The European Commission published an evaluation of the Modernisation Fund (MF) operating rules on 17 July 2026, covering the first four and a half years of implementation for the 13 beneficiary Member States (BMS). The evaluation finds that as of end 2024, only two investments were fully completed, with most available data concerning procedures and budget execution rather than outputs or results. The MF, established in 2021, supports low-income Member States (GDP per capita below 75% of EU average) in modernising energy systems and improving energy efficiency, using revenues from 2% of EU ETS allowances set aside for 2021-2030.
The evaluation assesses effectiveness, efficiency, coherence, EU added value, and relevance, but notes significant data limitations. Inconsistent reporting methodologies across BMS for financial flows, GHG emissions savings, and co-financing reduce comparability and reliability of aggregated figures. Six BMS (Czechia, Croatia, Lithuania, Hungary, Romania, Slovakia) voluntarily transferred additional allowances from Articles 10c and 10(2)(b) of the EU ETS Directive to the MF, totalling 319 million allowances (63% of total MF allowances). The evaluation will inform the upcoming revision of the EU ETS Directive impact assessment.
The limited completed investments and data gaps create uncertainty for beneficiary Member States relying on MF funding for energy modernisation. The European Commission faces challenges in assessing the fund's effectiveness, potentially delaying policy adjustments. EU ETS allowance holders may see continued demand for allowances if the fund's impact on emissions reduction is unclear. The evaluation's findings could influence the design of the next ETS Directive, affecting all EU ETS participants. The fund's governance and reporting requirements may be tightened, increasing administrative burden on BMS but improving accountability.