China profiles itself as a country with an ambitious climate and environmental policy. In 2020, President Xi Jinping announced his intention to make China a carbon-neutral country by 2060, while adding that China’s total emissions should reach an absolute peak before 2030. To honor these commitments, China needs to step up ambitions on its emission trading system to contribute to global decarbonization efforts. China launched its national carbon market in 2021, and it immediately became the world’s largest in terms of covered emissions.

At a time when few would contest that climate change presents the great existential challenge of our era, it is remarkable that globally, carbon pricing remains marginal. Carbon taxes and carbon markets (or emissions trading schemes), of different sorts cover less than a fifth of global carbon emissions as of 2022. Nevertheless, the number has been on the rise and it is no stretch to claim that the European Union with its ETS launched in 2005 has played a pivotal role in the proliferation of carbon pricing. Now, the introduction of CBAM should serve as a reminder that the Union is serious about the need for global climate action.

Climate dividend is a redistributive tool through which people can be compensated for the increased costs of carbon taxation in the form of a blanket payment. How could the tool work in the environment of emissions trading in Czechia? Could the EU ETS, the EU's carbon market work for the benefit of Czech citizens?

The price of the emission allowance has more than doubled in the last year to the current almost EUR 90 per ton of CO2. However, carbon allowances contribute only 10 - 20 % to the increase in electricity prices for households and companies. The critical situation on the natural gas market is much more to blame. How are carbon revenues going to evolve in the future and how can the EU's carbon market help households in Czechia?

Increasing auctioning revenues from the EU ETS, the EU's carbon market, provides a great opportunity to fund the green transition and help the EU achieve its ambitious climate targets. Evidence has shown that carbon taxes are often directly passed on to consumers especially when it comes to transport and heating fuels. As people’s living costs will surely increase as a result of carbon taxation, it is crucial they will get something in return. Otherwise, green policies in Europe can be severely undermined. Carbon dividend serves as a great policy tool to protect vulnerable households while being a fair, practical and an “elegant solution in its simplicity, transparent in its accessibility to public scrutiny and clear in its signals and benefits.” This research study showed that significant revenues from the Union's carbon market will be generated because of the increasing EUA price. The proposed scheme of returning at least 40% of auctioning proceeds to households would assure that most vulnerable families are protected from increasing prices related to carbon taxation while incentivizing low-carbon investment.