Czech Environment and Industry Ministries to share emissions allowance revenues, government to discuss

Revenue from emissions allowances will apparently be divided between the Ministry of the Environment (MŽP) and the Ministry of Industry and Trade (MPO). Veronika Krejčí, spokesperson for the Environment Ministry, told ČTK. The division of revenues should resolve the existing dispute between the ministries over the new emissions allowance system. It is part of a proposed amendment to the law on the conditions for emissions allowance trading and envisages that the state will have to use all allowance revenues for measures that reduce or compensate for the impacts of climate change. The government will discuss the proposal, including the revenue split, on Wednesday.

Emissions allowances, expected to generate around CZK 40 billion this year, are purchased by power plants and other industrial companies that release greenhouse gases, such as carbon dioxide, into the atmosphere. One allowance entitles a company to emit one tonne of carbon dioxide, or an equivalent amount of another gas, into the atmosphere.

The proposed revised amendment responds to the amended EU directive, which requires all allowance revenues to be used for climate protection. The state will probably also have to report this to the EU. Until now, half of these revenues had to be used in this way, while for the remaining money it was only a recommendation. The proposal does not specify concrete examples of measures for which the money may newly be used.

The government already had the proposed amendment on its table in January. However, the cabinet postponed it due to disputes between the ministries over the division of revenues, which are currently split between the Environment Ministry, the Industry Ministry and the state budget. The Environment Ministry, which prepared the original proposal, wanted the money to be placed entirely under the management of the State Environmental Fund. It argued that, as the authority responsible for emissions allowances, it must ensure their effective use for measures against climate change. However, the Industry Ministry opposed this, seeking allowance revenues for its own budget chapter due to the need to finance operating support for existing energy sources. The Finance and Transport Ministries then requested that the revenues become income for the state budget.

The revised proposal is now being submitted jointly by the Environment and Industry Ministries. Under the new proposal, part of the revenues should become income for the Industry Ministry's budget chapter. „These will cover compensation for indirect allowance costs in electricity prices for businesses that consume large amounts of electricity and are particularly at risk of losing competitiveness. They will also cover operating support for new renewable energy sources, which will always be subject to approval by the interministerial committee for the use of allowance auction proceeds and the government's Council for the Use of Revenues, with this expected for the first time in autumn this year,“ Krejčí said.

The proposed amendment also envisages an adjustment to the total number of allowances for aviation and extends the system to maritime transport.

Approval of the amendment is gradually being delayed. Under the original plans, it was meant to take effect at the beginning of this year. In the event of longer delays, Czechia could face sanctions for the late adoption of the changes.

The European emissions trading system (ETS) is the main tool for reducing greenhouse gas emissions. It sets limits on the total amount of greenhouse gases that sectors covered by it may emit, while also allowing companies to obtain or purchase emissions allowances, which can be traded as needed. As allowance prices rise, companies also have a greater incentive to seek to reduce emissions.