment, the period for commenting, how these comments are taken into account, or what constitutes stakeholder consultations for the indicative list of projects.
- Moreover, current rules of public participation do not require a coherent plan for the use of the MF by the Member States, which could be consulted with various stakeholders. As a result, there is a threat of adhoc use of these funds which would reduce their potential to have an impact in modernizing the energy systems of the eligible Member States.
- Even the existing rules do not seem to be complied with in the cases of some Member States. Specifically, according to article 17 of Regulation 2021/1001 “The beneficiary Member States shall make publicly available on the websites of the relevant departments of their administrations information on the investments supported under this Regulation, in order to inform the public of the role and objectives of the Modernisation Fund. Such information shall include an explicit reference to the Modernisation Fund support received”. However, not all eligible MS have dedicated websites to the MF.
- There are significant delays in posting information on the MF webpage, which do not contribute towards transparency. For example, the annual report of 2024 from the Investment Committee is still missing although we are approaching mid-2025. Moreover, although Member States officially announce approvals by EIB of investments from the MF (e.g. Greece), the corresponding official information does not appear in the website.
To improve transparency in the use of MF resources, the Green Tank submitted the following recommendations:
- All national websites should be linked to the EU MF website and their content should be streamlined, at least to some extent.
- The EIB should provide more details on the rationale of each investment it approves, especially the reduction in the carbon footprint and the improvement in energy efficiency that would be achieved through the implementation of the investment.
- The EC should encourage the MS to develop plans for the use of their entire MF and conduct a public consultation on it
- Clear guidelines should be provided by the EC on the timing and duration of consultations the MS should organize regarding specific investments, as well as the composition of stakeholders, and the way comments are taken into account.
Finally, the Green Tank stressed the importance of continuing the Modernisation Fund beyond 2030 in view of the new challenges of the green transition that the economically weaker Member States will face, most notably the entry into operation of the ETS-2 for buildings and road transport. In the next period of the EU ETS, emphasis should be placed on financing heating and district heating systems based on renewable energy sources, energy upgrades, sustainable mobility projects, electromobility in public transport, energy communities for rendwables-based self-generation projects, storage systems and grids.
You can read all the responses of the Green Tank to the relevant questionnaire of the European Commission here.
More information on the Modernisation Fund can be found here.
