The new Act no. 383/2012, on Conditions for Emission Allowances Trading (the “Act”) has been published in the Collection of Laws. The Act shall replace a significant part of current act no. 695/2004 Coll. and implement the revised European Union Emissions Trading Scheme into Czech law. Most of the provisions of the new legislation will be effective as of 1 January 2013.

Under the current legislation, the emission allowances were granted for free to the emission producers who only paid a related gift tax. The new Act introduces an auction system for emission allowances allocated to the Czech Republic. In 2020 all emission allowances shall be sold in auction instead of being granted for free. During the transition period until 2020, 645 million allowances shall be allocated to the Czech Republic. 342 million allowances shall be sold in the auction and 303 million shall be granted to emission producers for free to secure their competitiveness on the market. The expected income from the allowances auction is EUR 1.5 billion to 5 billion.

Every emission allowance represents emission of one tonne of CO2 equivalent. If the emissions produced by an emission producer exceed their allowance, the producer shall pay EUR 100 for every emission allowance missing. The Act further designates in accordance with the European legislation that at least 50 per cent of the earnings from the allowances auction shall be used for projects linked to lowering emission of greenhouse gas and mitigation of negative consequences of climate change. Earnings may be used, amongst others, for improvement of energy efficiency in industry.