A Czech court struck down a tax imposed on utilities on their freely allocated EU Allowances over 2011-12, a ruling that paves the way for utilities to recoup as much as 7.4 billion koruna (€273 million) from the government.

The July 9 decision, which was published on the Czech Supreme Administrative Court website, follows a February ruling in the EU’s highest court that the tax breached EU law.

Czech utility Sko-Energo filed the initial complaint, with majority state-owned CEZ joining the suit and demanding the return of 5.3 billion koruna in taxes it had paid.

The Czech Republic levied a 32% ‘gift’ tax on the freely allocated units during the final two years of the EU ETS’ second phase (2008-2012), which were worth around €11 each at the time, to help fund solar power subsidies.

But the EU court ruled that this breached the ETS Directive, which said governments could only sell as much as 10% of their allotted allowances over Phase 2.

Under the third ETS phase (2013-2020), EU utilities are required to pay for all of their required units, although several eastern member states including the Czech Republic can take advantage of a derogation provision to hand out some for free if they prove they are upgrading power sector infrastructure.

The Czech government has recently applied for more than 20 million free EUAs for its utilities for 2015 after having shown the required investments had been undertaken, according to news agency ICIS.

By Ben Garside – ben@carbon-pulse.com