What do Czech industries think of the EU Emissions Trading plan?

Next year the European Union will launch the opening phase of its ambitious Emissions Trading programme, which planners hope will help to reduce the union's overall greenhouse gas emissions. In line with the EU Emissions Trading Directive, as of 2005 individual EU members will be required to meet pre-set emissions caps spelled out in countries' National Allocation Plans. However, companies affected under the legislation will also be given emissions allowances, which, if saved, will be possible to trade as credit on a newly-emerging - and some believe - potentially lucrative market.

What do Czech industries think of the EU Emissions Trading plan?

Photo: European Commission

Greatly simplified, the theory of emissions trading suggests that companies will gain the added incentive to reduce emissions because they will then be able to trade surplus allowance credits. In effect, a company might even structure part - or all - of its reductions through the sales of allowances to others - a cost-effective approach that contrasts "no benefits gained" if emissions limits were simply imposed from above with no supporting framework in mind.

Ultimately, the price of buying additional allowances will be determined by supply and demand.

Martin Cmiral is the managing director of Vertis Environmental Finance; I spoke with him at Prague's biannual Energy Efficiency Business Week and asked whether he thought the new system would prove effective in bringing emissions down.

"This first trading period between 2005 and 2008, um, I don't expect it will have a very big effect on actual emissions, because all of the allocation plans have actually been quite soft. But, the actual value of it is that companies and all the participants get used to the new system. The real tough time, I guess, will come in the 2nd and 3rd period later on. Then will be the time to look at the actual outcome, the first year whether it actually works, the second and third the effect on the system."

Industries affected in the first phase include: steel producers, pulp & paper, the energy sector and mineral and petrochemical companies.

But, here in the Czech Republic, some business leaders worry that the government's National Allocation Plan (NAP) - which is pushing for the country's yearly allowance of 107 million tonnes of greenhouse gas emissions - will not get the go-ahead in Brussels. They fear that either the EC will push for even lower emissions that will raise costs even more and lead to a productivity and innovation slash. What's more, they also worry just how the Ministry of the Environment, in co-operation with the Ministry for Industry & Trade, will divide up limited emissions allowances among separate firms. Vladimir Novotny is Corporate Environmental Manager at the petrochemical giant Unipetrol.

"It is important to say quite clearly: the EU Directive oriented especially on energy utilities, but productive sectors like the chemical industry and the metallurgical industry are in a slightly different situation. Why? Because utilities are able to reflect the cost of the allowances in the price. Not us. Simply, our prices are on the edge of what is on the market, and there are significant risks our product could be hurt on the European market."

Tomas Chmelik the director of the Climate Change Department at the Environment Ministry says he understands companies' apprehensions.

"It's an expected reaction because one can say what we doing is privatising something that until now was without any kind of payment. I mean, privatising a 'right' to emit C02 into the air."

But, Mr Chmelik also feels that to a large extent big industry's business leaders are simply painting the situation black:

"When we talk to industry - or when industry talks to the media - they usually overestimate or exaggerate the negative impact: everybody talks about how much allowances will cost, how many they will have to buy; nobody talks about the situation that they might be getting enough allowances or even more than they need. If you compare emission trading to a situation with no regulation, of course emission trading loses. But, if you compare it to other methods of regulation like limits or taxes, then the situation is not so black and white."

Finally, what about the potentially lucrative market of allowance credit sales? It still remains to be seen just how that develops, but already it is clear that there are many firms zeroing in specifically on this sector. Priorities will depend on the focus of individual firms, say Vertis Finance's Martin Cmiral:

"Certainly there are companies that are traditional producers of a product or commodity like electricity, chemical industry, that won't care that much about speculating with this new commodity of allowances. But, some of these like Shell and Nuon have already started trading and will actually be very active participants. But, I don't think this will be the general view. That will be in the hands of institutions like investment banks, or traders, brokers, new broking companies like our own, in a way, trying to get established in this field."