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Czech Republic likely to use funds from CO2 permits to plug budget deficit

27 September 2012

Czech Republic likely to use funds from CO2 permits to plug budget deficit

The Czech Republic has passed legislation that will allow the nation to use about $2 billion from the sale of carbon permits to narrow its annual budget deficit over the next eight years, according to a government official (reports Point Carbon).

The Czech parliament’s lower chamber passed a law outlining how the nation will spend money raised from the sale of 340 million carbon permits during the 2013-2020 trading phase of the EU Emissions Trading Scheme. “We will earmark 50% of the money to climate-policy related programmes, the other half will go to the state budget,” said Pavel Zamyslicky, head of the Czech Republic’s climate unit at the ministry of environment.

The government estimates the sales could raise CZK 80 billion ($4 billion) over eight years. The nation’s annual budget deficit for 2012 is forecast at CZK 105 billion. The regulation still needs approval from the nation’s Senate and the president, but it is in line with EU recommendations that member states spend at least half the money raised from selling carbon permits on measures to cut emissions.

Comment

Reforming the EU ETS has proved difficult because carbon-intensive nations such as Poland are worried about the effect it could have on their economies. Therefore using up to 50% of funds from CO2 sales to plug budget deficits should be used in opposition to their arguments against returning the EU ETS to a state where it is fit for purpose (i.e. stimulating low carbon innovation rather than simply meeting the emissions reduction targets, as they suggest). Using carbon auction revenues (effectively a tax) to reduce the deficit is using the ETS as a tool for austerity (deficit reduction). It is hypocritical to complain about the ETS’ effects to your economy and then not use the revenues for spending which would help to boost the economy.

Meanwhile there is clearly there is a great deal of uncertainty of exactly how the revenues from carbon trading should be spent. Most member states have yet to decide how they will use the money. Germany, unlike the Czech Republic, has said it will spend all of the money raised from selling permits on measures that will cut emissions. Obviously it is in a stronger economic position than other countries in Europe and so can afford to take such measures, but should be commended nonetheless.

And while many countries are struggling with budget deficits, the EU is under pressure to provide long-term finance to help developing countries cut emissions and adapt to the effects of global warming. Earlier this year the World Bank said that selling carbon permits in emissions trading schemes around the world could help raise $25 billion of an estimated $100 billion per year needed by 2020 to invest in both mitigation and adaptation in developing countries.

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