In 2023, the administrative expenditure of the EKII was €3 million and in 2024 it is planned at €4.7 million.
The Emission Allowance Auction Instrument is the funds generated from the auctioning of emission allowances allocated to Latvia, which are to be channeled into measures to support the achievement of climate objectives. An emission allowance is a permit to emit GHGs granted to companies and countries by the European Union to limit emissions and combat climate change.
"Climate policy objectives cannot be achieved without financial investment. At the same time, we need to be aware that financial resources are limited and therefore it is necessary to assess optimal investment options. Seven years ago, when we assessed the use of climate finance under the Climate Change Finance Facility and the EKII, we concluded that it was being invested in inefficient projects. The recommendation made at that time to prioritize measures based on cost-effectiveness calculations was not implemented.
"Unfortunately, past experience has not been considered and, consequently, has not been used to improve operational efficiency. This audit also shows that data-driven selection of EKII measures is still not carried out," said Inga Vilka, Member of the Council of the State Audit Office.
Available EKII funds are not being used in time to implement mitigation actions. By the end of 2023, only 34% or €169 million of the available EKII funding - €489 million - has been used in Latvia.
Faster implementation of GHG mitigation measures is more cost-effective, but EKII funding is only used within four to six years of receipt.
The State Audit Office estimates that the prolonged non-utilization of available EKII funding has already reduced its value by €70 million by the end of 2023.
Thus, an opportunity to implement measures that would reduce GHG emissions by an average of 9012 tonnes per year has been missed. Moreover, only €86 million or 51% of the EKII funding has been used to implement GHG emission reduction measures, while €76 million or 45% has been used to support electricity end-users, a measure that has not led to GHG emission reductions.
As Auditor General Edgars Korčagins explained on Latvian Television's "Morning Panorama" program, while in many areas in Latvia, we are talking about insufficient funds, there are funds for achieving climate goals – a lot of them, but they are not being used:
"As they said in [fairytale] 'Sprīdītis', the money is just 'drying out'. That's what's worrying. Firstly, we are not moving fast enough to meet the climate targets, which could result in sanctions for the country, and secondly, the money simply loses value, even if it is due to inflation."
Penalties for non-compliance with the targets are typically measured in millions of euros.
According to the State Audit's report, the EKII project tenders have also not been cost-efficient. Comparing the cost-effectiveness of all eight EKII project tenders implemented so far with the cost-effectiveness of other mitigation actions shows that all the EKII project tenders implemented so far have relatively low cost-effectiveness, being between 14 and 88 times more expensive than other mitigation measures.
