eu climate package: consequences for the polish economy warsaw, 8 s eptember 2008

EU Climate Package: consequences for the Polish economy

Warsaw, 8 September 2008

Agenda

1. EU climate package – what is it?

2. Main obligations for Poland

3. Who should pay for that?

4. Price of the carbon emission allowances – main risk factor

5. Forecasts of the impact on Polish economy

EU Climate package – what is it?

European Union’s „Climate action and renewable energy package” strategic objective is to limit the global average temperature increase to not more than 2°C above pre-industrial levels.

According to the European Council, in the area of Energy Policy for Europe it should pursue the following objectives:

► Increasing security of supply;

► Ensuring the competitiveness of European economies and the availability of affordable energy;

► Promoting environmental sustainability and combating climate change.

Source: European Council, 8-9 March 2007: Presidency Conclusions, Brussels.

To achieve these objectives, European Council proposed the following measurable targets:

► At least a 20% reduction of greenhouse gas emissions in EU by 2020 compared to 1990

► 20% share of renewable energies in overall EU energy consumption by 2020

► Saving 20% of the EU's energy consumption compared to projections for 2020, as estimated by the Commission

► 10% minimum target to be achieved by all Member States for the share of biofuels in overall EU transport petrol and diesel consumption by 2020, to be introduced in a cost-efficient way.



Main instruments that can be used to achieve those targets:

► European Emission Trading Scheme (EU ETS);

► Binding emission targets for non ETS sectors;

► Binding targets for the renewable energy development

► Support of the development of the Carbon Capture and Storage Technology (CCS)

► Revised guidelines on state aid for environmental and climate protection



Main EU Climate package obligations for Poland:

► Revision of the EU ETS:

► Introduction of the single EU-wide emission cap and central EU emission allocation (instead of National Allocation Plans)

► Gradual replacement of free allocation of emission allowances by the auctioning of allowances from 2013, reaching full auctioning by 2020 (in case of power stations full auctioning already in 2013)

► Emission cap for the non-ETS sectors at the 114% of the 2005 emission level

► 20% share of renewable energy in overall energy consumption by 2020

► CCS installation obligation for 330 MW and above units

EU Climate package – main obligations for Poland

Source: ‘Raport 2030’, EnergSys, 2008.

49

.5

38

.3

25

.5

24

.4

15

.2

13

.1

9.9

1.7

1.2

1.2

-2.6

-4.0

-6.0

-8.9

-16

.0

-18

.5

-23

.7

-28

.9

-31

.9

-32

.1

-43

.7

-46

.2

-53

.0

-55

.1

-55

.7

-2.7

-80

-60

-40

-20

0

20

40

60

Spain

Portu

gal

Irela

nd

Gre

ece

Austri

a

Finlan

dIta

ly

Denm

ark

Luxe

mbo

urg

Slove

nia

Nethe

rland

s

Franc

e

Belgiu

m

Sweden

United

Kin

gdom

Ger

man

y

Czech

Rep

.

Polan

d

Hunga

ry

Slova

kia

Roman

ia

Bulga

ria

Lith

uani

a

Latv

ia

Estoni

a

EU-15

Source: Annual European Community greenhouse gas inventory 1990-2006 and inventory report 2008.

EU Climate package – who should pay for that?

Reduction of carbon emissions between Kyoto Protocol base year and 2006

New Member States are much more advanced in fulfilling Kyoto targets than EU-15 countries :

Price of the carbon emission allowances in ETS – main risk factor

ENTERPRISE SECTOR

investment decisions

CO2 MARKET PRICE

SUPPLY AND DEMAND

coal/gas price ratio, existing infrastructure, etc.

short-term

medium-term

► Limited quantity of allowances determines its above-zero price.► Upper-boundary of CO2 price will determined by the expected cost of penalty

► Relation between CO2 market price and investment decisions is complex:

longer-term

Source: Voorspools K., ‘CO2 market price logic in 2020’, Fortis.

Price of the carbon emission allowances in ETS – main risk factor

Publication CO2 price per tone

European Commission 39 EUR in 2020

FORTIS Bank30-70 EUR in 202050 EUR – the most probable

Deutsche Bank40 EUR in 2008; 67 EUR in 2020price above 100 EUR also possible

PointCarbon43-70 EUR in the years 2013-202055 EUR – the most probable

Prof. Żmijewskiprice above 100 EUR possible in case of allowance shortages

Source: ‘Annex to the Impact Assessment’, European Commission, 2008; Voorspools K., ‘CO2 market price logic in 2020’, Fortis; ‘Carbon Emissions’, Deutsche Bank, 2008; Sikorski T., ‘Post 2012 price assessment: Phase 3 Prices’, PointCarbon; Żmijewski K., ‘CO2 potrzeba przełomu negocjacyjnego – wyzwania dla Polski’, 2008.

Summary of main forecasts

Economic impact

Enterprises

► higher production costs (due to higher energy and intermediate goods prices)

► lower international competitiveness of enterprises

► lower production in the energy intensive sectors

Households

► higher share of energy in the consumer expenses basket

► higher growth of consumer prices

► lower personal disposable incomes

► lower employment

Gen. Government

► higher incomes due to allowance sale

► lower incomes due to slower economic growth

► higher social transfers and subsidies or lower taxes (?)

Whole economy

► lower GDP level and growth

► higher level and growth rate of prices

► lower level and productivity of new investments in the production capacities

► deterioration of trade balance

Economic impact – energy costs

The cost of energy production will rise due to:

► obligation of allowance purchases or low-carbon investments;

► investments in the renewable energy sources.

European Commission

Increase of energy production costs by 23-33% and of average energy price in the EU by 10-15% in 2020 (assumption about CO2 price: 30-47 EUR).

No estimates for single EU countries available.

ENERGSYSIncrease of energy price by 43-60% (assumption about CO2 price: 39 EUR)

Prof. ŻmijewskiIncrease of energy wholesale price by 55% in case of CO2 price at 30 EUR and by more than 100% in case of CO2 price at 47 EUR

Source: ‘Annex to the Impact Assessment’, European Commission, 2008; ‘Raport 2030’, EnergSys, 2008; ‘CO2 potrzeba przełomu negocjacyjnego – wyzwania dla Polski’, Żmijewski K., 2008.

Summary of main forecasts

Economic impact – enterprises

Impact on enterprises through:

► increase of energy costs – the more severe, the more energy intensive industry is;

► CO2 allowance purchases in case of some sectors.

EUROPEAN COMMISSION

ENERGSYS

EU2020

Poland2020

Poland2030

Ferrous metals -8.0% -20% -24%

Paper products -1.1% -7% -8%

Mineral products -2.8% -16% -14%

Chemicals output -4.3% -10% -15%

Source: ‘Raport 2030’, EnergSys, 2008; ‘Annex to the Impact Assessment’, European Commission, 2008.

Output changes in comparison to baseline scenario

Economic impact – enterprises

Energy costs changes in comparison to baseline scenario in 2020 (%)

CO2 price 39 EUR 35 EUR 30 EUR

Iron & Steel 18.2% 16.0% 12.5%

Non-ferrous metal 3.9% 3.7% 3.5%

Chemical 6.3% 5.8% 4.9%

Non-metallic minerals of which: 9.2% 7.9% 6.0%

cement 8.9% 7.6% 5.7%

ceramics 8.8% 7.6% 5.8%

glass 8.9% 7.8% 6.1%

Paper and Pulp 14.0% 13.1% 10.5%

Source: ‘Annex to the Impact Assessment’, European Commission, 2008.

Economic impact – households

Impact on households mainly through:

► Larger share of energy expenses in total household expenses;

► Lower energy usage increases and thus slower catching-up process;

► Lower disposable income increase due to lower GDP growth.

2005-2030 changewithout package

2005-2030 change

with package

Electricity price for households +80% +123%

Households disposable incomes +136% +111%

Electricity use per capita +97% +80%

Economic impact on households in Poland


Economic impact – households

Structure of households expenses in Poland

2005 2010 2020 2030

EU ETS without social transfer of incomes from auctions

Housing, water, electricity, gas and other fuels, of which:

19.6 21.6 24.2 23.3

energy, of which: 11.0 13.2 16.2 16.2

electricity 3.7 5.2 7.5 7.1

EU ETS with social transfer of incomes from auctions

Housing, water, electricity, gas and other fuels, of which:

19.6 21.6 22.2 21.4

energy, of which: 11.0 13.2 14.1 14.4

electricity 3.7 5.2 6.6 6.2


Social transfers financed by the incomes from auctions are not sufficient to fully eliminate the adverse impact of climate and energy package on households

Economic impact – whole economy

2010 2015 2020 2025 2030

Direct costs

Additional investment in the energy sector (annual, in mln PLN)

162 2 262 8 536 12 801 14 381

Average cost of CO2 emission reduction (in PLN/tone)

81 126 190 164 133

Indirect costs – impact on GDP

Change in GDP level compared to baseline scenario (in bln PLN)

16 71 154 368 503

Change in GDP level compared to baseline scenario (in %)

-1.3 -4.3 -7.6 -13.6 -14.8

Average annual GDP growth rate difference (in 5 year periods)

-0.3 -0.7 -0.7 -1.4 -0.3

Aggregated costs of climate and energy package for the Polish economy


► EU climate and energy package hinders the pace of economic growth of the Polish economy and impedes the convergence process.

► Analysis of the economic costs of the package conducted by the European Commision are strongly underestimated.

► The adverse economic consequences of the package may be higher than the benefits for the environment.

Conclusions

Thank you for your Attention!

eu climate package: consequences for the polish economy warsaw, 8 s eptember 2008

Documents

agendaeu climate package

european council

overall eu energy consumption

central eu emission

climate change

european unions climate

emission level20

single euwide emission