EU approves emission allowance reform – where does Czechia stand?

European Union ministers today approved a reform of the emissions trading market to help curb greenhouse gas emissions by the end of the decade. This reform foresees charging for emissions from heating buildings and road transport from 2027 and the end of free allowances in 2034.

The legislation could have a strong impact on prices for people living in Czechia and other EU countries with housing gasoline, heating, and airfare becoming more expensive as a result. Here's what you need to know.

The set of climate standards known as Fit for 55 is intended to bring the EU closer to the goal of reducing greenhouse gas emissions by at least 55 percent compared to 1990 by 2030.

The reform of the emissions trading market is part of a package of climate standards adopted by the European Union to reduce greenhouse gas emissions. This package includes a range of measures such as promoting renewable energy, improving the energy efficiency of buildings, and reducing emissions from transport.

Charging for emissions from heating buildings and road transport will be gradual and will apply only to EU countries. The aim is to encourage people to use cleaner energy sources and reduce dependence on fossil fuels. Charging for emissions should also help finance investment in renewable energy and energy efficiency in buildings.

The reform of the emission allowance market was adopted after long negotiations and discussions between the countries of the European Union. Some countries feared that charging for emissions could increase costs for ordinary people and businesses. However, most countries agreed on the need to take action to protect the climate and reduce greenhouse gas emissions.

According to Reuters, the new allowance system was supported by all member countries, with the exception of Poland and Hungary, which opposed it. Poland said that the whole package "introduces unrealistic goals and ambitions and significantly interferes with the energy mix of the member states." Belgium and Bulgaria abstained.

The Czech Republic, which during its presidency in December last year agreed on a similar set of standards with MEPs on behalf of the member states, agreed with all of today's proposals.

The EU will also introduce a so-called carbon tax and create a social climate fund, which, among other things, is intended to help mitigate the effects of the expected rise in heat prices for households. It aims to partially dispel fears of rising heat and transport prices with the establishment of the fund, in which EUR 86.7 billion will be available.

While emission allowances are already included in the supply of electricity and heating, paid by power plants and heating plants, this doesn't apply to some households, which have disconnected from the district central heating and use their own sources.

Calculation by iDnes.cz found that at a price of EUR 45 per permit, for example, apartment buildings with a common gas boiler would pay an additional CZK 0.2 per kilowatt-hour of natural gas. In a 14-apartment building with a gas boiler and annual consumption of 125 megawatt hours, the average household would pay approximately CZK 1,800 per year.

However, the implementation of the system will be felt most strongly by people heating with coal.

Heavy industry will lose the allowances it has been getting for free for CO2 production until 2034. Airlines will have to give them up by 2026, which will most likely lead to higher ticket prices. Shipping will be included in the allowance system from next year.

Extending the system to road transport will in practice mean that drivers will pay an extra allowance for each liter of gasoline and diesel, which fuel distributors will very likely translate into the final prices for consumers, reports iDnes.cz. 

Last year, Deputy Prime Minister Marian Jurečka (KDU-ČSL), who currently heads the Ministry of the Environment, said Czechia welcomes the agreement. 

"It is important that we managed to find an agreement because climate change will not wait and we are in a situation where we have a huge responsibility for what we leave here for our children," Jurečka told reporters in 2022.

Activist groups said they consider the agreement unfair. "We consider it problematic that households will be burdened with the price of allowances before the full price is borne by the big polluters. The polluter principle applies, so it still works on paper rather than in reality," said Barbora Urbanová from the Center for Transport and Energy.