Ready for 55%. A guide to financing the energy transition from 2021
It’s PLN 560 billion [EUR 124 bln]. This is the amount Poland can allocate for the energy transition and phaseout of coal thanks to EU membership. This is a historic opportunity to shift the Polish economy—including the energy sector—to the low-carbon track and develop new industries. Although last year the Polish government declared the intention to pursue climate neutrality in line with EU policy, Poland’s decision-makers are anxious that the country will not be able to handle the challenge of decarbonisation. At the same time, the government’s relations with EU institutions are deteriorating, making talks about the EU funds difficult. So then, what resources are at stake?
In its new study, ‘Ready for 55%. A guide to financing the energy transition from 2021’, Forum Energii describes the key sources of finance intended for achieving climate goals and greening the energy sector. In the long-term EU budget for 2021-2027, within the national envelope, almost PLN 190 billion (EUR 42,3 bln) is allocated for the Polish energy transition and climate protection alone, including the well-known and so-far well-used cohesion policy, plus new mechanisms supporting the economic transformation—the Just Transition Fund for coal regions to move on and the Recovery and Resilience Facility.
The second, underestimated source of money, is the revenues from emissions trading (EU ETS). It should be allocated mostly for decarbonisation of the economy. As part of the pro-climate agenda, the EU is preparing reform of the system to extend the ETS to new sectors, but also to provide additional funding for carbon-intensive countries. In total, this could amount to almost PLN 370 billion (EUR 82 bln) over the next decade.
However, it is not the availability of funding that is the critical condition for making the necessary changes in the energy sector.
‘The bigger question is whether Poland will use the money and successfully carry out the transformation, and this now depends on political decisions related, among others, to the rule of law. This is currently a huge risk. Another barrier is the lack of vision regarding what kind of energy sector Poland requires. The government must clearly articulate its energy and climate policy goals to mobilise the public and private actors to prepare positive projects with long-term effects. Without this, it will be impossible to use significant amounts of the funding while wasting money on ill-considered and weak projects that consume considerable resources without contributing to securing Polish households and enterprises from price increases’, Sonia Buchholtz, PhD, a Forum Energii expert on financing the energy transition, said.
Another bottleneck is the outdated structure used in Poland in the implementation of EU funds. The multitude of funding streams, numerous objectives (but also restrictions) related to the use of various pools of money is a huge challenge for the administration. Poland used to finance mainly large, repeatable projects, such as roads and waterworks. Now, many more projects will have to be implemented in partnership with cities and citizens, taking into account the specific needs of local communities.
Without institutional reform and an effective strategic base from the government, which has the responsibility for designing public policies on energy changes and climate protection, Poland risks paralysis in decision-making and, as a result, delays in investments and suboptimal distribution of funds. For example, despite increasing funds for clean heat, Poland still does not have a national strategy for the heating sector.
Full mobilisation: the government, regions and business
Poland has now the opportunity to show the whole world how to effectively carry out the transformation of a country dependent on coal to a modern economy that uses renewable sources of energy in power engineering and industry, significantly reducing CO2 emissions. For it to succeed, significant effort is needed not only on the part of the national government but also from local governments, especially in post-coal regions, as well as businesses.
However, what is essential is not just money to mobilise interest in climate projects but also clear rules of sustainable financing, including taxonomy. The new rules should cover, among others, banks and listed companies, and must effectively discourage involvement in projects that do not improve the environment. The taxonomy rules go hand in hand with the EU budget, with one of the key criteria being that proposed projects emitting more than 270 gCO2/kWh will not be funded from the EU purse.
Moving across the bridge
There is no doubt that the challenges of the energy and economic transformation Poland faces is enormous, but it is also a huge opportunity for society and the economy to reduce dependence on fuel imports, shape energy and health costs, improve environmental quality, and cut emissions.
‘The worst thing that could happen to Poland is to get stuck in the middle, where we bear the costs of emissions, operate an outdated and inefficient energy infrastructure, and are unable to reap the benefits of the changes being implemented’, Joanna Maćkowiak-Pandera PhD, CEO of Forum Energii, said. ‘That is why mobilisation around the new financial perspective is so important—bold decisions, formulating clear strategies for achieving climate neutrality. The less logical and more protracted the transformation process is, the higher its costs will be. The funds provide opportunities to support the less wealthy parts of our society and to permanently reduce energy costs’.
The analysis is available in Polish only.
Sonia Buchholtz PhD - Forum Energii
Paweł Wróbel - Gate Brussels
Date of publication
9 November 2021