Czech Environment Ministry proposes CZK 2.4 billion in compensation for energy-intensive businesses

The Environment Ministry has sent two regulations to the interministerial consultation process introducing compensation for high electricity costs caused by higher allowance prices for the largest Czech industrial companies. It currently proposes compensating companies with CZK 2.4 billion for 2020, although this amount may still change during the consultation process.

The Environment Ministry has sent two regulations to the interministerial consultation process. The first introduces a system for paying compensation, while the second sets the amount to be paid to businesses.  Both regulations were drafted on the basis of Section 11 of Act No. 383/2012 Coll., on emissions trading. However, their adoption was not an obligation, but merely an option under the current wording of the law. Following an amendment that will take effect from January 2021 and responds to the revision of the EU ETS Directive, the Environment Ministry will be required to pay the support annually.

To qualify for compensation payments, businesses must belong to sectors found to be at significant risk of so-called carbon leakage as a result of greenhouse gas emission costs being passed through into electricity prices. These companies risk running into difficulties due to the high costs of environmental regulation, potentially leading production to shift to countries outside the EU, where it would generally be far less environmentally friendly. The state therefore has an interest in retaining these sectors in the country.

In practice, this concerns energy-intensive industrial sectors that will be able to apply for support, such as the steel, chemical and cement industries. The regulation also stipulates that compensation will only be paid above a certain level of electricity consumption. As a result, only the largest businesses, rather than small and medium-sized enterprises (although they would otherwise fall within the at-risk sectors), will ultimately receive the support. Around forty Czech companies are expected to receive compensation.

However, the amount of funding paid out may still change. During the interministerial consultation process, the Ministry of Industry and Trade (seeking higher compensation) and the Ministry of Finance are also expected to weigh in on the level of support. The funds will come from the state budget.

Electricity became more expensive for Czech companies due to the reform of the emissions allowance market. The EUA price has risen from around 5 euros to 27 euros over the past three years. After years of failing to do so, allowances have finally begun to fulfil their purpose. However, this has resulted in higher electricity prices, as fossil-fuel electricity producers passed allowance costs on to wholesale prices.