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Frank Bold points out non-transparent handling of ETS revenues and potential violation of EU law

The European Commission recently introduced a draft of the revised EU ETS Directive which, among other things, proposes that 100 % of ETS revenues should be used for environmental measures. We welcome this idea but we’re also sceptical about how the ETS revenues are used in the Czech Republic. Therefore, we have prepared an analysis mapping the use of ETS revenues in Czech Republic and sent it to the European Commission as an input for the recent public consultation. The main conclusions are presented below.

  • The ETS (European Union Trading Scheme) was launched by the EU in 2005 as the world’s first large-scale greenhouse gas (GHG) emissions trading scheme, which aims to reduce GHG emission by charging for emission allowances. The principles and rules of the ETS are laid down in the ETS Directive (2003/87/EC), it's core consists in the polluters pay principle. The ETS Directive is being regularly updated and is currently in the revision process to keep up with the EU decarbonising goals.

Potential violation of the ETS Directive in 2021

Czech law states that 50 % of ETS revenues has to be used for environmental measures, which are enumerated in the ETS Directive. For 2021 the Czech government decided to cap this share at CZK 8 bn. (EUR 310 mil.), the rest of the revenues are considered income to the state budget. In case ETS revenues are higher than CZK 16 bn. per year, as predicted for 2021, there is potential for non-compliance with the ETS Directive, which requires at least 50 % of ETS revenues to be earmarked for climate-related projects.

Non-transparent and non-incentivising use of ETS revenues

Information about projects supported from ETS revenues is not publicly available, we assume that some of the means flows into the state budget and aren‘t used for environmental measures. Furthermore, ETS revenues dedicated to the Ministry of Industry and Trade, are used for continuous operating support for photovoltaic projects from the 2010s, which does not have any incentivising effect for the energy transformation. This support would have been paid anyway.

Our recommendations

  • The ETS revenues should be handled separately from the state budget to increase transparency on where the money goes to and whether it complies with the ETS Directive. 

  • The revised ETS Directive should introduce more specific rules on transparency of ETS revenues use, which would enable the public as well as the European Commission to verify that all the requirements of the ETS Directive have been met.

  • More information should be available about the specifics of projects supported by Member States. For this purpose, we suggest publishing Member States reports to the European Commission regularly on how they manage ETS revenues. And lastly, more attention should be paid to the effects of the spending of ETS revenues, especially the motivational effect of the expenditure.

Our work on this issue continues both on EU and national level. You can see and download our analysis or take a look at more of our work in the Publications section.

Contact

Anna Michalčáková, Frank Bold