Use of Revenue from Emissions Trading Systems: From Auction Revenues to Adaptation Benefits

How can revenues from emissions trading systems (ETSs) be used to finance climate adaptation? This fellowship research report examines how auction proceeds are allocated in the EU, California, and Québec, quantifies adaptation-related spending where data permit, and distils design choices and trade-offs across earmarking, targeting and eligibility, delivery mechanisms, and objectives. It focuses on adaptation–mitigation synergies, and only where a direct link to an ETS revenue stream exists. The paper also maps transparency practices and Monitoring, Evaluation and Learning (MEL) approaches relevant to tracking vulnerability reduction.

The report features three illustrative case studies: EU Member States’ use of EU ETS proceeds for domestic adaptation and international cooperation; California’s California Climate Investments, including earmarking for priority communities and projects with adaptation–mitigation synergies; and Québec’s Electrification and Climate Change Fund supporting urban resilience, research, capacity building, and coastal protection. Each case explores the measure’s rationale, beneficiaries, governance and delivery, reporting, and available review findings. The paper concludes with practical recommendations to scale and systematize adaptation finance from ETS revenues.

The research was produced by Alexander von Humboldt Fellow María del Pilar Salazar Vargas during her research stay at the ICAP Secretariat (2025–2026). It was not part of the ICAP Technical Dialogue; the research was supervised by ICAP staff, and ICAP members contributed comments. The findings and opinions are those of the author.