A Passive Approach to the “Green Transformation” of our Economy Will Deprive us of our Prosperity

“The energy industry, transportation, and manufacturing are responsible for three fourths of Czechia’s Carbon Dioxide emissions. They are what needs to change the most”, says Jiří Švejcar in an interview with Robert Schuster.

Where would you say Czechia stands in terms of a shift towards a green economy, which makes do without the burning of fossil fuels?

I would say that in terms of how we are doing, it’s a mixed bag. We are doing well, in the sense that we have achieved a 55% cut in CO2 emissions production since 1990, thanks in large part to the shutdown of heavy industries. Meaning, it wasn’t so much due to a concentrated effort to drive down emissions, but rather, it was caused by the slump of heavy industries in general, which inadvertently resulted in lower emissions. In comparison to where we used to be, we are actually doing tremendously better. We are falling short of our potential, however, as we are still one of the three highest emitters of CO2 per capita in the EU. This will mean that, when compared to others, we will have to lower our emissions at a much higher pace, additionally hampered by the fact that conditions for natural sources of green energy are not very favorable in Czechia, whether it is the amount of sunlight or the option for the development of hydroelectric dams. 

What will be the effects of the green transformation on the Czech economy?

About 10% of Czechia’s GDP, worth roughly 650 billion CZK, would be at risk, and an additional 20% of Czechia’s GDP (worth around 1,400 billion CZK) would be affected by the transformation and even potentially thrown into turmoil, as it will have to at least partially transform with a lot of technology being replaced. Another factor affecting the GDP would be the massive capital investment such a change would require. On the one hand, this risks an imbalance between import and export, as “green technology” is created largely outside of the EU and primarily in China. On the other hand, this brings an opportunity for the creation of prosperity based on newly developing and highly subsidized markets.

Are there any existing estimates as to the number of jobs which would realistically be endangered?

If I make the simplifying assumption about the industries impacted the most with the highest risks posed, they represent about 10% of the GDP. Likely, it would also impact 10% of employees. We have already studied, however, the evolution of the workforce in Czechia’s past. We discovered that we do in fact have some cushion in terms of the absorption capacity of the market, and its ability to take on even tens of thousands of jobs with relative ease. So the switch to a green economy, which would be associated with the extinction of current job positions, should not be too painful. 

Does the Czech state have enough resources to be able to commit to such a transformation of our economy towards being green and sustainable?

In our study, we calculated a total associated cost of 3.2 trillion CZK by 2050, and around 1.2 trillion CZK spent by 2030. Luckily, we have various funds, namely from the EU, which we could use to pay off large parts of it. The EU gives countries facing the hardest part of the transformation to a green economy, which includes us, half a trillion CZK, and we have access to EU Development Plan funds and others.  

If we were to tally all of the different sums, then today we have a trillion CZK at our disposal, which we would ideally invest by 2030. If it doesn’t happen this way, the funds will not be available to us.

Czechia has historically been regarded as not the most efficient in full usage of its EU resources. A typical subsidy would typically pay 30 to 50%, sometimes even 70% of your investment, it does however mean that we have to first make some investments or at the very least plan to, and unfortunately I don’t currently see that being the case.

The main chunk of that 3.2 trillion CZK, around 2.5 trillion, would need to be used for the decarbonization of three industries which are the largest pollutants: the energy industry, manufacturing and transportation. The energy industry is responsible for 37% of greenhouse gas emissions in Czechia, 87% of which is due to coal burning. With manufacturing, 44% of emissions are due to industrial processes, 40% due to the burning of coal and 16% is due to leakage by cooling gases. Dividing it further, the largest culprits are iron, steel, cement and lime production, with a 30% share. Another chapter in this saga is presented in the form of the automobile industry, which will require an additional 400 billion CZK. 

It has to be acknowledged that the emissions from industrial production are unlikely to disappear entirely. A large share of production requires heat, of various amounts and intensities. Some may be replaced with electricity, but when it comes to higher temperatures, the most appealing alternative would be hydrogen as a heat source. It’s always a question of economic profitability. In my estimation, this would impact around 20% of CO2 emissions. I do not think we shall be able to completely remove it, it will simply have to be compensated for. Another thing that should be mentioned is that we won’t be able to get far into the future without needing CO2 sequestration technology, with the CO2 subsequently stored underground, likely in disused Polish coal mines, which have a potentially large storage capacity. 

Is there an agreement across the political spectrum to plan the transition to a “green economy” beyond the ebb and flow of the election cycle?

In my opinion, the key is to make the transition something that people want, so that there is a narrative going around that we cannot escape this transformation. When put this way, it would be best to do it quickly and maximize our efforts.

I think that some basic concordance already exists. We’ve discussed our study with the individual Ministries, talked about it with the opposition, with the President’s advisory team, specifically from the perspective of the need for continuity. I believe that a general agreement – though not on the details – does exist. When an intelligent person regards the whole dilemma, they can’t help but want for everything to be done well. This isn’t like the pension reform, we have a concordance across the political spectrum and through all the different political bodies with an influence. The one thing I’m missing though is that one individual who would be responsible for the decarbonization strategy, the one who would say: “I will rid us of carbon emissions.”

So ideally we would have a government representative for climate change, with the competency across departments to coordinate such a transformation?

Exactly that, and it doesn’t have to be one specific individual, it could be one of the Prime Minister’s agendas. They should have at their disposition the power necessary to enforce laws, and make sure that different departments work in synchrony. We specifically need someone who would be in charge of the effort, the coordination, who will be making sure the project stays on track and that there are enough resources specifically allocated for the transformation to even take place. 

What other possible scenarios do you envision with the economic developments of decarbonization?

Basically there are three approaches we could take; the passive, the reactive and the proactive. With the passive approach, Czechia will simply be waiting, with no public investment. It might very well simply be waiting it out to see whether the green transformation proves to be a bust. From the long-term view, this runs the risk of a decline in GDP. With the reactive approach, some investment will likely occur, and not a small amount either, but only the bare minimum will be done, which would result in Czechia potentially falling behind those with the most successful transformations, and also risk a GDP decline. The ideal would be the proactive approach, where the 3.2 trillion gets gradually invested, actively transforming the most at-risk industries while maintaining the GDP.

Is there a country in our vicinity, or generally in Europe, which could serve us as an example for our own green transformation?

Germany is particularly active in this regard. It has committed itself to green transformation and sees it as a means to economic growth. They are developing new technologies and methods, with exportability a priority. Germany has a quite clear-set strategy in this regard – the transformation of its energy industry, etc – and so are far ahead of us. 

Germany, in particular, has an intense discourse on upgrading the housing infrastructure, on the switch to heating without fossil fuels. Where do we stand on this topic?

Several topics exist that are represented a lot in public debate, since most people understand them as they tend to have a direct effect on their personal life, namely the topics of heating, housing insulation and agriculture. When we look at residential homes and agriculture though, they account for 15% of total emissions. Electric power plants, on the other hand, are responsible for 40% of our emissions, industry for around 20% and transportation for 16%. Added up, these three account for roughly three fourths of our emissions, and as such are where it’s most important that we focus our efforts. Better thermal insulation of homes and changes in agriculture are important, but at the same time their impact on our carbon production is quite minimal.

Is the importance of decarbonization adequately communicated to the public? 

I do think that people’s views on decarbonization can still be improved upon.

It’s important to associate it with a vision of opportunity, which runs the risk of being taken over by others if we don’t jump on it soon. Then we would have to import green technology rather than have our own production. Ideally, our people should understand this and support it. 

You’ve already mentioned the use of hydrogen. How advanced are our plans regarding the use of this technology?

Here we don’t have as clear a vision, such as in the event of a switch in electromobility – the use of hydrogen technology could be viable for long-distance cargo transportation. With hydrogen, a lot depends on its method of production, with various colors of hydrogen based on that mode, from green, to blue, to even gray. Simultaneously, we would need to build an infrastructure appropriate for its transportation, from its production centers to its places of usage. An example would be Saudi Arabia, which could create it thanks to its large amounts of sunlight, and then have it transported to us. There are similar ideas thrown about, but they are so far only half-formed. 

It also seems that the countries with the greatest potential for green production of hydrogen are also often suffering from democratic deficit. Isn’t there a risk associated with growing too dependent on their resources, such as was the case with natural gas and oil from Russia?

Saudi Arabia isn’t the only potential supplier of hydrogen. Norway has similar plans, specifically for wind farms which would create electricity, and the hydrogen formed would subsequently be shipped to Europe. The war started by Russia made the energy market extremely unstable, but it has since mostly stabilized with the price of gas falling. We all had to adapt as a result, but in the year since the war started, we have been quite successful. Of course, other unforeseeable situations may come up in international politics, especially in regards to the actions of China, but I don’t think it should change the process of a green transformation entirely. 

The Czech economy is, on the global scale, quite small, but with a strong industrial tradition. Do you see any areas where Czechia could, in terms of decarbonization technologies, be a frontrunner?

Yes, definitely. We have a unique opportunity to support sectors and technologies that present a good chance for us to become exporters, and increase in this way our GDP. We also have the potential to “carve out” a stage for the future. Potential battery production would fall into that field.

We would need a gigafactory here, and with time, we could build at least two large factories for batteries, without which our GDP could drop several percent, and which would prove essential for the maintenance of our automobile industry.

Another area where we could now prepare for the future would be establishing the infrastructure for hydrogen, and its use to propel trains, etc. Unfortunately, there is absolutely no current discussion of these topics. The third area would be smart power grids, which we could not do without if we are to increase the use of renewable resources to generate energy, such as wind and solar parks. The fourth area covers modular nuclear reactors, which are going to be more modern, and therefore more efficient. And the last thing we need to focus on are heat pumps, for which there will be a massive demand across the entire world in the future. Here we could become one of the primary producers and exporters, and that would, again, reflect positively on our GDP. 

Jiří Švejcar

is a partner at the Prague office of the Boston Consulting Group (BCG). For over forty years he has been working in strategic counselling for top management. Between 2003 and 2015, he worked at Accenture, where he led strategy for financial institutions for the Central and Eastern Europe region. Since he started working in the BCG in 2015, he has focused on digital transformations of financial institutions. He is also the head of the digital technologies and data sector. Aside from commercial projects mainly in the financial and energy sector, he also pursues pro bono projects in the social sphere.

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