Challenge
In late 2008, Poland found itself facing new obligatory GHG abatement targets set by the European Union (EU): a 20 percent reduction in emissions by 2020, 20 percent of energy consumption to come from renewable energy, and a 20 percent improvement in energy efficiency. Meeting these targets was initially thought to be impossible for Poland, which generates over 90 percent of its electricity from coal, especially at a time when the government was preoccupied with the impact of the global financial crisis. Further complicating the quality of the decision-making process was the lack of analytic tools that would enable this new and highly cross-sectoral challenge - which seemed to threaten Poland’s steady and robust economic performance - to be evaluated in a balanced and nonpoliticized manner.
Approach
A pioneering methodological approach was developed to create an integrated analysis of sectoral options with macroeconomic implications, especially for employment and growth. A suite of four complementary engineering and macroeconomic models were developed, each offering a different take on the problem and together providing confidence in the overall findings. The Marginal Abatement Cost (MicroMAC) curve created a ranking by net cost of emission reduction options and presented the measures via a visual summary tool. The Macroeconomic Mitigation Options (MEMO) model allowed analysis of the macroeconomic implications of GHG abatement measures identified in the bottom-up engineering approach of the MicroMAC curve. The latter, transposed into a Macroeconomic Marginal Abatement Cost (MacroMAC) curve, presented the impact of each abatement option in terms of GDP, making it easy to see which measures are “cheaper.” The Regional Options of Carbon Abatement (ROCA) model considered several variations of climate policy design that meet the same emission reduction targets.
Results
The main findings of the report were:
- Poland can cut its GHG emissions by almost one-third by 2030 compared to 2005 levels by applying existing technologies, at an average cost of €10-15 per ton of carbon dioxide equivalent abated. The decline potential comes mainly from the switch to low emissions energy supply (40 percent of overall reduction) and energy efficiency improvements (30 percent) through 2030.
- Costs to the economy will peak in 2020 at nearly 2 percent, but by 2030, the shift towards low emissions will augment growth. Overall, this abatement will lower GDP by an average of 1 percent through 2030 from where it would have been.
- The economic costs of the EU requirements on output and employment in Poland are higher than for the average EU country, and the restrictions on emissions trading between sectors aggravate that cost.
- The energy sector currently generates nearly half of Poland’s emissions, but the transport sector - with precipitous growth and the need for behavioral change in addition to the adoption of new technologies - may end up posing the tougher policy challenge.
The synthesis report was widely disseminated by the government, including at the Polish Embassy in Washington in April 2011, and in Bełchatów in July 2011, at the High-Level Meeting of Directors General for Energy under the Polish Presidency of the European Union. The analysis informed the government’s Guidelines to the National Program of Greenhouse Gas Abatement in Poland adopted in August 2011. Innovative economy-wide models have already been applied by government officials and local experts to address critical economic questions, such as carbon leakage and competitiveness and the distributional effects of climate policies.
Bank Contribution
The IBRD led the technical work and produced the synthesis report, in collaboration with local and international experts and in close cooperation with government technical experts and policymakers. Innovative tools were developed to carry out the analysis, which were then transferred to the government. Training and capacity building were embedded into the process. The Bank contributed about $650,000 to finance this work.
Partners
In close partnership with the Ministry of Economy, there were extensive consultations with government agencies, donors, nongovernmental organizations (NGOs), academics, and local businesses. The UK’s Department for International Development (DfID) provided critical funding (of $260,000) through the Bank’s Energy Sector Management Assistance Program, and the international NGO, the European Climate Foundation, sponsored engineering-based analysis. The European Commission participated via peer review and technical discussions, and the Bank team collaborated with McKinsey & Company, which led the engineering analysis and also participated in several joint events (including at the Krynica Economic Forum in September 2010). DemosEUROPA, an international research institute, organized conferences and other events. The Polish Climate Coalition (an association of 20 environmental organizations), the Heinrich Böll Foundation (a German NGO), the European Climate Foundation, and the Ministry of Economy presented the report at a December 2010 conference, “Towards a Low-Carbon Economy in Poland.”
Moving Forward
The report provided an analytic foundation for government policy decisions on the EU’s climate regulations, as well as new analytic tools and enhanced local expertise for future use. The report was also a key basis for the Bank’s Energy Efficiency and Renewable Energy Development Policy loan (€750 million, approved June 2011), which supports emissions reduction through accelerating energy efficiency and targeted renewable energy interventions. The Bank is planning a peer-assisted learning network for senior technical specialists in governments across the Europe and Central Asia (ECA) region on the economics of climate change and green growth, as requests have been received from neighboring countries for similar analytic work on emissions reduction. The tools are also being applied to a Bank analytics and advisory (AAA) program on green growth in FYR Macedonia.
Beneficiaries
The immediate beneficiary of this work is the client: the Ministry of Economy of Poland and other parts of the government, who made widespread use of the report findings and key tools to improve their decision making on policy areas related to climate change (such as their Guidelines to the National Program of Greenhouse Gas Abatement in Poland). “I am very grateful for this detailed and insightful report from the World Bank, which will definitely aid us as we proceed on developing our national policies. It will be of significant help in our efforts to reconcile Poland’s strong economic growth with challenges related to energy and climate change,” said Waldemar Pawlak, Minister of Economy. Moreover, since lowering GHG emissions is a global public good, the ultimate beneficiaries are the world’s population and, in particular, future generations.
