Czech pushes ETS change in Brussels, Babiš warns of harsh impact on firms

Brussels, 19 June (ČTK correspondents) - Changing the EU ETS emissions trading system is the fastest way to help not only Czech but also European industry, Prime Minister Andrej Babiš said today. Once all impacts on Czech industry are added up, the net negative impact amounts to CZK 55 billion a year, he said. The prime minister spoke to journalists ahead of the second day of talks between EU presidents and prime ministers in Brussels.

"Within the European Council, they already call me ETS because we were the first to come up with it in January," Babiš said, adding that he repeatedly raises the issue at leaders' meetings.

However, he also has support from several other countries, including Italy and Poland.

"We can see what is happening in Germany, the problems facing its automotive industry. So we are pleased that we have managed to achieve some partial successes, namely that the (European) Commission is at least willing to revise the directive," the prime minister added.

The Czech Republic is one of the countries vocally demanding changes to the ETS system. At the end of May, the Czech Republic and other countries called on the EU to protect their heavy industry from carbon-emissions-related costs. In this context, the countries cited, for example, the importance of maintaining the current level of free allocation of allowances that enable industrial companies to emit under the EU ETS system.

The ETS emissions trading system is intended to motivate companies to reduce emissions. Businesses must buy allowances for every tonne of CO2 they emit. The more emissions they produce, the higher their costs, making it worthwhile to invest in so-called cleaner technologies. European Commission President Ursula von der Leyen has previously said that the ETS system remains a "proven tool for supporting industrial transformation", but that it needs to be modernised and made more flexible.

The European Commission is expected to present a revision of the ETS 1 emissions trading system on 15 July this year. According to a document seen by Reuters, the revision should extend the free allocation of emissions allowances to industrial companies in exchange for investments in the European Union.

Babiš has previously said that emissions allowance prices are reflected in electricity prices in individual countries. According to EU data, ETS costs account on average for around 11 percent of Europe's electricity bill. However, this differs across the EU's 27 member states; in Poland, for example, it is 24 percent because coal-fired power plants dominate its energy mix. In the Czech Republic, it is 20 percent, while Italy has a similarly high share.

At the beginning of April, the European Commission presented the first change to the emissions trading system. It proposed adjusting the so-called Market Stability Reserve (MSR), which regulates the emissions allowances market. Under the new rules, allowances would not be cancelled if more than 400 million are held in the reserve. Instead, they would be retained as a future stock. The aim is to increase stability and predictability.

According to the document cited by Reuters, the revision should comprehensively reform the Market Stability Reserve. "The EU ETS revision will extend the system of free allocation of emissions allowances and link it more closely to investments made in the European Union. It will also require member states to use a larger share of emissions allowance revenues for the decarbonisation of sectors covered by the EU ETS system," the EU executive's document states.

According to ČTK sources, the Commission would also like the planned revision to make the emissions trading system provide greater incentives for investment and innovation, and for those paying for allowances to get their money back. The European Commission apparently plans to make more allowances available free of charge, but wants to make this conditional on companies' decarbonisation plans. Industry Minister Karel Havlíček recently said during a visit to Brussels that this approach would also be acceptable to the Czech Republic.

The ETS 1 system is Europe's main emissions allowances market. It covers energy, large industry and aviation in the EU. Following a one-year delay, the expanded ETS 2 system is to become operational in 2028 and should cover road transport and building heating. The introduction of ETS 2 is also to include a Social Climate Fund intended to mitigate the impact on low-income households.

The ETS system revision also appeared in the summit conclusions approved today, which concern the EU's competitiveness. The relevant paragraph remained open until the day before the talks, with the Czech Republic, as well as Italy and Poland, particularly pushing for changes. According to ČTK information, Prague is satisfied with the final version.

"The European Council recalls the need to accelerate work on reducing energy prices, the clean transition and decarbonisation, taking into account the principle of technological neutrality and strengthening our resilience," the document states.

"The European Council takes note of the European Commission's intention to submit, by mid-July 2026, a specific proposal to revise the ETS emissions trading system, including the issue of freely allocated allowances. At the same time, the Commission is to submit a separate proposal addressing concerns in certain industrial sectors regarding benchmarks in the ETS system, while preserving the key role of the ETS system in the climate and energy transition," the text adds.

So-called benchmarks and their adjustment are repeatedly mentioned by Czech representatives at every meeting, as they determine how many free allowances a particular industrial company receives. There is talk of gradually reducing the number of freely allocated allowances, but the Czech Republic disagrees with this.