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EU Climate Package: consequences for the Polish economy Warsaw, 8 S eptember 2008. Agenda. EU c limate package – what is it? Main obligations for Poland Who should pay for that? Price of the carbon emission allowances – main risk factor Forecasts of the impact on Polish economy.

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

EU Climate Package: consequences for the Polish economyWarsaw, 8 September 2008

agenda
Agenda
  • EU climate package – what is it?
  • Main obligations for Poland
  • Who should pay for that?
  • Price of the carbon emission allowances – main risk factor
  • Forecasts of the impact on Polish economy
eu climate package what is it
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 theavailability of affordable energy;
    • Promoting environmental sustainability and combating climate change.

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

eu climate package what is it1
EU Climate package – what is it?
  • 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.

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

eu climate package what is it2
EU Climate package – what is it?
  • 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

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

eu climate package main obligations for poland
EU Climate package – main obligations for Poland
  • 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

Source: ‘Raport 2030’, EnergSys, 2008.

eu climate package who should pay for that
EU Climate package – who should pay for that?

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

Reduction of carbon emissions between Kyoto Protocol base year and 2006

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

price of the carbon emission allowances in ets main risk factor

ENTERPRISESECTOR

SUPPLY AND DEMAND

investment decisions

coal/gas price ratio, existing infrastructure, etc.

Price of the carbon emission allowances in ETS – main risk factor
  • Limited quantity of allowances determines its above-zero price.
  • Upper-boundary of CO2 price will determined by the expected cost of penalty
  • Relation between CO2market price and investment decisions is complex:

short-term

longer-term

CO2 MARKET PRICE

medium-term

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

price of the carbon emission allowances in ets main risk factor1
Price of the carbon emission allowances in ETS – main risk factor

Summary of main forecasts

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.

e conomic impact
Economic impact

Enterprises

Households

Gen. Government

Whole economy

  • higher production costs (due to higher energy and intermediate goods prices)
  • lower international competitiveness of enterprises
  • lower production in the energy intensive sectors
  • higher share of energy in the consumer expenses basket
  • higher growth of consumer prices
  • lower personal disposable incomes
  • lower employment
  • higher incomes due to allowance sale
  • lower incomes due to slower economic growth
  • higher social transfers and subsidies or lower taxes (?)
  • 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
e conomic impact energy costs
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.

Summary of main forecasts

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

e conomic impact enterprises
Economic impact – enterprises
  • Impact on enterprises through:
    • increase of energy costs – the more severe, the more energy intensive industry is;
    • CO2allowance purchases in case of some sectors.

Output changes in comparison to baseline scenario

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

e conomic impact enterprises1
Economic impact – enterprises

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

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

economic impact households
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.

Economic impact on households in Poland

Source: ‘Raport 2030’, EnergSys, 2008.

e conomic impact households
Economic impact – households

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

Structure of households expenses in Poland

Source: ‘Raport 2030’, EnergSys, 2008.

e conomic impact whole economy
Economic impact – whole economy

Aggregated costs of climate and energy package for the Polish economy

Source: ‘Raport 2030’, EnergSys, 2008.

conclusions
Conclusions
  • 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.