CZ/SK verze

Czech Government Has Approved the Distribution of Money from Emission Allowances After the Third Attempt. The Fight for Money and Influence Is Far from Over

Czech Government Has Approved the Distribution of Money from Emission Allowances After the Third Attempt. The Fight for Money and Influence Is Far from Over
photo: / Public domain/Illustrative photo
09 / 05 / 2024

The dispute over the nature of the revenue, which can reach up to CZK 100 billion annually, and how it should be distributed, has been ongoing since last autumn.

At the third attempt, the government last week approved a system for distributing profits from emission allowances. The dispute over the nature of the revenues, which can reach up to CZK 100 billion annually, and the method of their distribution has been ongoing since last autumn against the background of the approval of an amendment to the Act on the Conditions of Trading in Greenhouse Gas Emission Allowances (383/2012 Coll.). This act transposed into Czech law the European directive according to which 100% of the revenues from emission allowances must be invested in climate protection measures. This amendment also failed to resolve the allocation, and the government only created bodies to deal with it. RAILTARGET has previously reported on the dispute that led to the delay of the amendment.

This year and next, the revenue from the permits will go to the state budget, and from 2026 onwards, most of it should go to the State Environmental Fund. Until now, the revenue has been split between the Ministry of the Environment, which is in charge of the Ministry of Industry and Trade's Modernisation Fund, and the state budget. As long as permit prices were low and revenues for the Czech Republic did not exceed CZK 10 billion, no one was interested in the topic.

The Ministry of Finance has partially asserted itself; the Ministry of the Environment is winning, and the others are leaving empty-handed for the time being.

In principle, the Ministry of Finance (MoF) considers the revenues from the permits to be state budget revenue, from where they should be further distributed according to the draft state budget with the participation of the Chamber of Deputies. Therefore, the MoF also refused that the allocation of funds from allowances should be decided only by a bureaucratic committee under the Ministry of Environment. The Ministry of Environment (MoE) defended the Committee. It will be called the Committee for the Use of Funds from Allowance Auctions and the Modernization Fund and will be an advisory body composed of representatives from the Ministry of Environment, the Ministry of Industry and Trade, the Ministry of Finance, the Ministry of Transport, the Ministry of Agriculture, the Ministry of Regional Development, the Ministry of Labour and Social Affairs, and the State Environmental Fund. The Committee is to discuss and recommend for approval basic conceptual, and implementation documents. The MoF has only partially asserted its political control.

The law establishes a five-member Council for the Utilization of Auction Proceeds, which will stand above the Committee, nominated by the government as a whole as its advisory body, with a statute and rules of procedure. It is to the Council that the political and interest struggle over the proceeds of the allowances will shift. The Council is supposed to discuss and approve the conditions for the use of funds in the support areas for the following period.

However, the provisional winner, who has a strong hand in future negotiations, is Environment Minister Hladik. He defended that the proceeds should go to a fund managed by his ministry. According to a government resolution, he must draft the final version of the government's bill. He only had to refer to the example of Slovakia and Germany and use the experience of his ministry in the previous administration of emission allowances and negotiations on these issues at the European level.

For the preparation of the state budget for 2025, the Ministries of the Environment and Industry and Trade will increase their expenditures equally according to the expected revenues from allowances (according to the current wording of Act No. 383/2012 Coll.).

The Chamber of Commerce and the Confederation of Industry of the Czech Republic suffered a significant defeat. Their request to participate in the Modernisation Fund Committee was rejected by the Ministry of Environment and the Government. According to the MoE, "the HC and SP CR are already consulted at the level of the Modernisation Fund Platform together with other stakeholders." This exclusion poses a major disadvantage for the industry and the real economy as a whole in the future. On the one hand, the allowances contribute significantly and fight competitiveness; on the other hand, they are denied the opportunity to participate directly in negotiations on the distribution of revenues that would be directed towards the desired decarbonization of industry, transport, and the real economy.

The economic unions rightly fear that the heavy financial burden of emission allowances will not prioritize industry, but that the Environment Ministry and the Modernisation Fund will favor a range of subsidy programs that will not directly affect the economy. When many departments requested that the Environment Act include a detailed list of the relevant purposes for which the proceeds will be spent, the Environment Ministry refused.

A detailed specification could not be accepted, it said, because "we would go beyond the Directive, with which there would then be a risk of conflict." For example, the proceeds of the allowances can be used to pay for all sorts of programs that have little to do with the real economy, such as promoting forests, carbon capture in forest stands and soil, the protection and restoration of peatlands and other ecosystems, or even the storage of carbon dioxide in geological layers, including all sorts of science, innovation, and education programs on climate change. This defeat does not bode well for the future position of the transport sector, which will also be newly burdened with allowances from 2027.

The Transport Minister Kupka's ministry, which had demanded a fixed allocation of 30% of revenues for the State Transport Infrastructure Fund, also lost. The MoE insists that use through the SFŽP is a more appropriate way because the purposes for which the SFŽP can legally use the funds are largely the same as the measures in the Directive. Unlike the SFDI, the MoEF is said to be pursuing the interest of environmental protection, and therefore supporting clean mobility investments and the MoD's participation in the Committee is the optimal solution. According to the MoE, the Modernisation Fund is reportedly already preparing some programs to support clean mobility.

There was also a chance to systemically patch the "solar tunnel" through which the CR has been paying year after year from consumers and industry to subsidize their solar business from the past decade. According to the Ministry of Environment, which here relies on a vague opinion of the European Commission, operational support for RES from 2024 onwards cannot be financed from the proceeds of emission allowances because it is said not to be a support for the installation of new sources. The RES was established long before the first auctioning of allowances, so its financing has never been dependent on EP revenues and is not possible from 2024.