Embracing the Change— Decarbonization Pathways for the Czech Republic

The transformation will require the strong role of the public sector, in both regulation and investment. The Czech political representation is thus far hesitant to embrace this level of change.

To confront and overcome the “greatest market failure that the world has seen” (in the words of the British economist Nicholas Stern), the global economy will need to undergo an unparalleled transformation, often described as the second industrial revolution.

While this comparison works well to describe the profound changes we will experience in the way we produce and use energy, travel, eat and live (imagine the trajectory from horsepower to a steam engine to solar panel), many would argue there are some important differences. The Industrial Revolution took place over decades and even centuries at a pace set mostly by the demands of the private sector. The nearly complete decarbonization of our economies, which is at the heart of the new transformation, should be, however, accomplished much faster.

Due to the inertia of the climate system, the main changes will need to take place over the upcoming three decades to gradually stabilize the level of warming between 1.5°C and 2°C—in the “safe operating space for humanity” (Rockstöm et al. 2009) as politically agreed by the international community. Moreover, since climate change is an externality of the current economic system and carbon sinks are public goods, the transformation will require the strong role of the public sector, in both regulation and investment.

Such a situation of profound change represents a genuine challenge for our approach to governance, which will need to be adaptive, constantly assessing trade-offs and risks, exploiting new opportunities and engaging in public debate about the decisions that are ahead. The Czech political representation is thus far hesitant to embrace this level of change.

The Czech Economic Model is Exhausted

Mitigation efforts represent, however, only one changing aspect in our economy. As we have already committed to an increase of 2°C over the last 60 years (Faktaoklimatu.cz 2020), our economy will also need to absorb the ever more visible climate change impacts, such as increasingly frequent extreme weather events and its ramifications for industry, agriculture or cities.

Unlike our neighbors Poland, Germany, Austria and Slovakia, the Czech government agreed to the 2050 carbon neutrality target without having yet laid out a plan as to how to achieve it.

Moreover, these major shifts are coming at a time when the sustainability of the Czech economic model, which emerged from the post-socialist transformation in the 1990s, is increasingly described as exhausted, plagued by low wages, with a dwindling rate of innovation and with a high risk of steering into a middle-income trap (OoG 2014, MIT 2020). How these concurrent trends interact and playout has not yet been subjected to a proper debate.

The Czech economic policy will be strongly influenced by the wider EU context. In December 2019, the President of the European Commission Ursula von der Leyen presented its integrated package of climate and economic policies called the Green Deal for Europe. This set of measures will allow the EU-27 to reach its vision of a climate-neutral continent by 2050.

Climate neutrality1 is a state in which the sources and sinks of GHG emissions are balanced. Unlike previous climate goals that focused primarily on emissions reduction targets compared to a chosen base year, climate neutrality brought to light the importance of carbon sinks—natural systems (such as forest biomass or soil) with the ability to absorb and store CO2 in the form of carbon compounds. The EU scenarios also highlight the importance of negative emission technologies (such as CCS or bio-energy CCS known as BECCS) in order to reach net-zero emissions.

Carbon Neutrality without a Plan

Unlike our neighbors Poland, Germany, Austria and Slovakia, the Czech government agreed to the 2050 carbon neutrality target without having yet laid out a plan as to how to achieve it. The most ambitious scenario the government is currently working with (Politika ochrany klimatu from 2017) would not provide more than a 80% GHG reduction by 2050. Czech strategies also tell very little about the macroeconomic impacts of climate and energy policies. Impacts on the GDP, the labor market and added value in the economy are mostly discussed in reports by non-government actors (e.g. Deloitte 2019). The preliminary theses of the government’s economic policy strategy from January 2020 describe the decarbonization trend merely as a challenge for Czech companies (MIT 2020, p. 5). The innovation strategy from 2019 further mentions investment in innovative adaptation measures, low-carbon infrastructure and energy efficiency (MIT 2019). A genuine public debate about the pros and cons of different transition scenarios is still lacking.

To understand the main shifts required from the Czech economy to tackle climate change, we need to explore the pillars of decarbonization as foreseen by the EU trajectories for achieving climate neutrality by 2050. The current policy trajectory of the EU would achieve reduction of only -60% in 2050. The leap forward to net-zero emissions is explored in scenarios presented by the European Commission in the fall of 2018 (communication Clean Planet for All). The key transformations concentrate in the following sectors: energy efficiency, energy, transport, industry, forestry and agriculture and negative emission technologies.

Key Questions Remain Open

The Czech energy sector is the largest source of emissions with a 63 % share of the total GHG emissions (CHMI 2020). By 2050, the Czech Republic should achieve its complete decarbonization, which will open up transition in sectors such as heating, transport and industry, either directly (through electrification) or indirectly (power-to-X solutions). With the establishment of the government coal commission, the coal phase-out became a tangible policy option. The commission is currently examining several scenarios of closure of coal-fired power plants from 2030 onwards including an economic restructuring of regions affected by this phase-out.

While the EU counts primarily on large-scale deployment of renewables, the Czech government has been recently showing a renewed determination to push through its plan to construct a new nuclear power plant. Key questions around the feasibility, however, of the plan remain open (financing model, costs of construction, timeframe and constantly falling prices of wind and solar) and undermine the trustworthiness of the project.

If we put aside the long-term debate about the need and feasibility of a new power plant, it is, however, clear that the massive organizations and financial capacity needed for the nuclear power comes at the cost of strategic development of renewables, which has been developing greatly below its potential in the recent decade and will continue to do so according to the current plan of the government. Overcoming the long shadow cast on renewables by the ill-de-signed scheme of the 2010s and the nuclear deadlock will be key in achieving the carbon neutrality of the Czech energy sector.

While the EU counts primarily on large-scale deployment of renewables, the Czech government has been recently showing a renewed determination to push through its plan to construct a new nuclear power plant.

It is projected that energy efficiency measures in the EU will have reduced the consumption of energy by as much as half compared to 2005 by 2050 and will drive decarbonization of industrial processes as well as reduce demand in the buildings sectors. Since most of the housing stock of 2050 is in place today already, this will require high renovation rates with adequate public stimuli and switching fuel to sustainable renewable heating. The Czech Republic will need to focus on both an increased rate of renovation as well as deep renovations to avoid lock-in of savings potential. This approach is currently limited by the availability of the required professions in the labor market.

Risks and Costs vs. Opportunities

In the transport sector, the only sector from which emissions continue to grow, we will in all probability need to rely on a mix of fuels (some of them not yet in a commercial stage, such as hydrogen-based), since it is unclear whether batteries will reach a cost and performance level that would allow electrification of all the transport modes. In the meantime, transition alternatives such as LNG with bio-methane, advanced biofuels and carbon-free e-fuels should be considered taking into account LCA to ensure their carbon free nature throughout the production chain. This will require adequate development of the refuelling infrastr ucture. The EU expects that 75 % of freight will move to rail and water ways. Changes in taxation of aviation fuel will redirect mobility to low-carbon modes of transport such as high-speed rail.

On the side of sinks, the Czech Republic is currently facing a severe downturn. The forest carbon sink was devastated by the bark beetle infestation and we are expected to lose all spruce monoculture forests by 2025. The forest sink will thus turn into a source of emissions in the very near future. The agricultural soil has been also decreasing due to loss of arable land due to construction and land degradation. Sustainable management of forests and protection of agricultural soil will therefore become key to our sink capacity.

All the above-mentioned measures will require massive public investment in infrastructure and R&D which can act as a fiscal stimulus in a decade of expected economic slowdown. Increasing share of renewables, material use efficiency as well as building renovations have wider economic impacts on employment, GDP and added value. R isks of rebound effect and problems with net employment rate can be mitigated by careful policy design. Moreover, these measures provide societal co-benefits in the form of less air pollution, health condition or quality of living.

The debate about decarbonization in the Czech Republic is biased towards risks and costs rather than opportunities and (co-)benefits. Implementation of decarbonization measures is slow, with key measures being postponed or abandoned altogether (such as a carbon tax to tackle emissions from coal boilers). There is no doubt that such deep transformation poses many risks, but without genuine debate about costs as well as benefits of different scenarios, we are not likely to embark on the most economically efficient and socially beneficial pathway into a climate stable future.

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1. Sometimes also referred to as carbon neutrality, which could, however, mislead about the inclusion of the non-CO2 emissions, especially methane.

References:

• Czech Hydrometeorological Institute, National Inventory System, portal.chmi.cz/files/portal/docs/uoco/oez/nis/nis_ta_cz.html, retrieved 17.02.2020
• Deloitte 2019, Development of Renewable Energy Sources until 2030 (Report for the Association of Modern Energy), www.modernienergetika.cz/wp-content/uploads/2019/09/rozvoj_obnovitelnych_zdroju_do_roku_2030_2.pdf, retrieved 17.02.2020
• Faktaoklimatu.cz 2020, Average Annual Temperature, faktaoklimatu.cz/infografiky/teplota-cr, retrieved 17.02.2020
• Ministry of Industry and Trade 2020, The government adopted these for the economic policy strategy, www.mpo.cz/cz/rozcestnik/pro-media/tiskove-zpravy/vlada-schvalila-teze-hospodarske-strategie–252206/
• Ministry of Industry and Trade 2019, Innovation Strategy of the Czech Republic 2019-2030, www.vlada.cz/assets/urad-vlady/poskytovani-informaci/poskytnute-informace-na-zadost/Priloha_1_Inovacni-strategie.pdf, retrieved 17.02.2020
• Office of the Government 2014, www.vlada.cz/cz/evropske-zalezitosti/aktualne/odliv-vynosu-jako-symptom-vycerpaneho-hospodarskeho-modelu-123870/
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