PwC analysis: Negative impacts of EU ETS 2 can be reduced by capping allowance prices in Czechia

The negative impacts of the planned EU ETS 2 emissions trading system can be reduced by effectively capping allowance prices. The system would add an average of a few hundred crowns a month to household bills. This is according to an analysis by PwC commissioned by the Ministry of the Environment. The ministry presented the findings at a press conference today. The new emissions trading system is set to be extended to road transport and heating, and is due to take effect in 2027. Its introduction has drawn criticism from some experts and politicians.

With allowance prices capped, the system's impact on households would, according to the analysis, amount to a few hundred crowns a month. A Czech initiative is calling for a price ceiling that would ensure an average allowance price of 45 euros; it has been backed by 19 other member states. "The European Commission is preparing a proposal based on this measure, which could realistically be adopted later this year," said Petr Holub, senior director of the Ministry of the Environment's Climate Protection Section.

According to the analysis, the absolute increase in expenditure following the introduction of EU ETS 2 would affect higher-income households more, as they have the highest spending on coal heating and fuels. In this case, the increase would amount to 200 to 400 crowns a month for an average household.

"Lower-income households will feel a smaller increase in absolute spending on coal heating and fuels than higher-income households," said Jan Brázda of PwC.

According to the analysis, the increase in expenditure following the introduction of EU ETS 2 would amount to 1.3 percent of an average household's total consumer spending.

The Social Climate Fund has been set up to support low-income households that heat their homes with coal or natural gas. Its aim is to mitigate the impact and help with the transition to more efficient and cleaner technologies. Czechia plans to draw approximately 52 billion crowns from the fund by 2032. Revenue from emissions allowances is also intended to fund investment in climate protection measures, including improving the energy efficiency of buildings, developing renewable energy sources and introducing energy-saving technologies.

Czechia's original aim was not to introduce these emissions allowances. So far, however, it has been unable to secure a majority in the EU for this position. Some economists and analysts, as well as the Association of Entrepreneurs and Self-Employed Persons of the Czech Republic, have expressed concern that household monthly costs could rise sharply. The association says trading in EU ETS 2 allowances will lead to unpredictable prices.

Andrej Babiš, chairman of the ANO movement, which won this year's parliamentary election, has repeatedly said in the past that if his party forms a government after the election, he will reject the introduction of the new emissions allowances.

Under the emissions trading system, each allowance permits the release of one tonne of carbon dioxide into the atmosphere, or an equivalent amount of another gas. The current EU ETS covers power plants and industrial companies that produce greenhouse gases. The aim of the emissions trading system is to reduce emissions that contribute to climate change.