Impacts of New EU and Czech Environmental Legislation on Heat and Electricity Prices of Combined Heat and Power Sources in the Czech Republic

Abstract

In my economic model I calculate the impact of the new EU ETS Directive, the Industrial Emissions Directive and the new air protection law on future heat and electricity prices for combined heat and power sources. I discover that there will be a significant increase in heat and electricity prices, especially because of the implementation of new so-called benchmark tools for allocating allowances. The main problem of large heat producers in this respect is loss of competitiveness on the heat market due to emerging stricter environmental legislation, which is not applied to competitors on the heat market (smaller heat sources). There is also lack of clarity about the modalities for allocating free allowances, and about the future development of the whole carbon market (the future European allowance price).