Czech government to discuss changes to use of emissions allowance sale proceeds

In the coming years, the state should use all proceeds from emissions allowances for measures that reduce or offset the impacts of climate change. So far, it has been required to do so for only part of the proceeds. This is set out in a draft amendment to the Act on the Conditions for Trading in Allowances, which the government will discuss on Wednesday. It will have to resolve a dispute over who will oversee revenue from allowance auctions, as several ministries are interested in doing so. This is according to a government submission report seen by the Czech News Agency (ČTK). This year’s proceeds from allowances are estimated to exceed CZK 40 billion.

Emissions allowances are bought by power plants and other industrial businesses that emit greenhouse gases into the atmosphere, such as carbon dioxide. One allowance entitles a business to emit one tonne of carbon dioxide, or the equivalent amount of another gas.

The revised draft amendment responds to an amended EU directive requiring all proceeds from allowances to be used for climate protection. The state will probably also have to report this to the EU. So far, only half of the proceeds had to be used this way; for the remaining funds, this was merely a recommendation. The draft does not specify examples of measures for which the funds could newly be used.

However, there is disagreement over how proceeds from allowances should be allocated. At present, some of the proceeds are distributed among the Ministry of the Environment, the Ministry of Industry and Trade, and the state budget. The amendment is expected to change this. According to the Ministry of the Environment, which prepared the draft, the funds should be administered by the State Environmental Fund. It argues that, as the authority responsible for emissions allowances, it must ensure that the funds are used effectively to support measures to address climate change.

However, the Ministry of Industry and Trade disagrees and wants the allowance revenue allocated to its own budget chapter, citing the need to fund operating support for existing energy sources. The ministries of finance and transport, meanwhile, want the proceeds to go to the state budget. The ministries also failed to agree on how to distribute the funds during the consultation process.

Many also believe that the use of proceeds from emissions allowances could be unclear. According to Karel Havlíček, deputy chairman of the opposition ANO movement, the government should use money raised from the sale of emissions allowances, for example, to reduce energy prices. However, Environment Minister Petr Hladík (KDU-ČSL) rejected this. He said it would conflict with EU rules.

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

Approval of the amendment is gradually falling behind schedule. Under the original plans, it was supposed to take effect at the beginning of this year. If delays continue for long, Czechia could also face penalties for adopting the changes late.

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 the system can emit, while also allowing businesses to obtain or buy emissions allowances, which they can trade as needed. As allowance prices rise, businesses have greater incentive to try to reduce emissions.