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

Page 2

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

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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.

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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.

EU Climate package – what is it?

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

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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

EU Climate package – what is it?

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

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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.

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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 :

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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.

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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

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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

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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

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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

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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.

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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

Source: ‘Raport 2030’, EnergSys, 2008.

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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

Source: ‘Raport 2030’, EnergSys, 2008.

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

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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

Source: ‘Raport 2030’, EnergSys, 2008.

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► 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!