Last week Ola Mirowicz, Sandbag’s Climate Policy Adviser, spoke at the Polish Economic Forum in Krynica about the opportunities for Central and Eastern European (CEE) countries to address the challenge of the Energiewende.
The Economic Forum is a major economic and political gathering in the region attended by business leaders, government representatives and investors. The theme for this year’s events was “Europe facing challenges: divided or united?”. Sandbag addressed this topic in the context of the energy and climate policies showing how both can be used for the national economic interest.
Ola Mirowicz speaks on the Polish Economic Forum in Krynica about low-carbon investments opportunities in the Central and Eastern European countries.
Why bother with the Energiewende?
The Energiewende impacts significantly on energy sectors in neighbouring countries. The Energiewende is also a part of a vision of how to build a more advanced national economy. An economy that will be the economy of the future. In her speech, using the example of Germany and the UK, Ola explained how climate policies can be used to promote growth:
Ola Mirowicz, Sandbag’s Climate Policy Advisor, said at the event:
Germany has an economic interest in the Energiewende and there can be no question about that. The market for their energy efficiency products alone is predicted to be worth 900 billion euros by 2020, according to the German government’s website. The question in this context is not whether Central and Eastern Europe should follow Germany’s lead on Energiewende but rather, how to use its elements to develop alternatives to the German model.
The UK’s experience shows that European countries can develop alternatives to the German model. Unlike Germany the UK plans for the energy transition in a technologically neutral way. Its Climate Change Act sets 5-year carbon budgets for how much CO2 can be emitted in the national economy. There is no prescription regarding the ways to achieve it. The new UK budget for 2028-2032 will achieve 57% emission reductions from 1990 levels. This target is more ambitious than the EU-wide target of -40% by 2030. The approach of using carbon budgets has been pioneered by Sandbag’s Founding Director Baroness Bryony Worthington.
Ola explained that the rationale behind increasing climate ambition goes well beyond the fight for political leadership – an initial incentive for the German and British decision to embark on the road of low-carbon transition. Countries such as the USA, China and different European Member States, including the Netherlands or Sweden, are now developing low-carbon roadmaps in line with the Paris Agreement. France and Denmark set up domestic policies for reducing emissions such as a carbon floor price or 100% renewables target. In the CEE region, the leader is the Czech Republic which adopted a new Climate Protection Policy 2050 in June this year aiming at 80% emission reductions by 2050 below 2005 levels.
The more climate ambition, the more investment opportunities
The message is clear: now is the time to invest in the low-carbon economy. Doing so will almost certainly boost Central and Eastern European countries’ economies especially after 2020 – the period for which the volume of EU structural funds remains unknown. At present we know the region will be assigned nearly one billion carbon allowances from the Modernisation Fund and continuation of the Article 10c derogation in the EU Emissions Trading System (EU ETS).
Sandbag calculates that, with every €1/tonne increase in the carbon price, the value of these EU funds to CEE states increases by about €1 billion over 10 years – and increases their treasuries’ total auction revenue by €1.7 billion. A high carbon price, from higher European ambition, will increase the financial flows to CEE States. You can read here more about financial opportunities for the region under the EU ETS.
How to make Energiewende a la Polonaise?
Most of those allowances will go to Poland (over €1 bn) – the host country of the Economic Forum with great development potential but currently stuck in the middle-income trap. When asked where the money should be invested, Sandbag argued that it should be largely left to the governments and utilities of recipient countries.
A good place to look for opportunities to drive emission reductions is through development of smart grids is the IT sector. Poland remains the most attractive IT market in Central and Eastern Europe. Its annual growth rates are still between 3% and 7% even after 2008. New fortunes are made in the sector – a Polish IT company, Dirlango, describes data as the oil of our times. Such a new direction forms the basis of Minister Morawiecki’s Responsible Development Plan, which is currently undergoing public consultations. The main Polish utilities PGE and Tauron have also included such plans in their new strategies presented this week at the Forum.
Another place to look for emissions reductions is where there is a clear business case. Not many people know that nearly 60% GHG emissions in Europe come from the sectors not covered by the EU ETS Directive: buildings, transport, and agriculture which create enormous new space for GHG cuts that drive economic growth. In Poland in 2015, emissions from sectors outside the EU ETS were more than all emissions from power generation and 4 times more than those from other industries, according to the EU Commission data. This creates opportunities, for example, to cut GHG emissions with investments in efficient buildings and electrification of transport – a topic of recent interest in the region.
At Sandbag we advocate the inclusion of an offsetting European Project-based Mechanism (EPM) in EU climate legislation. Such a mechanism could lead to greater EU climate ambition and allow Poland and other CEE countries to sell credits from projects that cut emissions in non-ETS sectors.
European Project-Based Mechanism could help Polish government to roll out the “Start in Poland” programme boosting investments in transport electrification till 2025.
The same opportunities are not available anymore in many Western economies. Nick Hurd, the UK Minister of Climate Change commented lately on the need to look for other solutions. We argue that wealthier European countries could buy the offsets to meet their own higher reduction targets at home. You can read about it in our latest report on the flexibility mechanisms and investment opportunities under the Effort Sharing Regulation.
Other paths to follow in the region?
Ola shared a panel with energy experts and politicians from the CEE region including:
- Kalle Kukk (Strategy Manager – Elering – Estonia)
- Attila Nyikos (Vice President for International Affairs – Hungarian Energy and Public Utility Regulatory Authority – Hungary)
- Janusz Steinhoff (Advisor – PwC Polska Sp. z o.o. – Poland)
- Mirek Topolanek (former Prime Minister, Member of the Board of Directors – Eustream – Czech Republic)
- Liutauras Varanavicius (Director of Strategy Department – LITGRID AB – Lithuania)
- Peter Wolfmeyer (Vice President – Institute of Behavioural Economics Research – Germany)
There was a general consensus among the panellists about the need to create a model for energy transition that supports the national economy and that is a discrete one. The panellists from Lithuania, Estonia and Latvia stressed the role of electricity imports and the need for Germany to address the negative externalities – such as loop flows (whereby electricity generated in the north of Germany makes it way to the south of the country via Poland and the Czech Republic. These comments mark a new direction of thinking about energy policy in a region that used to focus on domestic/indigenous energy resources.
With the right climate policies in place and a strong economic growth plan, Poland and other CEE countries will be able to capitalise on international climate policies.
In fact, it was Poland that introduced the concept of sustainable development, which takes into account the national economic interest. There have been already great success stories. Unlike Germany and the UK, Poland has no offshore wind capacity, but we have rapidly developed a strong offshore wind supply chain. It now provides 2,000 direct jobs in northern Poland. Poland now produces the majority of the foundations for offshore wind turbines deployed in Europe. This is purely an export industry and a very successful one at that. As a consequence of that, there are now government plans to build new offshore capacity. Not many people know about that abroad and at Sandbag we think they should!
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