Surcharge for a liter of petrol? The major revision of permits is postponed, only a small one passed

Emission allowances, from which the Czech Republic is to extract over half a trillion crowns in the coming years to green the economy, are awaiting a two-phase reform. On Wednesday, the government approved phase number one for the third time, thereby closing earlier disputes, mainly about who will manage and distribute the money in the Czech Republic.

More important changes that could scare the public are postponed until after the elections. This mainly includes the extension of emission fines to small consumers, i.e. new surcharges for fuel or gas for heating households. According to earlier agreements at the European level, these should apply from 2027, the Czech government has not discussed them yet.

Even so, this year, due to permits, she has already gotten into a dispute twice, due to which negotiations had to be interrupted and postponed. The reason was the provision that, over time, payments for allowances will go to the State Environmental Fund and only precisely defined green projects will be financed from them.

All of Europe has already agreed on this targeting. The Ministry of the Environment demanded this redirection now, but in the end, according to the government’s meeting on Wednesday, it will not happen until 2026. Until then, income from allowances will flow, as it does today, through the state budget, where their use is more free, which will allow the government to avoid next year before financial distress choices.

The government did not discuss the extension of allowances to small consumers at all on Wednesday. The EU agreements concluded the year before under the Czech presidency allow for these interventions in the future, but part of the government coalition in the European elections is agitating for a revision of the Green Deal and does not want to hasten its effects. And so the opinion prevailed in the coalition that there is no reason to put all unpopular steps into law right away.

For gasoline and gas for small consumers, the allowance is expected to cost up to 45 euros for each ton of CO produced2. This translates to two to three crowns extra per liter of gasoline and on 200 crowns per megawatt hour of gas. If there is a big turn in the EU elections, Europe could back away from these intentions. However, a majority agreement between the member states would also have to be found to cancel the already negotiated matter, which does not seem likely.

Emission allowances have been operating throughout the European Union for almost twenty years. In simple terms, they can be understood as a fine or tax for the fact that fossil power plants and large industrial enterprises release greenhouse gases into the atmosphere and cause an unwanted burden on the planet, which manifests itself in increasingly large fluctuations in the climate.

The principle of allowances is that without them, companies would bear no consequences for the damage caused and could win endlessly in competition with cleaner but more expensive technologies. Therefore, in an attempt to set an example to the world, the Union decided that companies will pay for each ton of greenhouse gases – and that the number of allowances offered will gradually decrease and companies will compete for them in order to have an incentive to behave greener.

The Czech Republic, as a poorer industrial country with a high dependence on fossil resources, is entitled to a larger allocation than other states when apportioning revenues from allowances. In addition to allowances from local issuers, it thus receives an additional portion via the so-called Modernization Fund, to which the whole of Europe contributes in solidarity.

In total, for the entire period 2021-2030, according to current estimates, the Czech Republic is entitled to 350 billion from the Modernization Fund and 250 billion from the auctions of its allowances. However, these estimates fluctuate considerably over time – in the accompanying documentation for the newly approved amendment there are even significantly higher amounts, processed according to last year’s allowance prices. Even so, the total of 600 billion represents a massive injection for public finances.

Future surcharges for gasoline, gas, and coal for small consumption are not so much related to the fact that more money needs to be collected somewhere, but to the fact that the system works fairly and that all consumption of fossil fuels is subject to the same burden. Today, only large companies have to pay for allowances, which leads to unfair consequences, when, for example, heat from a large heating plant or electricity for heating have allowance costs, but heating with gas does not.

According to ministry officials, the usual objection that allowances only unnecessarily make life more expensive for people and companies is inaccurate and simplistic. “The answer is that we only make fossil energy more expensive. That’s the whole principle. The more fossil the resource, the more expensive it becomes. And most of the money will then go to decarbonization solutions,” says Petr Holub, director of the climate protection section at the Ministry of the Environment.

Further planned adjustments to the allowance regime expect that it will be extended to other fields. The currently adopted government amendment envisages, among other things, allowances in air and sea transport from 2026, which again corresponds to earlier agreements within the EU. From 2027, they also expect that the system will be expanded to include a carbon duty, so that there will be a burden on imported steel, fertilizers and other products, where producers from the EU struggle the most with permits.