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ZNR UUUUU ZZH
P 241456Z APR 08
FM AMEMBASSY PRAGUE
TO RUEHC/SECSTATE WASHDC PRIORITY 0266
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE PRIORITY

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 
--------- --- --------- -------- 
 
¶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 
--------- ---------- -- --- ----- - --------- 
 
¶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 
------ ------- 
 
¶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 
 
PRAGUE 00000254  002 OF 002 
 
 
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 
---- ------- --- ---- ---------- 
 
¶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 
------- ------- --- -- ---------- ------- 
 
¶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