Czech Business Today

In order to fight the climate change, the European Union introduced in 2005 the EU Emissions Trading System (EU ETS). The idea behind was to push industry to invest in innovative solutions able to reduce greenhouse gas production and increase energy efficiency. 

Due to several reasons, mainly the economic slowdown in Europe, the market became flooded by allowances. As a result, their price dropped below the level that would stimulate ecofriendly investment. Today, the price of one emission credit (equal to 1 ton) is around 7 euro, while the initial plan of the Commission counted with more than a quadruple. Connie Hedegaard, Commissioner responsible for climate action, says that there is approximately a surplus of 1 billion allowances on the market and the number can soon go up to 2 billion. In other words, everyone has enough emission credits and the system itself does not work the way it was intended. 

Therefore, in summer 2012, the European Commission presented its proposal to backload allowances from the beginning of the upcoming trading period (2013–2020) to its end in order to increase their price. In addition, it is being discussed that these allowances could be even “set aside”, which means that they would not even be put for trading. However, this proposal hasn´t been well accepted by the business community. To be precise, the associations representing entrepreneurs and employers strictly refuse any market intervention, i.e. manipulate with allowances´ prices. Such an action would put European businesses at risk of losing competitiveness compared to other parts of the world. 

Furthermore, artificial interventions to the market seriously diminish the possibility to estimate future market trends and develop investment and business plans, and as business representatives point out, uncertainty is something they don’t really need right now. More systematic approach is required to deal with the reasons why the ETS is not fully playing the role it was expected. Czech business associations also worry about possible loss of competitiveness, because the increased price of allowances would be very probably reflected in energies prices, especially in case that allowances would be set aside. That would particularly influence industrial production companies, which have only limited possibility to project costs of allowances into the price of their final products and therefore their profits decrease. 

EU is on the right track to fulfill, and probably even exceed, its commitments in the field of greenhouse gases reduction and therefore it is not necessary to increase the burden put on European companies by increasing the price of allowances.