Emission Allowances: Like a Boomerang

During the first three years of the second allocation period, all allowances were allocated for free in compliance with the EU directive, which required at least 90% to be allocated for free. Thanks to the generous conditions for state aid, a solar boom started in 2009. However, despite being prepared in the autumn, the related amendment to the Renewable Resources Support Act was not passed in 2009. Consequently, photovoltaic power plants were connected under the original conditions for all of 2010 and a massive increase in funding was needed.

Although the allowances are not related to those power plants, the state, in order to obtain additional financial resources, introduced a gift tax on the allowances allocated to large electricity producers in 2011 and 2012 and obtained approx. 7 billion crowns. The Constitutional Court found the tax lawful, saying that the state may impose taxes and measures in the public interest unless doing so has a strangling effect. But according to the Regional Court in Prague, the tax violates European law. The Financial Directorate challenged the judgment in a cassation complaint and the Supreme Administrative Court (SAC) submitted the matter to the European Court of Justice (ECJ). The SAC stated that if the allowances are to be allocated for free, in its opinion, it is not possible to charge for them.

The ECJ’s proceedings may take a year, so we may not know the result until 2015. If the ECJ confirms that the tax violates European law, the SAC will confirm the judgments. But it is possible that the state will have to return all taxes, and pay a hefty fine, which would damage not only the treasury but also the Czech state’s reputation.