According to the European Union political agenda, Poland has to cut off its emissions of greenhouse gases and particles in order to mitigate negative effects of climate change. In order to assess how this goal shall be achieved and what would be the costs of massive reduction, an advanced economic modeling tool has been developed.
The model (i) assumes the rational behavior of main economic agents in the economy: households, firms, and the government; (ii) represents a complex structure of inputs (in particular energy) and outputs circulating in the economy; and (iii) accounts for different technologies for energy production. The model allows for simulating the economic effects of energy and climate policies in the long-term horizon (2050).
The full reduction of emissions is not possible due to prohibitive costs. Instead, one has to look for optimal and economically feasible solutions for considerable reduction of CO2 emissions from the economy. The project’s main objective was to identify cost-minimizing solutions for the achievement of climate policy goals (30% emissions cut-off) combined under different assumptions about the desirable structure of energy fuels, as discussed in Polish energy policy. Simulations based on the developed modeling tool bring about the following conclusions:
One of the main challenges for Poland is to ensure energetic safety while maximizing economic welfare. Realization of climate policy goals as set by the EU requires additional costs which considerably reduce economic welfare. Our model shows that meeting the emissions norms within the current technological conditions would imply the rise of CO2 emission permits price, born by Polish firms, from the current level of EUR 18 to EUR 160 per ton of CO2 by 2050. Even when realistic technological progress is assumed, the permits price would rise to at least EUR 100 per ton of CO2.
The majority of existing studies foresee considerably lower costs of CO2 permits (EUR 20-50 per CO2 ton), as they assume that future technologies will massively reduce costs. It is, however, quite uncertain whether such an ambitious pace of technological progress will actually happen. We have, therefore, decided to base our economic impact assessment on conservative assumptions limiting set of technologies in the energy sector as well as in other emission-intensive industries only to currently existing ones.
The most important source of pollution in Poland are coal power plants. If we reduce the expansion of coal-based generation capacity then, according to the model, the best economic alternatives are biomass and oil fuels and not renewable sources or natural gas. Nuclear energy can also be an option in favor of climate policy; however, it creates other risks. All analyzed scenarios of energy production de-carbonization bring about positive macroeconomic effects, however, they do not ensure sufficient reduction of CO2 emissions. On the other hand, even in the optimal climate policy scenario, 30% cut-off would imply a decrease of GDP growth by 6 percentage points.
Taken as a whole, the scenario analysis indicates that in the current state of technological development of the Polish economy, meeting combined goals of climate and energy policies would be economically very costly. The government can support the transition to low-carbon and low-emission economy by reduction of taxes and support for low-emission technologies in energy production, construction, and transport (for example, electromobility).
* This project #DEC-2013/11/B/HS4/01701 was developed under financial support by the Polish National Science Center.
These findings are described in the article entitled Decarbonisation perspectives for the Polish economy, recently published in the journal Energy Policy. The work was conducted jointly by Olga Kiuila, Jan Hagemejer from the University of Warsaw and Maciej Sobolewski, Ewaryst Hille, Grzegorz Poniatowski from the Center for Social and Economic Research.