1. Polish emission trading project Main concept and current status Warsaw, 28 November 2003 Bolesław Jankowski, Badania Systemowe „EnergSys”, Coordinator of emission trading project in Poland boleslaw.jankowski@energsys.com.plwww.energsys.com.pl

2. Main points 1. Motivation and goals 2. General concept of emission trading in Poland 3. Main information on CO2 and SO2&NOx subsystems 4. Conclusions 4. Conclusions

3. Motivation and goals (1) Legal framework Driving forces b Poland ratified the Kyoto protocol (GHG) b LCP directive (2001/80/WE) to be implemented b Treaty of Accession SO2 and NOx emission limits for LCP groupSO2 and NOx emission limits for LCP group SO2 and NOx emission limit for the country (as in Gothenborg Protocol)SO2 and NOx emission limit for the country (as in Gothenborg Protocol)Constraints b IPPC directive (emission limit values according BAT) b Framework directive 96/62 on ambient air

4. Motivation and goals (2) Main policy problems related to SO2 emission b 5 921 million Euro investments in Poland for SO2 emission reduction in 1990 - 2005 b Very high costs of the LCP directive implementation (investments outlays 11 800 - 12 600 million Euro and electricity production cost increase by 33% in 2016) b Transitional periods could reduce compliance costs (investments to 6 300 million Euro and electricity production cost increase by 25% in 2016) b Emission limits from Treaty of Accession for the whole LCP group are more stringent then LCP directive with transitional periods b High electricity cost increase will generate economic and social problems

5. Motivation and goals (3) SO2 and NOx emission limits for LCP group

6. Motivation and goals (4) Main goals for SO2 emission trading 1. Reduction of costs of compliance with the current EU requirements 1. Reduction of costs of compliance with the current EU requirements implementation the LPC directive by means of the National Emission Reduction Plan using emission trading instead of the emission standards (existing installations)implementation the LPC directive by means of the National Emission Reduction Plan using emission trading instead of the emission standards (existing installations) implementation of emission trading to achieve further emission reduction and to meet Treaty of Accession goalsimplementation of emission trading to achieve further emission reduction and to meet Treaty of Accession goals 2. Creation of the flexible mechanism which can be used for effective realisation of the future emission reduction goals in Poland

7. General concept (1) The structure of the emission trading programme Advantages: - significant common part of legal and institutional infrastructure in case of different emission trading programmes - possibility to introduce new emission trading programmes with relatively low effort and costs

8. General concept (2) Emission trading of SO2 in the Polish system of air protection

9. b Consistent with EU directive and EC guidelines b Emission trading across 25 EU countries b Participants: energy sector - boilers > 20 MWtenergy sector - boilers > 20 MWt refineriesrefineries coke ovencoke oven steel production (> 2,5 t/h)steel production (> 2,5 t/h) mineral sectormineral sector paper and pulp productionpaper and pulp production b More then 1300 installations in Poland b The largest emission trading market in the world CO2 emission trading in Poland (1)

10. b Start since 1 January 2005 b The first periods: 2005-2007, the second 2008-2012 b National Allocation Plan - till 1 May 2004 b Opportunities: CO2 emission in Poland far below the Kioto limit b Uncertainities: how much emission allowances will be allocated to emission trading participants b Threats: potential shortage of emission allocations in situation of high production growth CO2 emission trading in Poland (2)

11. b SO2 emission reduction: from 878 kt (in 2001) to 454, 426, 358 kt (in 2008, 2010, 2012) b NOx emission reduction:266 kt (in 2001) to 254, 251, 239 kt (in 2008, 2010, 2012) b Additional limits for existing plants possible (KPRE) b Participants: Large combustion plants > 50 MWt b About 300 installations in Poland SO2 & NOx emission trading in Poland (1)

12. b Start from 1 January 2005 (SO2), NOx from 2008? b Three periods: 2005-2007, 2008-2015 (2017), after 2015 (2017) b National Plan for Emission Reduction (KPRE) till 1May 2004 b Expected effects: emission reduction costs by 250 Mzł per year in 2008-2017 and more then 1000 Mt per year in 2018 - 2020 b Main problem: very stringent individual emission standards or limits (non tradable permit) could “kill” economic efficiency of emission trading SO2 & NOx emission trading in Poland (2)

13. SO2 & NOx emission trading in Poland (3) Cost reduction Cost reduction by emission trading introduction: a) 203-257 Mzl average in years 2008-2017 b) 319 - 1097 Mzl average in years 2018-2020

14. SO2 & NOx emission trading in Poland (4) Impact on costs of electricity production

15. b Current status draft of legal regulations prepareddraft of legal regulations prepared allocation method not decidedallocation method not decided ongoing works on KPRE preparationongoing works on KPRE preparation governmental plans to introduce the system in 2004governmental plans to introduce the system in 2004 further works planned to be launched soonfurther works planned to be launched soon b Main features Ministry of Environment as regulatorMinistry of Environment as regulator Private - public agency to administrate the systemPrivate - public agency to administrate the system free of charge allocation of allowances for existing plantsfree of charge allocation of allowances for existing plants new plants must buy allowances in the marketnew plants must buy allowances in the market SO2 & NOx emission trading in Poland (5)

16. Conclusions 1. EU wide CO2 emission trading - new chances for polish enterprises 2. SO2 and NOx emission trading in Poland - EU compliance costs reduction 3. Possible changes in competitiveness of different technologies and producers 4. New business opportunities: a) CO2 allowances “production” and trade in EU wide system b) new opportunities for engagement in SO2 investments (emission reduction gains economic value)