ETS 2 or Finding the balance between ecology and economy

The European Union has long sought to reduce greenhouse gas emissions through various instruments, including the EU Emissions Trading Scheme (EU ETS).

Introduced in 2005, the scheme is seen as a key instrument for achieving the EU's climate goals, but in recent years the focus has been on its expansion, specifically ETS2, which is intended to cover sectors such as transport, space heating and other areas that have not yet been fully regulated. The Czech Republic, as recently stated by Prime Minister Petr Fiala, has received the support of a qualified majority of EU states for modifying this system, but is also seeking its complete abolition due to concerns about the economic impact. This text elaborates on the Czech Republic's position, the context of ETS2 and the wider implications for Czech society.

What is ETS 2 and why is it controversial?

The EU ETS operates on a cap and trade basis. It sets an overall limit on greenhouse gas emissions and allows companies to trade emission allowances to incentivise them to reduce emissions in an efficient way. As an extension of this system, ETS 2 is intended to cover sectors that have not yet been fully regulated, such as road transport and domestic heating. The aim is to promote the decarbonisation of these sectors and contribute to the EU's ambitious climate targets, such as carbon neutrality by 2050.

However, ETS 2 is problematic for the Czech Republic. According to Prime Minister Fiala, the introduction of the system would lead to further increases in the price of fuel and heating energy, which would negatively affect households and industry. The Czech government is therefore advocating adjustments such as capping the price of allowances or changes to the trading mechanism to minimise the impact on citizens. At the same time, however, Fiala stressed that the ideal solution would be to abolish ETS 2 altogether, as its environmental benefits may not outweigh its economic and social costs.

The Czech Republic has long profiled itself as a country that supports climate goals, but also emphasizes economic sustainability and the social impacts of green transformation. Prime Minister Fiala's remarks at the press conference show that the Czech Republic is actively seeking allies among EU Member States to advance its interests. Gaining the support of a qualified majority to amend ETS 2 is a significant diplomatic achievement as it shows the Czech Republic's ability to influence the European agenda. However, the complete abolition of the system sought by the Czech Republic does not yet have sufficient support, suggesting that further negotiations will be crucial.

This attitude reflects the broader dilemma facing many Central and Eastern European countries. These countries, including the Czech Republic, often have more energy-intensive economies and are dependent on fossil fuels such as coal or natural gas. The introduction of ETS2 could increase energy and transport costs, which would disproportionately burden low-income households and small businesses. The Czech government therefore argues that alternative ways to reduce emissions should be sought, for example through investment in renewable energy or promoting energy efficiency.

Impact on Czech society and economy

The introduction of ETS 2 would have a direct impact on fuel prices, affecting not only individual transport but also logistics and commodity prices. Domestic heating, especially in areas dependent on gas or coal, would also become more expensive, which could exacerbate energy poverty. Estimates suggest that energy prices could increase by tens of percent, putting a strain on household budgets, especially in lower-income regions.

On the other hand, supporters of ETS 2 argue that the system would incentivise a switch to greener technologies such as electric cars or heat pumps. The EU also offers compensatory mechanisms, such as the Just Transition Fund, to help countries like the Czech Republic mitigate social impacts. However, the Czech government considers these mechanisms insufficient and insists that the benefits of ETS2 are not proportionate to its risks.

Further developments around ETS 2 will depend on the negotiations within the EU. The Czech Republic has a stronger position thanks to the support of a qualified majority, but a complete abolition of the system is unlikely, as many Western European countries consider it a key instrument for achieving climate goals. The Czech Republic is therefore likely to continue to push for compromises such as capping allowance prices or exemptions for more energy-intensive countries.

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