Maciej Szewczyk

Will businesses flee Poland?

The European Commission wants to cut greenhouse gas emissions by up to 95% by 2050. What effect could that have on the Polish economy, in which about 90% of electricity comes from high-emission sources?

In early March 2011 the European Commission adopted an action plan with the goal of transforming the European economy into a competitive, low-emissions economy and reducing greenhouse gas emissions by 80–95%, from 1990 levels, by 2050.

Under the guidelines published by the Commission, achievement of such ambitious goals should be preceded by reduction of emissions, from 1990 levels, by 25% by 2020, 40% by 2030 and 60% by 2040, with help from all sectors of the economy.

The Commission estimates that creation of a low-emissions economy will require additional investments over the next four decades of 1.5% of Community GDP, or EUR 270 billion.

Polish businesses may be concerned about the proposal for additional restrictions in the number of emission allowances which are to enter the pool of allowances auctioned by the member states from 2013 under the EU’s greenhouse gas emission allowances trading system.

The Polish economy is particularly energy-intensive and features a high share of coal in the structure of primary fuels (second place in the EU in terms of the share of coal in the national electricity/fuel balance), which translates into a high rate of emissions in the Polish economy.

According to 2009 figures, 55.84% of electricity in Poland was produced from bituminous coal and 33.66% from lignite.

According to recent studies (such as ESPON data and the latest report from the Kwiatkowski Institute, a Polish NGO active on climate control issues), introduction of an auction system from 2013 in place of free allocation of emission allowances is likely to cause a rise in the price of electricity in Poland by 27% in 2013.

A consequence of growth in prices may be “carbon leakage” connected with the increase in the costs of producing a given product, shifting part of the costs from electricity producers to customers, which may result in making production less competitive.

Directive 2003/87/EC (in the wording that comes into effect at the beginning of 2013) leaves it up to the member states to solve this problem through compensatory measures for operators most sensitive to carbon leakage. The directive provides for use of this mechanism only in 2013–2020, however. For now, it is impossible to predict whether use of a system of compensatory measures will prove sufficient under Polish conditions to eliminate or at least reduce the phenomenon of carbon leakage, and there are also numerous doubts remaining concerning the influence that the European Commission’s ambitious plans will have on the Polish economy between now and 2050.

Maciej Szewczyk, Environmental Law practice, Wardyński & Partners