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Czech Path to Net Zero: A challenge or an opportunity for our economy?

Company: BCG - The Boston Consulting Group


Tomáš Wiedermann, Jiří Švejcar, Peter Ondko, Jan Siuda, Matyáš Theuer
Pavel Řehák, Milan Vašina, Kateřina Polanská

Key takeaways
• The transformation towards Net Zero greenhouse gas emissions is accelerating, creating both threats to traditional economies as well as unprecedented opportunities. In the few upcoming years, the redistribution of wealth triggered by the green transition will decide the winning countries of tomorrow that will offer an increasingly better quality of life.
• The target for greenhouse gas emissions is the same for everyone (Net Zero), but starting positions differ. Czechia still has one of the most polluting economies in the EU (both per GDP and per capita). We also have a worse starting position in terms of natural resources (e.g., for wind, solar and hydro power generation), which will need to be offset through even stronger innovation drive and investments.
• Our model shows that keeping pace with other countries will require approx. 3,200B CZK of investments cumulatively (1.5%-3% of GDP per year), out of which approx. 1,200B CZK will be required by 2030. Whether the investments are spent mostly on domestically produced or imported technologies will be a large determinant of how well the standing of the Czech Republic improves among leading economies.
• A fundamental transformation will be required, which will significantly affect the part of the economy responsible for 10 % of Czech GDP (energy sector, ICE related part of Czech car manufacturing, remains of heavy industry, transport); another 20 % of GDP will be moderately affected (the rest of manufacturing, agriculture, waste management) by the EU-wide transition.
o In the energy sector, we expect an increase in electricity consumption from approximately 74 TWh to 125 TWh by 2050, in parallel with the switch-off of fossil fuel sources, which will require the construction of large and small nuclear reactors (tripling of current block capacities), solar panels (15x larger installed power than today) and wind power plants (8 times more installed power).
o In industry, the current blast furnaces will need to be replaced by electric arc technology; in industrial heating, fossil fuels will need to be replaced by heat pumps, electricity, biomass or hydrogen; and in cooling, the coolants that are used today will need to be replaced by ecological alternatives.
o In transport, we will need to replace cars using internal combustion engines with electric cars, including investment in charging infrastructure, and make up for the loss of excise duty on fuels.
o Localization of the production of batteries, which represents a significant part of the value of a new car, will also be important in car production. Import of these batteries would result in a drop in GDP of up to 4-5%.
o Even after all the measures mentioned above, there will remain roughly 20 million tons of CO2 (about 17% of current emissions) that will not be technologically possible to reduce; it will therefore be necessary to invest in carbon capture, utilization, and storage technologies (so-called CCUS).
• Failing to actively manage the transformation will result in relatively falling behind other countries in terms of GDP growth, or even in absolute decline of GDP in the worst-case scenario (in combination with other factors), mainly due to the following risks:
o An increasing export/import imbalance triggered by the need to import green technologies, if the production of these technologies is not localized o Decreasing international competitiveness, if the slow decarbonization of industry and services results in carbon costs being imposed resulting in an increase of production costs
o Higher electricity prices for consumers and industry, if a too-slow onset of renewable sources combines with increasingly higher-priced emission allowances and insufficient strengthening of the distribution network
• On the other hand, the transition presents opportunities to step up the pace of economic growth, if Czech industry and services are transformed, thanks to the export of technology to European countries facing similar challenges. We have identified five areas where the Czech Republic can gain a head start, and which represent an opportunity for Czech companies worth hundreds of billions of CZK:
o Production and development of Battery Electric Vehicles (BEV) and their parts, including batteries
o Development and production of safe and reliable technologies and software for renewable energy sources (RES)
o Localization of part of the Small Modular Reactor (SMR) technology supply chain 
o Involvement in hydrogen technologies
o Production of heat pumps and related technologies
• 27 specific measures have been recommended to the government to support the transformation, including e.g.:
o Cross-sector measures: establish a National Net-Zero coordination center at the government level to drive this agenda across sectors, launch a positive communication campaign that explains and highlights the opportunities of transformation to people, etc.
o Energy: modernize the ERÚ and SÚJB and strengthen their capacities (e.g., in terms of personnel), prepare legislation to accelerate the introduction of RES, support the deployment of the first small nuclear reactor within ten years, etc.
o Industry: prepare a plan for carbon capture, utilization, and storage (CCUS), prepare subsidy programs for replacing process technologies and industrial heating technologies with carbon-free or low-carbon alternatives, etc.
o Transport: Boost electric vehicles (EV) adoption through the construction of 100,000 public chargers by 2035, prepare incentives for EV use, etc.
o Car production: prepare infrastructure (incl. several zones) to attract at least two gigafactories with a combined annual capacity of over 140 GWh, identify SMEs endangered by the end of the ICE vehicles and prepare targeted support for the transition, etc.
• It will be the actions of this and a few upcoming governments that will determine the economic position of Czech Republic for decades to come. If we do not manage to set the right course now, it will have to be done later at a significantly higher overall cost and with a negative impact on the growth potential of the Czech economy.

More information in the attachment.


Boston Consulting Group partners with leaders in business and society to tackle their most important challenges and capture their greatest opportunities. BCG was the pioneer in business strategy when it was founded in 1963. Today, we work closely with clients to embrace a transformational approach aimed at benefiting all stakeholders—empowering organizations to grow, build sustainable competitive advantage, and drive positive societal impact.
 Our diverse, global teams bring deep industry and functional expertise and a range of perspectives that question the status quo and spark change. BCG delivers solutions through leading-edge management consulting, technology and design, and corporate and digital ventures. We work in a uniquely collaborative model across the firm and throughout all levels of the client organization, fueled by the goal of helping our clients thrive and enabling them to make the world a better place.
For more information visit www.bcg.com.

Aspen Institute Central Europe is the regional partner of the global Aspen Institute network. It serves as an independent platform where political and business leaders, as well as leading artists, athletes, and scientists can meet and interact. The aim of the Institute is to facilitate interdisciplinary cooperation and support young Central European leaders from various sectors in their personal and professional development.
Founded in 1950 in the United States, Aspen Institute is headquartered in Washington, D.C., and the network includes 12 offices worldwide. The Institute in Prague was established in 2012 as a public benefit company and serves the entire Central European region, primarily operating in the Czech Republic, Hungary, Poland and Slovakia.
More information can be found at www.aspeninstitutece.org.

Tags: Sustainability |

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