Czech analysts: Price cap on allowances will halve price rises, but they will still be significant

Price caps on emissions allowances under the ETS 2 system will not stop household fuel and heating costs from rising, but will only soften the increase. That is the view of analysts contacted by the Czech News Agency (ČTK). In their view, the cap will roughly halve the current risk of price increases. Even so, the average household’s heating costs will rise by thousands of crowns a year. Motorists will pay an extra two to three crowns per litre of fuel.

Prime Minister Petr Fiala (ODS) said on Thursday on CNN Prima News that the European Commission would accept a proposal from Czechia and other countries and prepare a plan to cap the prices of the new emissions allowances for household heating and motor fuels. He called the decision a major success, although Czechia’s aim is not to introduce these emissions allowances at all. So far, however, it has not managed to secure a majority in support of that position.

Setting a hard price cap of 45 euros per allowance in the new emissions trading system would, according to XTB economist Pavel Peterka, halve the anticipated price increases, but he still expects fuel and heating costs to rise significantly. His estimates suggest that households could still pay thousands of crowns more each year despite the price cap.

If the price cap on household allowances is maintained, Peterka expects petrol prices to rise by 2.50 Kč per litre and diesel prices by around three crowns per litre. He forecasts gas prices to rise by around six percent, which would increase apartment heating costs by thousands of crowns a year. He expects coal prices to rise by 19 percent. For an average household in a detached house that burns about four tonnes of coal a year for heating and hot water, this would mean additional costs of around 6000 crowns a year.

Peterka therefore considers securing the price cap on allowances at least a partial success. “The risk, however, is that a hard cap will eventually become a soft cap again, set at a higher level, so the greater impact on prices would merely be delayed,” he added.

According to Ruben Marada, co-founder of Electree, capping emissions allowance prices under the ETS 2 system is a positive step because it gives the market certainty and prevents extreme fluctuations. “On its own, however, it does not guarantee cheaper energy – the allowance is only one part of the final price, which is also shaped by fuel prices, distribution and conditions on the wholesale market,” he said. In the short term, the cap may curb sharp price increases, but in the long term, Marada said, the higher costs associated with decarbonisation and the transformation of the energy sector will gradually be reflected in prices for households and businesses anyway.

The new ETS 2 emissions trading system is set to extend allowance trading to areas such as road transport and building heating. Under current plans, it is due to take effect in 2027. Czechia is among nearly two dozen countries calling for changes to the system.