Analysis: A 90% emissions cut would spell the end for parts of Czech industry
Cutting emissions by 90% by 2040, compared with levels in the early 1990s, would require a dramatic increase in both investment and operating costs for Czech industry. Companies would be forced to leapfrog three to four innovation cycles in their development, weakening the competitiveness of their output, all while they already pay significantly more for electricity than competitors in neighbouring countries. Such a rapid transformation is likely to lead less to decarbonisation and more to the downsizing and relocation of parts of production outside Europe.
Such findings, supported by detailed calculations, were presented in a study on the effects of the new EU 2040 climate target on Czech industry, prepared for the Czech Confederation of Industry (SP ČR) by energy consultancy firm EGU.
The study analyses three scenarios. The first envisions the strictest 90% emissions target, the second a newly permissible 85% goal under specific EU conditions, and the third the prior climate targets of a 76% reduction. The pathways diverge sharply in terms of new technology deployment and required costs. Yet all entail adverse effects on Czech industry's output levels and sectoral makeup.
KEY FINDINGS
90% Industry Target Demands Massive Electrification, Hydrogen, and CCS
• The 90% emissions target demands a sharp acceleration in industrial decarbonization. By 2040, it positions industry such that the next investment cycle must deliver full-scale decarbonization, bypassing gradual steps. From a purely economic standpoint, however, such spending is unjustifiable, as the resulting products are highly likely to lack price competitiveness on global markets.
• Key decarbonization technologies currently do not enable profitable industrial deployment. The economics of replacing grey hydrogen with RFNBO (renewable fuels of non-biological origin, such as renewable hydrogen) remain the main barrier to the required scale-up. Current investment realities lag far behind the RFNBO targets industry must meet (at least until 2030). Similarly, CCS planning (carbon capture and storage) offers neither a predictable nor a functioning, commercially viable ecosystem across the entire value chain. Without substantial financial incentives for both production and consumption—plus the foundational market conditions for these "commodities" (RFNBO, CO2), including transport networks and storage—the 2040 goals cannot be realistically achieved.
• Even rejecting the 90% emissions cut (high scenario) rules out the 85% target (low scenario) on cost and competitiveness grounds for industry. The latter similarly requires deploying unproven industrial-scale technologies, driving equivalent indirect costs. The WEM scenario (with existing measures) proves borderline achievable per the study's techno-economic findings yet still delivers major negative impacts on industry's standing.
• The risk of further damaging industrial competitiveness is distributed very unevenly. Some sectors of the economy – and of industry itself – would be affected less, typically those with low energy intensity, while others would gradually be exposed to conditions that are virtually unsustainable. This applies above all to highly energy intensive branches such as the chemical industry, ceramics and glass production, metallurgy and other sectors in which energy accounts for a low double digit share of total production costs.
Large Scale Electrification Will Demand Massive Investment in Grids and Renewables
• Achieving the level of electrification and renewable deployment needed for 90% industrial decarbonisation would not only require grid modernisation, but effectively a doubling of grid capacity. This, in turn, calls not just for major investment, but for a timeframe that extends well beyond 2040.
• Investments in replacing existing technologies with low carbon alternatives (electric furnaces, heat pumps, electric boilers, etc.) would amount to roughly one quarter of the costs associated with building new electricity generation capacity (CZK 0.46 trillion vs. CZK 2.1 trillion). Industrial decarbonisation is essentially contingent on the expansion of renewables and grid infrastructure, which together require around CZK 3.3 trillion. Although industry will not shoulder this entire investment bill directly, a share of the costs will be passed on indirectly through higher operating expenses, for example via increases in regulated energy prices.
• The total investment volume of CZK 3.8 trillion, more than CZK 250 billion per year, far exceeds the current revenues from the EU ETS 1 system (around CZK 40 billion annually).
• Electrifying industry alone would increase electricity consumption by roughly 60% compared with today’s levels. Delivering almost 38 TWh of new zero emission power would require, over a 15 year horizon, the construction of around 30 GW of new solar capacity, 16 GW of wind capacity, and extensive storage facilities (80 GWh of battery storage). Such a generation mix would be able to cover the additional demand for zero emission electricity throughout the year, not only on average but also with regard to seasonal and daily fluctuations in output. For comparison, by the end of 2025 the Czech Republic had installed only about 5.4 GW of solar, 0.4 GW of wind capacity, and roughly 2.3 GWh of battery storage.
A Technologically Unrealistic Target Within the Given Timeframe
• Ninety percent decarbonisation is unattainable without large scale use of zero emission hydrogen (currently considered only in the form of RFNBO) of around 166 thousand tonnes, and CCS technologies for 1.3 million tonnes of CO2.
• The insufficient commercial and technical maturity of these key technologies creates a risk of a further sharp escalation in costs. In particular, CO2 capture in cement production and lime manufacturing is still confined to pilot phases, without proven reliability at large industrial scale. The same is true of hydrogen based direct reduction of iron. A full shift across the EU to scrap based production and the replacement of blast furnaces with electric arc furnaces runs up against the economic availability of suitable scrap feedstock.
• Project development times are long and the infrastructure outlook for CCS remains highly uncertain. Preparing projects takes ten years or more, while storage capacity as well as collection and transport networks are still lacking.
• The price of RFNBO is extremely high, currently around EUR 15 per kilogram in Central Europe. As a fuel that is many times more expensive than grey hydrogen or natural gas, RFNBO is so costly that prospective offtakers are reluctant to enter into long term purchase commitments, which in turn constrains investors’ ability to move ahead with RFNBO production projects.
• If the Czech Republic is to come even close to the target, it will have to accelerate the build out of zero emission generation and, above all, of flexibility resources, so that grid reliability does not deteriorate as the share of intermittent renewables rises. In industry, financial instruments need to be complemented by accelerated depreciation and more predictable support for projects with high capital expenditure (CAPEX). Hydrogen support schemes should be directed pragmatically towards industrial clusters and projects with direct integration of production and consumption, as well as infrastructure projects that enable the import and distribution of more affordable hydrogen.
What can the Czech Republic do to preserve the competitiveness of its industry?
• We recommend accelerating depreciation for investments in decarbonisation projects. The constantly increasing pressure to decarbonise means that even successful projects must be continually upgraded, and long depreciation periods hold back this innovation.
• Permitting procedures and construction approvals for decarbonisation projects should be simplified. For large renewable projects, permitting (EIA, zoning and building permits) can in some cases take up to ten years, and easier procedures should also be extended to projects such as CCS installations, electric arc furnaces and CO2 storage facilities
• Support the electrification of industry through state backed PPAs. For investments in electric boilers, heat pumps and electric furnaces – the main decarbonisation technologies – stable electricity prices and a reliable counterparty are crucial. The state should guarantee Power Purchase Agreements in cases of buyer insolvency or regulatory intervention, taking over and reselling the electricity in such situations. This would significantly reduce risk premiums in financing, lengthen contract durations and increase companies’ willingness to electrify.
• A predictable investment environment must be guaranteed and the transition managed in a programmatic way. Investors need a stable, foreseeable framework with a fixed auction calendar, clear deadlines and realistic milestones. Projects should be prioritised according to the cost per tonne of CO2 avoided, so that the system meets its targets at the lowest possible overall cost.
• Create better conditions for acceleration zones to speed up their development. Shortened permitting procedures need to be complemented by targeted investment incentives to ensure that new wind farms, large scale solar plants and industrial electrolysers are actually built in these zones.
• Reduce electricity prices for energy intensive industries. The high level of electrification will require massive additional investment in renewables, battery energy storage systems (BESS) and grid infrastructure, which will further raise electricity costs that are already high for industry and are barely mitigated by any support schemes. Options include in particular lowering charges in the regulated components (electricity tax, renewables surcharge, system services). In the case of connecting renewable sources, the polluter pays principle is currently being breached; here too an adjustment is needed to prevent any further increase in cross subsidies from other network users.
• The support should be targeted at the most effective decarbonisation instruments, which in practice means maintaining technological neutrality in decarbonisation. Public funds must flow where they deliver the largest CO2 reductions: into major industrial projects (electrolysers, high temperature electrification, furnace modernisation, CCS) and large scale renewables, rather than into the residential sector, community energy or personal hydrogen mobility.
• Funding in the Modernisation Fund and other decarbonisation programmes needs to be increased. The industrial transition will be extremely capital intensive, and current grant capacity is insufficient; higher allocations in the Modernisation Fund, combined with stable multi year planning, will improve the bankability of key decarbonisation projects.
• Free allowances should only be phased out once the effectiveness of the CBAM has been properly assessed. It is advisable first to thoroughly evaluate how the Carbon Border Adjustment Mechanism works in practice and, based on this experience, then gradually reduce the volume of free allocations. This approach helps ensure that CBAM genuinely provides effective and fair protection for European industry without weakening it or driving emission intensive production out of the EU. Premature cuts in free allocations could result in a double burden for European companies: higher CO2 costs without additional compensation against cheaper imports.
• Targeted free allocation of allowances for exports should be maintained. The CBAM applies only to imports and does not compensate costs on the export side, which significantly disadvantages European exporters on global markets.
• An expiry date for allowances, or limits on how long a single entity may hold them, should be introduced to correct distortions in the allowance market. Free allowances are often deliberately held on accounts for long periods in anticipation of higher future profits, whether from selling them or surrendering them later, and as a result the allowance price no longer reflects the actual surplus on the market.
