Experts: Emissions allowance prices are three times pre-pandemic levels in Czechia

EU ETS allowance prices on the markets are highly volatile, but have risen sharply overall in recent years. They are now three times higher than before the Covid pandemic. In early February, prices rose to 84 euros (about CZK 2,100) per megawatt-hour (MWh), before correcting to the current level of around 72 euros (about CZK 1,800), analysts contacted by the Czech News Agency (ČTK) said. Europe is grappling with high energy prices, which are partly attributed to the high cost of allowances.

Emissions allowances were introduced as part of a strategy to combat climate change. Their main aim is to reduce greenhouse gas emissions through market mechanisms. The emissions trading system was first introduced in the EU in 2005. Each allowance corresponds to one tonne of carbon dioxide (CO2). Companies that emit greenhouse gases must hold a corresponding number of allowances. If they do not need them, they can sell them. If they do not have enough, they must buy them on the market.

„In recent years, we have seen a sharp rise in emissions allowance prices. Before the coronavirus pandemic, prices were around 25 euros, but at the turn of 2020 and 2021 they began to climb steeply, doubling within a few months. With the start of Russia’s aggression against Ukraine, emissions allowances rose by a further 50 percent, reaching a record price of 100 euros in early 2023,“ Jiří Tyleček, an analyst at XTB, told ČTK.

Allowance prices have remained above 50 euros since mid-2021.

„Allowance prices remain highly volatile: in January 2025, they had risen by around 40 percent in just three months, followed by a significant decline,“ said Petr Štajner, director of project development at Greenbuddies.

Prices in other major trading systems, such as those in South Korea, China and California, also rose after 2020, he said, but not as significantly as in the EU.

A more reliable estimate of the long-term trajectory of EU ETS allowance prices is almost impossible given the current mechanism for setting them, Štajner noted. However, if the EU does not make a systemic change to this mechanism over the next few years, prices would probably climb well above 100 euros after 2030, and perhaps even exceed 150 euros. Given the ongoing problems facing European industry, political developments in the US and other pressures on the EU’s competitiveness, changes to the system are likely to be made eventually, he added.

According to Tyleček, the emissions allowance system is a key tool for reducing carbon emissions, but its effects have recently come under scrutiny. „Europe is currently at a crossroads over whether to continue with its current path of reducing CO2 emissions. Allowances make electricity generation from fossil fuels, particularly coal and gas, more expensive, affecting prices for consumers and businesses. They are also subject to speculation, leading to unwanted price fluctuations,“ he added. He expects the allowance system to come under pressure in the coming months, potentially leading to restrictions or a redesign.

Last week, following a meeting of the tripartite council, trade unions and employers said they supported the Czech government’s efforts to delay or scrap the EU’s ETS 2 emissions trading system for transport and household heating, which is due to take effect in 2027.