CZECH GOVERNMENT POSITION ON CLIMATE CHANGE

UNCLAS SECTION 01 OF 02 PRAGUE 000254

SIPDIS

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: SENV ENRG ECON PGOV EZ
SUBJECT: CZECH GOVERNMENT POSITION ON CLIMATE CHANGE

REF: A. PRAGUE 112

B. 07 PRAGUE 1151


1. (SBU) SUMMARY AND COMMENT: Climate change will be an issue
of key significance during the Czech EU presidency beginning
January 2009, even though the three-party governing coalition
is not yet in lockstep on the issue. The government's
official position generally supports the European
Commission's (EC) January 2008 Phase 3 proposal to update the
EU Emissions Trading Scheme (ETS),but the Czech Green Party
is often out in front of its more skeptical coalition
partners -- Civic Democrats (ODS) and Christian Democrats
(KDU-CSL). The three parties will likely converge around the
EC proposal, which gives political cover for compromise on
the three areas of internal dissent: carbon leakage,
emissions allowance auctions for the energy sector and use of
auction proceeds. Despite the Civic Democrats and Christian
Democrats' relative lack of interest in climate change, the
government believes it will fall to the Czech EU presidency
to implement the EC proposal since the Czechs do not expect
the French to take much action on the issue during their
presidency in the second half of 2008. End Summary and
Comment.

POTENTIAL FOR POLITICAL FRICTION
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2. (SBU) Coalition partners ODS and KDU-CSL concede that
climate change will be part of the 2009 Czech EU presidency,
but they feel that the Greens have "hijacked" the issue.
Czech President Vaclav Klaus (ODS) is one of the most
well-known climate change skeptics, and other senior ODS
leaders would be happy to push this issue further down the
list of priorities for their EU presidency. Climate change
is a politically tricky issue in the Czech Republic given the
extreme views within the coalition, but it is not expected to
bring down this government. While downplaying Klaus'
influence on the government climate change policy, Deputy
Prime Minister Sasha Vondra (ODS) told a group of Ambassadors
in Prague February 7 that climate change was "not about
science, but politics," and that the Czech Republic would
take a more "realistic" approach to the issue than other EU
countries. At the same time, Deputy Prime Minister and
Minister of Environment Martin Bursik (Green Party) is under
increasing pressure from within his party to show that their
priorities are being addressed. He told CODEL Boucher March
19 that climate change is the main EU presidency issue for
the Troika (France, Czech Republic, Sweden) under the
18-month common program being finalized now. Internal
political maneuvering will continue to shape the final Czech
government position until the European Parliament and the
Council of Ministers hold a first reading of the EC proposal,
expected in summer 2008.

GENERALLY SUPPORTIVE OF ETS PHASE 3 PROPOSALS
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3. (U) The official government position supports a
broad-based climate change agreement, including the
EC-proposed additional 10% emission reduction goal if
international agreement is reached. Although ETS-regulated
industries, in particular the electricity monopoly CEZ,
continue to lobby for changes, the Czechs are mostly in line
with other EU members on the majority of the EC's Phase 3
proposal. The Czechs fully support the extension of the ETS
to additional sectors and other greenhouse gases. They also
support the exclusion of small installations (they propose a
threshold of 25,000 tons of CO2 per year vice current
threshold of 10,000) since they have large numbers of smaller
emitters and this would reduce the regulatory burden. The
government more grudgingly supports the EU proposal that 2005
emissions levels should be used as the new base year, since
this is the only year with verified pan-EU emissions
monitoring. However they argue that Czech Republic,s
'savings' from the mid 1990,s are being spread to other
countries and warn that using 2005 as a baseline could have a
big impact on domestic energy prices and industry.

THREE AREAS OF CONTENTION: AUCTIONS, AUCTION PROCEEDS, CARBON
LEAKAGE
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4. (U) While the government has developed an official
position on climate change, it has not been debated in the
Czech Parliament and a number of areas of contention are
evident in conversations with senior leaders. These internal
divisions are most apparent in discussions on: (1) how to
distribute emissions credits, (2) how proceeds from the
auctions should be used, and (3) the so-called "carbon
leakage." The government supports auctioning as an effective
tool for most industries and is officially satisfied with the
EU's credit allocation of 118% of 2005 emission levels for

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the Czech Republic. However, they disagree on auctions for
allocations to the energy sector, a powerful industry that
includes the majority government-owned cash cow CEZ. While
the anti-CEZ Greens want full auctions for all industries
starting in 2013, the official government position supports
allocating 20% of emissions credits to the energy sector
through auction in 2013 and gradually increasing to 100% by

2020.


5. (U) The EC has proposed that a fixed percentage of
proceeds from auctions should be used for climate protection
projects such as renewable energy or carbon capture and
storage (CCS) research. The official Czech government
position is that all proceeds from auctions should return to
the member states and be unencumbered by environmental
earmarks. The Ministry of Environment publicly dissents from
this position, stating the money should be used to develop
renewable heat sources (a large percentage of household heat
in the Czech Republic comes from coal furnaces),while CEZ
recommends the funds be used to research and develop
cost-effective CCS systems that would be particularly
beneficial to their existing coal-fired power plants.


6. (U) Deputy Minister of Industry and Trade for Energy Tomas
Huner, who sits on the CEZ Supervisory Board, raised the
specter of energy price increases to justify the concern with
carbon leakage, which is the movement of carbon emitters to
other countries with less strict (or nonexistent)
environmental standards. This is of particular interest to
CEZ, as the largest emitter in the Czech Republic regulated
under the ETS. The government has responded by suggesting a
detailed risk-analysis of energy-intensive sectors by June

2010. If the study reveals there is legitimate threat of
movement, mitigating solutions would need to be established
by June 2011. One of the envisioned solutions includes
continued free allocations of emissions credits to the
energy-intensive sectors with the understanding that the
Czech government will determine which sectors qualify.

SOME SUPPORT FOR U.S. PRIORITIES
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7. (SBU) The Czech government's plan for combating climate
change is primarily focused on the EU ETS. They see
possibilities for leadership among the G8 and to a lesser
extent, the U.S.-led Major Economies Process (MEP),
cautioning that the MEP should not replace the UNFCCC as the
forum for negotiations. Czechs agree that China and India
must be at the table and support the notion of differentiated
climate change targets for individual countries, noting that
their own EU 'bubble' was necessary for the EU to achieve
emissions reduction goals while giving less-developed EU
member states room to grow. Civic Democrat Senator and
former Environment Minister Bedrich Moldan cautioned,
however, that allowing developing countries like China to use
a 'cumulative record' of carbon emissions as its goal would
permit the country to emit as much carbon per capita as the
U.S. before being required to curb emissions. Moldan feels
that while China may get on board with a post-Kyoto
agreement, India is probably a lost cause because of internal
political problems.

TROUBLE MEETING NEW EU RENEWABLES TARGETS
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8. (U) Local environmental experts view the proposed EU-wide
commitment of 20% renewable sources of energy by 2020 as
impossible to achieve (note: each member state has its own
target percentage--Czechs 13%, Germans 18%, Sweden 49%). The
Czechs currently produce 6% of their energy through renewable
sources, but the government has agreed with Brussels to raise
this figure to 13% by 2020. Claiming limitations in hydro
and wind potential, and limited agricultural production for
biomass, Deputy Minister Huner is lobbying internally to have
the goal reduced to 10%. Even if they are successful in
obtaining this reduction, experts expect the Czech Republic
will fall short of 10% and will need to buy credits or use
other mechanisms to meet their commitment.


9. (U) Two other areas of future interest include carbon
capture and storage and energy efficiency. The large
domestic coal reserves make coal-fired power plants an
obvious choice for future energy production if the emissions
can be captured and stored. While the technology is in its
infancy, Czech experts see this as one solution for reducing
their emissions footprint. NGOs are more focused on
mitigation and note the low levels of energy efficiency in
homes and businesses. They believe that changing habits
through higher energy prices and rebates for energy efficient
homes is an opportunity to reduce energy usage even as the
Czech population grows.
Graber