Proceeds from the sale of emissions allowances were managed in line with applicable laws. Interests of the state budget were not protected properly in this process, though. Besides, expenditures incurred from this source could not be linked with the reduction of greenhouse gas emissions. In 2013-2023 (until 30 May), the proceeds from selling emissions allowances reached nearly PLN 94 million, of which only less than 1.3% was directly transferred for purposes related to the reduction of greenhouse gas emissions or the emissions management. The European Union Emissions Trading System (EU ETS) in Poland was organised in a way which prevented establishing the actual use of almost 90% of the proceeds from the sale of emissions allowances. The main reason was that over 63% of those funds went to the state budget, governed by the budget unity principle – without any concept of how this money should be used. At the same time, nearly 25% of the proceeds was transferred to off-budget funds which were not obliged to keep separate accounting records.
EU ETS is the key tool of the European Union to prevent global warming. In 2021-2030, the greenhouse gas emissions EU-wide were initially supposed to be reduced by 40% against 2005. During the NIK audit that target was raised to 50%. In 2013-2023, Poland received nearly PLN 94 billion revenue from the sale of EU ETS allowances, where almost 90% of this amount, i.e. over PLN 84 billion, was obtained in 2019-2023 (until 30 May).
Key audit findings
Revenue beyond control
NIK has negatively evaluated the EU Emissions Trading System operating in Poland. The system was organised in a way which made it impossible to explicitly establish the actual use of the revenue from the sale of emissions allowances in case of nearly 90% of the proceeds. The main reason was that over 63% of the revenue went to the state budget - governed by the budget unity principle – without any concept of how these funds should be used. At the same time, nearly 25% of the revenue was transferred to off-budget funds. Since it was not possible to link the spending with the reduction of greenhouse gas emissions, NIK withdraws from evaluating if the EU ETS trading contributed to the emissions reduction.
In 2019-2022, over PLN 30 billion was transferred to the funds’ accounts, of which PLN 23 billion only in 2022. It needs to be emphasised that amounts paid to the funds were higher than the actual costs of tasks to be covered from the Minister’s money. As a result, over PLN 12 billion was paid until the end of 2022, and nearly PLN 3 billion was transferred until 30 May 2023. Those amounts exceeded the actual demand and they could not be reimbursed to the state budget account.
Only the funds transferred to the National Fund for Environmental Protection and Water Management were earmarked directly for purposes related to the reduction of greenhouse gas emissions. Those funds made up 1.3% of the proceeds from the sale of emissions allowances.
The Minister for environmental/ climate issues failed to implement the mechanism of using proceeds from the sale of emissions allowances in 2013-2020 to reduce the greenhouse gas emissions. It is important because limiting the demand of Polish companies for paid EU ETS allowances would considerably support the Polish economy, The deficit of free emission permits in that period reached several billion PLN per year.
Within ten years (2013-2023), the Ministry for environmental/ climate issues did not conduct any internal inspections or audits of managing proceeds from the sale of EU ETS emissions allowances. The proceeds would grow from 2014 but that growth was particularly noticeable in 2017-2022. The revenue made up from about 60% to nearly 5 900% of the state budget expenditures in part called Environment in 2013-2021 and 4.7 thousand % to 6 thousand % expenditures in part called Climate in 2020-2021. The absence of internal inspections and audits with so big amounts shows that effective audit mechanisms were missing. According to NIK the headcount issues did not justify negligence in that key area.
No planning in place
NIK auditors identified numerous issues related to strategic planning of the management of proceeds from the sale of emissions allowances. The minister for economic issues did not implement the Strategy for Responsible Development in terms of preparing and implementing in 2019 the strategy for the transition to a low-emission economy as one of key projects listed in that document. By the end of the audit, the Ministry did not develop the long-term low-emission strategy, although the project had to be submitted to the European Commission by 1 January 2020.
In 2013-2020, the non-ETS emission did not exceed 14% compared to the emission in 2005. That was in line with the requirement specified in the decision of the European Parliament and the Council (no. 2009/406/EC of 23 April 2009) on efforts taken by the Member States to reduce the greenhouse gas emissions. Although the non-ETS emission had to be cut by 7% in 2021-2030 against the emission in 2005, even two years after the deadline the Ministry of Climate and Environment failed to take any steps to reduce the non-ETS emission, referred to in the Strategy for Responsible Development. Without making those efforts Poland may not meet the target to reduce the non-ETS emission in 2021-2030. It needs to be stressed that the non-ETS emission in 2020 was nearly 14% higher than the emission in 2005. It means that the greenhouse gas emission in the period 2020-2030 should be reduced by almost 21%.
Recommendations
In the light of the audit findings, NIK recommends that the Prime Minister ensure:
- development and implementation of mechanisms facilitating the use of funds from the auctioning of EU ETS allowances to support tasks which help reduce greenhouse gas emissions;
- development and implementation of mechanisms to plan and control the use of proceeds from selling EU ETS emissions allowances, including monitoring of the level of their use during and after the end of a given budget year;
- immediate legislative action to introduce a requirement in the Act on the Greenhouse Gas Emission Allowance Trading Scheme for entities which benefit from proceeds from selling EU ETS emissions allowances to assess if these funds were used in line with their intended purpose after the end of a given budget year and to return unused funds to the state budget;
- immediate development of policies and strategies for the transition to a low-emission economy and the reduction of greenhouse gas emissions by the relevant members of the Council of Ministers.
