EU Emissions Trading Scheme as Implemented in the Czech Republic

Abstract

The paper reports on the implementation of the European Emissions Trading Scheme (EU ETS) in the Czech Republic. Trading in CO₂ emission allowances is one of the most dynamic and progressive economic instruments of environmental policy. Since coming into force in January 2005, the system has incorporated into company decision making a truly new phenomenon – the price of carbon in the form of allowances tradable on the European market, where the price of the allowance represents the costs of a company when emitting one ton of CO₂. The incentive, given by the opportunity costs should motivate operators of installations emitting CO₂ to analyze options for carbon emission reduction and to behave rationally. In total, the system should result in a quite significant reduction in the compliance costs of CO₂ reduction when compared to alternatives such as taxes or emission limits, as a result of flexibility given by the market.
The most controversial and sensitive part of the system is the initial distribution of the allowances to emitters. The so-called National Allocation Plan has to provide answers to very difficult questions – to whom, how and how many allowances will be given. This paper focuses on a detailed description of the sectors and companies in the Czech Republic that are affected by the system and discusses various aspects of the scheme.