Dr Bolesław Jankowski

Badania Systemowe „EnergSys” Sp. z o.o. Expert of the Polish Chamber of Commerce

Bolesław.jankowski@energsys.com.pl

www.energsys.com.pl

Energy Roadmap 2050 from the economic, industrial and social

perspective (case of Poland) as well as its value for the EU decision making

process

European Parliament ITRE Committee

Brussels, 18 September, 2012

Main issues

1. Impact assessment of the Energy Roadmap 2050 from a Member State perspective – case of Poland

2. Important shortcomings of the Energy Roadmap 2050 from the EU policy making perspective

1. EU climate policy documents and scope of impact assessment in the

Polish study

EU goals for GHG emission reduction A. Evolution of EU emission reduction goals

1. Kyoto Protocol (reduction goals till the year 2012)

– UE-15: 8% reduction (in relation to 1990)

– Poland: 6% reduction (in relation to 1988)

2. The EU Climate and Energy Package

– U-27 – 20% reduction till 2020

3. Roadmap 2050 - 80% reduction till 2050

B. Roadmap 2050 – proposed path of GHG emission reduction:

2020 - 25%

2030 - 40%

2040 - 60%

2050 - 80%

The scope of impact assessment in the EC proposals concerning the climate policy

Document Date of

issue

Time

horizon

Macroeconomic assessment Techno-economic

assessment

EU level MS level EU level MS Level

Climate and

Energy Package

2008 2020

YES YES YES YES

Analysis beyond

20% reduction

in 2020

2010/

2012

2020 YES

(till 2020) -

YES (limited scope)

YES

(limited scope)

Roadmap to

low carbon

economy 2050

2011 2050 YES

(only Fragmented

Action, till 2030)

- YES -

Energy

Roadmap 2050

2012 2050

- -

YES

(only Global Action

Scenarios)

-

Conclusion:

1. Only the Climate and Energy Package was accompanied by impact assessment on the EU and MS level

2. Impacts on Member States were not assessed in new EC proposals concerning 2050 targets

• The lack of impact assessment on the MS level is a serious barrier in rational discussion on the

EC proposals

• The Polish study tries to overcome this shortcoming of EC studies in case of Poland

• The study presented below was performed in 2011/2012 for the Polish Chamber of

Commerce

2. Methodology, scope of modelling calculations and main assumptions

in the Polish study

Methodology Modelling set and calculation scheme

final

energy

demand

sectoral

value

added

EFOM-PL

Final consumption

Demand

Solid fuels

Sector

Gas fuels

Sector

Liquid fuels

Sector

Public

Power Plants

Public H & P

Cogener. Plants

Industrial

Cogener. Plants

Industry and

Construction

Hausehold

Sector

Tertiary Sector

Transport

Agriculture

Electricity

Electricity

Heat

Heat & Steam

Solid, liquid and gas fuels

SolidLiquid,Gas,

Fuels

Supply

Fuels production, preparation Conversion

Public & Municipal

Heating Plants

Industrial

Heating Plants

Heat

Heat & Steam

Frame data

Scenarios

Strategy

measures

CGE-PL

PROSK-E

energy

service

demand

technologies

energy,

emissions,

system costs

world

energy

prices,

emission

limits,

strategy

measures

population,

economic,

social,

internat.

Growth, fuels

prices

EFOM-PL

Energy prices iteration loop (optional)

The modelling set was used and verified in many complex studies for the Polish Government,

The World Bank and within the UE Projects

Considered scenarios and calculation cases Climate policy options:

1. Liberal (Lib) – without CO2 limits (zero CO2 prices)

2. Continuation (Kon) – 20% emission reduction in 2020 and moderate growth of CO2 prices till 2050

3. Decarbonisation (Dek) – 80% emission reduction in 2050, CO2 prices according to Impact Assessment to the Roadmap 2050

A set of calculation cases:

Energy

Efficiency

policy including

electric

vehicles

Climate policy (restrictions on GHG emissions)

Liberal (without emission restrictions) Continuation Decarbonisation

Without RES

enforcement

Enforcement of RES production shares

Reference Baza_Ref_Lib Baza_Ref_OZE Baza_Ref_Kon Baza_Ref_Dek

Efficient Baza_Efek_Lib Baza_Efek_OZE Baza_Efek_Kon Baza_Efek_Dek

The set of calculation cases makes possible assessment of costs of the climate policy as a whole

and costs of its main elements and phases (RES development, 20% GHG reduction, 80% reduction)

Main assumptions CO2 and fuel prices

0,0

20,0

40,0

60,0

80,0

100,0

120,0

140,0

160,0

2010 2015 2020 2025 2030 2035 2040 2045 2050

[EU

R/ t

]

0,0

20,0

40,0

60,0

80,0

100,0

120,0

140,0

160,0

2010 2015 2020 2025 2030 2035 2040 2045 2050

Main assumptions (CO2 and fuel prices were taken

from the EC Impact Assessment to the Roadmap 2050

Continuation Policy Scenario Decarbonisation Policy Scenario

CO2 Prices in [EUR’2009/ t CO2]

Scope of impact assessment

The analysis covers the impact of the climate policy on:

– the whole economy development (GDP growth)

– Households sector (costs of fuels and energy, share of energy costs in households’ budgets)

– Industry sector (increase of energy costs, drop in profitability of industrial production)

– Energy system (investment outlays, generation costs, CO2 costs)

3. Main results of the Polish study

All monetary values expressed in polish zloty – purchase

power from 2005 (PLN’2005)

Exchange rate:

1 EUR = 4,05 PLN (in prices from 2005)

CO2 emissions according different scenarios

• Decarbonisation policy leads to significant CO2 emission reduction in Poland

• In power sector unit CO2 emission drops from about 860 kg/MWh in 2010 to 40 -45 kg/MWh in 2050

Increase of marginal costs of electricity generation

• Decarbonisation policy leads to near twofold increase of wholesale electricity

prices in comparison with liberal policy scenario (without CO2 limits)

• Electricity prices after 2020 will be 3 – 4 times higher then in 2005

Increase of heat production costs in large cogeneration plants

• Decarbonisation policy leads to over twofold increase of wholesale heat prices in

comparison to liberal policy scenario (without CO2 limits)

• Heat prices in decarbonisation scenario will be in 2050 3 times higher then in 2010

PLN’2005/GJ

Impact on the Polish economy growth depend on climate policy

2010 2020 2030 2040 2050

Continuation / Liberal scenario - -3.8% -8.0% -9.5% -6.8%

Decarbonisation / Continuation scenario - -1.7% -2.2% -3.0% -6.1%

Decarbonisation / Liberal scenario - -5.4% -10.0% -12.2% -12.5%

Changes in GDP due to the climate policy scenario

Main threat is

created by

Climate and

Energy Packet

with maximum

negative impact

delayed by 10-

15 years

Energy

Roadmap 2050

increases

negative impact

In longer term

Impact on household sector Share of energy costs in households’ budgets, Reference scenario

Share in relation to average income

in [%] Share in relation to median income

in [%]

Median income: represent the income level which is available for the half of the households

• The level of 10% is often considered as criteria of energy poverty

• Only Liberal scenario gives chance to reduce high energy costs for households

• Decarbonisation (Energy Roadmap 2050) scenario is particularly painful due to high CO2 taxation of all

fuels used in households (not only ETS but also Non ETS emission sources)

Impact on Industry Increase in manufacturing costs per branch of industry in 2030 relative to 2010

levels (1)

Comment:

Three ways of industrial

manufacturing costs

increase:

• Directly through CO2

emission costs

(producers of heat and

products included in EU

ETS)

• Indirectly through

increased electricity

prices (all producers)

• through taxation of CO2

emissions (types of

production not included in

EU ETS).

Impact on Industry Increase in manufacturing costs per branch of industry in 2030 relative to

2010 levels (2) Comment:

Direct CO2 costs are

high in spite of the fact, that

majority of industrial sectors

were classified as threaten by

carbon leakage (allow for free

allocation)

The reason is that the EC

adopted EU benchmark based

on technologies using gas

CO2 emissions in most of the

Polish industrial producers is

higher then benchmark due to

wide use of coal in heat

production (including

cogeneration)

The Commission refused

acceptance of fuel specific

benchmarks

Impact on Industry Value added and employment of energy branches which are threaten

to become unprofitable

Year/ Scenario

Employment Gross value added

Thousand workers % of total Industry Million PLN % of total Industry

In the year 2015

• Liberal scenario 66,0 2,7 5 291 2,3

• Continuation scenario 193,2 7,9 13 753 6,1

• Decarbonisation scenario 193,2 7,9 13 753 6,1

In the year 2030

• Liberal scenario 369,5 15,1 34 768 15,3

• Continuation scenario 793,9 32,4 69 434 30,6

• Decarbonisation scenario 793,9 32,4 69 434 30,6

About 800 thousand of labour places and near 70 billion PLN of value added are threaten in energy

intensive branches when we take into consideration cumulated effect of climate policy and other

factors increasing energy prices

Impact on energy system Investment outlays on electricity and heat production in 2011 – 2050

Decarbonisation policy leads to increase of investment outlays in energy production by: • 100 - 114 billion PLN in comparison with the current climate policy • 336 – 352 billion PLN in comparison with the liberal policy scenario (without CO2 limits).

Comment: We should keep in mind, that there are still huge investment needs to build modern infrastructure in Poland: roads, rail, water treatments, gas infrastructure (grids, storages, terminals), electricity grids, telecommunication networks, internet. It is not possible to invest intensively in all infrastructural sectors in the same time.

Impact on energy system Increase of energy production costs by implementation phases

Comment: It is worth to underline, that costs of implementing CO2 reduction are small at the beginning, but grow substantially in next decades

Impact on final users of fuels and energy CO2 costs (Costs of emission allowances purchase or carbon tax)

• Decarbonisation policy leads to increase of CO2 prices and inclusion all CO2 sources to the EU ETS (or to impose of CO2 tax)

• In spite of the fact, that CO2 emissions drop significantly, CO2 costs grow to the level of 25 billion PLN per year in 2025 and 40 – 67 billion PLN per year in 2030 - 2050

Reference demand scenario, Decarbonisation policy

Summary of impact assessment Main results (1)

1. Drop in GDP by 5% in 2020 and 10-12% in years 2030 – 2050 in comparison with Liberal scenario (without CO2 limits)

2. Increase of energy costs share in households’ budgets from 12% in 2010 to 14-15% in years 2020 - 2050 in half of the households in Poland

3. Negative or strongly reduced profitability in ten industrial sectors with about 800 thousand people employed

4. More diversified fuel and technology structure of energy system

Summary of impact assessment Main results (2)

• Increase of investment outlays in energy generation sector by 330 – 360 billion PLN in the whole period 2011-2050

• Increase of energy production costs (without CO2 costs) by 12 – 30 billion PLN per year in years 2030 – 2050

• Increase of CO2 costs by 11 billion PLN in 2020 up to 40 - 67 billion PLN per year in 2030 – 2050;

• Near threefold increase of wholesale electricity prices and more then threefold increase of heat prices in period 2010 – 2050 (electricity and heat prices near double the prices in Liberal scenario without CO2 limits)

4. Impact for Poland according to the EC documents

The EC documents confirm that costs of implementing the EU climate policy for Poland are at least threefold higher

then average in the EU …

Results of the EC analyses (2008) Impact of the climate policy and on GDP according to Impact Assessment to the

Climate and Energy Package

Source:

SEC(2008) 85,

VOL. II Annex to

the Impact

Assessment

Table 8, p. 53

More then four

times higher

negative impact

on GDP,

employment

and private

consumption in

Poland

compared to the

average UE

values

Redistribution mechanisms were proposed in Climate and Energy Package to compensate higher costs for a group of

Member States…

Results of the EC analyses (2008)

Costs of the climate policy in 2020 and effects of the redistribution mechanisms according to the Impact Assessment to the Climate and Energy Package

Source:

SEC (2008) 85 ,

Table II, p. 22-23

Direct costs of

Energy and

Climate

Package

implementation

in Poland were

to be reduced

from 1,24 % of

GDP to 0,02%

of GDP in effect

of three

redistribution

mechanisms

However these mechanisms failed in case of Poland, which was confirmed in the newest EC impact assessment concerning the MS level …

Results of the EC analyses (2012) Costs of the climate policy and effects of the redistribution mechanisms

according to the newest EC analyses SWD (2012) 5

Scenario/ Countries Additional system costs Additional system costs including

distributional impacts

€ billion % of 2020 GDP € billion % of 2020 GDP

Climate and energy Package

implementation (20% reduction in 2020)

EU 41,8 0,28% 42,1 0,28%

in which:

- Higher Income group * 37,3 0,27% 39,1 0,29%

- Lower income group** 4,5 0,35% 3,0 0,23%

- Poland 2,2 0,52% 2,2 0,52%

More stringent GHG goals in 2020 (30%

reduction in 2020)

EU 67,0 0,45% 75,0 0,50%

in which:

- Higher Income group * 59,3 0,43% 71,4 0,52%

- Lower income group** 7,7 0,60% 3.6 0,29%

- Poland 3,3 0,76% 3,2 0,69%

* AT, BE, CY, DK, FI, FR, DE, EL, IE, IT, LU, NL, ES, SE, UK

** BG, RO, LV, LT, PL, SK, EE, HU, CZ, MT, SI, PT

Sources: SWD (2012) 5, Table. 5 - 6, p. 21-23, values expressed in 2008 prices

Zero effect of

distribution

mechanisms in

case of Poland

during

implementation

of Climate and

Energy Packet

Very limited

effects in case of

30% reduction in

2020

Direct costs in

Poland about

twofold higher

then average in

higher and lower

income groups

Conclusions from the Polish perspective

1. Impacts of the climate policy for Poland (additional costs, energy prices increase) are much higher then the average for the UE

2. Redistribution mechanisms which were to compensate higher costs has failed in case of Poland. Costs are much higher then benefits.

3. Poland is currently affected by increasing energy generating costs and energy prices and other negative impacts. Main burdens however will come in next years as calculation shows

4. Climate policy creates in Poland threats for energy security and stimulate increase of gas import dependence and huge expenses for imported gas (monopolistic position of Gazprom)

5. Additional investments for RES development give positive impact mainly for other countries (including China) as they are focussed mainly on building new wind farms.

6. It is too early to say Poland can afford to implement fully the climate package. There is still a need to discuss how to repair compensation mechanisms from climate package

7. The current crisis shows, that main obligation of Poland within the UE is to preserve growth of economy and alarm when EU policies or strategies create threat for it

8. In this context Poland can not accept the Energy Roadmap 2050 as it does not take into consideration the real conditions of the Polish economy.

Main remarks to the Energy Roadmap 2050 from the EU decision making process

1. Impact assessment relate only to situation of global climate policy (global action)

2. Energy Roadmap 2050 gives no answer to the question: What will be the impact of proposed strategy if no global action is taken?

3. It is clear that costs of decarbonisation strategies will be much higher in such case (higher fuel prices in Fragmented scenario compared with Global Action scenario)

4. There are some other severe shortcomings of the document:

• lack of impact assessment for Member States

• lack of wider strategic analysis of the world development till 2050 as a framework for energy strategy

• Inconsistency of Energy Roadmap 2050 targets with targets of main Europe 2020 strategy

• very limited set of cost data presented in the Impact Assessment

5. There is high risk, that implementation of the proposed strategy without global action will increase global GHG emissions and will be harmful for the climate

6. Shortcomings of impact assessment makes the document useless from the perspective of the current policy making process in the UE

7. Energy Roadmap 2050 however, could be useful as background document in negotiations concerning new global agreement on further GHG emission reduction

Additions

Remarks and questions concerning Energy Roadmap 2050 from the EU

decision making perspective

Remarks from the EU policy making perspective (1)

1. Energy Roadmap 2050 is presented as granddaughter strategy within EUROPE 2020 main strategy, however it tries to modify the GHG reduction goals of main strategy

2. It should be rather developed as a part of Europe 2050 strategy or vision because it determines in large extent the EU development till 2050.

3. Development of justified Energy Strategy till 2050 needs a framework of long term strategic analysis not only in area of energy, e.g. analysis of future impacts of wide scale exploitation of unconventional oil and gas resources.

4. The Roadmap 2050 and Energy Roadmap 2050 adopts wrong interpretation of 80-95% reduction goal in 2050, as this goal was addressed to the whole group of developed countries, not to its part. Even significant emission reduction in EU without global agreement will result in global GHG emission increase.

5. The strategy proposed in Energy Roadmap 2050 was assessed only under scenario of global climate action. It means, that this assessment does not cover all possible future global situations, particularly – lack of global climate agreement.

6. Such limitation in scope of analysis has significant influence on presented results, as it was assumed that global action leads to reduced fuel prices.

7. It means that Energy Roadmap 2050 presents only optimistic scenario, without considering less favourable ones (it is similar to hypothetical situation, when governments are planning their budgets assuming high GDP growth in the UE and MS’ in the 2013 year).

Remarks from the EU policy making perspective (2)

1. The Energy Roadmap 2050 document uses terms „robust” or „No regret” options (measures or energy technologies) in unjustified way, while effectiveness of these options were not proven in conditions of scenario without global climate action.

2. The presented strategy is one of many possible ones. Many element of it are uncertain. The EC study does not provides arguments to support this one, as no alternative strategies were formulated and assessed.

3. Energy Roadmap 2050 propose high increase (apps 50%) of energy system costs, e.g. costs of satisfying energy demands (from 10,5% in 2005 till 14 - 15% in 2030 – 2050). This means perspective of dynamic increase of energy poverty particularly in lower income groups of households in UE.

4. In the same time, the unconventional gas and oil revolution leads to lower energy costs in USA and probably – in other countries. This could result in lower competitiveness of the EU economy and unfavourable social situation of inhabitants in the EU compared to the USA and other countries. Such situation will not be accepted by EU citizens.

5. There is a need to look for the energy strategy which could offer lower costs of energy for industry and households.

6. Energy strategy till 2050 needs a framework of long term strategic analysis not only in area of energy, as a part of a process creating a vision for Europe 2050.

Is Energy Roadmap 2050 a plan, vision or strategy?

• In this Energy Roadmap 2050 the Commission explores … It responds to a request from the European Council (COM (2011)885 p.2):

The European Council looked forward to the elaboration of a low carbon 2050 strategy providing the framework for the longer term action in the energy and other related sectors. (European Council 4 February 2011 Conclusions, p. 6)

Conclusion:

• The Commission consider Energy Roadmap 2050 as a low carbon 2050 strategy

What is the relation between Energy Roadmap 2050 and the EUROPE 2020 strategy

Conclusion:

- Energy Roadmap 2050 is a part of Europe 2020 strategy

- It is a granddaughter strategy within the Europe 2020

Comment:

- It is very strange relation, as the time horizon of Energy Roadmap

2050 goes far beyond the time horizon of Europe 2020 strategy

- The goals of Energy Roadmap 2050 does not seem to fit to goals

of Europe 2020 strategy

How strategy goals were harmonised?

Conclusions:

- Roadmap 2050 and Energy Roadmap 2050 extend emission targets far beyond the time horizon of the main strategy

- In fact they tries to modify goals of the main strategy

- It means that granddaughter strategy modifies the mother strategy!!!

Comment:

- Does it mean a new paradigm in the EU in which e.g. Polish climate policy will be modifying EU climate policy?

What about alternatives and impact assessment for Energy Roadmap 2050?

• The scenario analysis undertaken is of an illustrative nature (Energy Roadmap 2050, p. 2)

• This is not a typical impact assessment in that it does not list policy options to meet certain policy objectives and then assesses impacts of these policy options to determine a preferable one. (Impact Assessment p. 22)

• It rather examines a set of possible alternative future developments (Energy Roadmap 2050, p. 3)

Conclusions:

• No policy alternatives were formulated and assessed

• There were no normal impact assessment of policy alternatives

What is a consequence of drastically reduced scope of assessment in Energy Roadmap 2050?

Conclusion:

- In Roadmap 2050 impact of decarbonisation was analysed in two scenarios of global climate policy

- In Energy Roadmap 2050 scope of analysis was drastically reduced and only optimistic scenario of global action was

considered

- In consequence the impact assessment to the Energy Roadmap 2050 presents overoptimistic results

Decarbonisation scenarios analysed in

Roadmap 2050

Decarbonisation scenarios analysed in

Energy Roadmap 2050