Janusz Kowalski, Poland’s Deputy Minister of State Assets: All EU policy is based on fiction

As part of our investigation into the European subsidies for fossil fuels, Investigate Europe’s Wojciech Ciesla spoke with the Polish politician to understand the country’s approach to the EU’s Emissions Trading Scheme. Mr. Kowalski encouraged a more homegrown solution, pressing for the continuation of coal-based technologies. The ETS, he said, would not be a viable […]

What does the Polish government intend to do about the European Union’s Emissions Trading Scheme (ETS)?

I have prepared a preliminary legal analysis: firstly, we want to check whether the EU ETS directive is compatible with Polish law and primary EU law. The ETS can be very expensive for the Polish economy, and my legal knowledge shows that the EU has no competence in tax matters. Strictly speaking, the ETS is not a tax, but it directly impacts Poland’s whole economy. I have prepared a report — a legal memorandum, which is what we should start with. It asks, “Are EU regulations compatible with EU law?” I have many doubts.

We do not know much about budget assumptions, but even there, the European Commission indicates taxation of large corporations, carbon taxes and various other taxes as sources of financing. This is the competence of nation states. The same applies to the EU ETS: it is an additional tax.

Are EU regulations compatible with EU law? I have many doubts.

Looking at the past and at the projections for the next 30 years, there is a very important economic question to ask with regards to the ETS. It’s whether or not we want to have a non-CO2-based economy. If yes, on what principles?

There are two views on this issue. There’s the one that nobody has stated aloud — the one that the Americans are implementing. Why do we start with a raw material instead of a solution? Assuming that that is true, the problem is CO2 emissions. The question is, can we eliminate CO2 emissions while still using coal? For instance, could we use modern installations to capture carbon dioxide and store it?

Today we are fighting against coal, the burning of which causes CO2 emissions. If we are to invest in technologies, let us invest in technologies that make the burning of coal a low emission activity. Such technologies are available in the US and Canada. There are many positive answers to this challenge.

I approach this as a man from Opole [a city located in Southern Poland]. In Opole, 11 billion PLN was spent on new blocks for the Opole Power Plant. The technical life of the new blocks is till 2054. Because of the Green Deal, are we to close a modern power plant by 2040-2050? This is absurd.

Coal power plants can be switched to gas. Or even better, to hydrogen.

I don’t agree with that. I’m a student of [energy expert and Polish politician] Piotr Naimski’s school of thought. This school says that energy security should be based on our own resources and our own fuels. Assuming that we are to build a low-emission economy, renewable energy sources are very unstable. Wind does not blow 365 days a year, the sun is not a source of energy for photovoltaic installations for 24 hours. These are sources that can cause very serious disturbances in the energy system, the best example being Germany or Great Britain. Renewable energy sources can be a complement to a system that already has stable sources of electricity generation.

There are three possibilities if we want to have stable system. The first is coal, which we actually have as the only country in Europe. Because we have our own resources, we cannot be compared to France or Spain or Germany. We can ensure energy security with our own coal resources. Let’s not talk about the functioning of mining itself, let’s leave it at that. We are only talking about the raw material.

The second possibility is gas. But we don’t have gas. We use 18 billion cubic metres of gas and we mine 4 billion cubic metres in a year. If we increase the use of gas, we will increase our dependence on external sources. If we switch to gas, we use 25 to 30 billion cubic metres a year, so we have to buy gas and import it from abroad. This is a political danger. In 10 years’ time, someone in Poland will sign a contract with Gazprom for 50 years and we are done. Why become dependent on external resources if we have our own?

The third possibility is nuclear power. But it is an indictment against the entire political elite of Poland that we have not been able to build one or two nuclear power plants in 30 years. We stand still.

If we are to make decisions about a low-carbon economy, we have to take a look at the decision-making processes in Poland during the construction of new capacities in the power industry. They come with various delays and failures. There are power units under construction, but it is a 10 t0 15-year perspective. So even if we want to replace part of the power industry with other sources, it will take time.

Why become dependent on external resources if we have our own?

The question is, what will happen during that time? Are we, as an economy, supposed to bear huge costs? The EU ETS as a system (which was changed in 2014 when the total auctioning system was introduced, along with mechanisms for price stabilization) caused the prices of allowances to rise dramatically. After 2015, it rose from from €5 to between €20 and €28. Polish state-owned power companies lost value. The culprit here is the EU emissions trading scheme. As a manager, you can’t plan any investment process if the price of your allowances changes every day. The EU ETS is a speculative system and for businesses, it is dangerous and akin to playing “Russian roulette”.

The EU ETS is a speculative system and for businesses, it is dangerous and akin to playing “Russian roulette”.

It is an oppressive mechanism that demolishes the Polish electricity and heating industry, because we are a country that produces over 70% of our electricity from coal. If someone wants to force us to invest in renewable sources or to buy energy from Germany or Sweden, they use the EU rules as a mechanism to force business action on us. But that impacts our economy and weakens it.

EU officials say that the price of allowances must be at a minimum level. They say it’s €30 from 2021, but everyone knows that the need for member states to comply with low-carbon requirements will increase prices to around €50 to €70. This will be a very steep increase. It will kill the Polish electricity sector at a time when we need investment in new sources of power generation, including low-carbon ones. All power companies are cutting costs. How are Polish concerns supposed to invest in modern technologies or in switching to other sources when they are massacred? It will be a massacre. It will kill Polish companies.

Electricity imports were at their highest in Polish history in 2019. If you add 100 PLN of ETS costs to the production costs of 160 PLN, then electricity from renewable sources from Germany becomes cheaper. This means that electricity imports will increase. Similarly, today, electricity from Sweden is cheaper. But this will impact the mining industry. The heaps of unused coal in Poland are growing. They are getting bigger.

I think it is possible to find a reasonable compromise between climate objectives in terms of climate protection. Maybe the Polish emissions trading system? A system that will not kill the Polish economy.

The COVID-19 crisis revealed the supply chain for renewable energy sources is not intact. The technology couldn’t be delivered to photovoltaic installations. This is energy based on technologies that have to be imported.

I made a simulation of electricity costs; coal produced with the ETS will be three times as expensive. The chemical industry is a fundamental part of the Polish economy, but its competitiveness will be dramatically reduced.

But there is no alternative to the ETS. The Polish climate minister is talking about it.

The Ministry of State Assets manages the companies that have to finance these plans. It is easy to plan expenses, but someone has to pay for it. There are no free lunches. At the moment, the Polish power industry pays for it. Soon, us consumers will pay for it, because after the pandemic, there will be less money on the market. We can pretend otherwise, but we will get into debt. There will always be a bill at the end.

At the beginning of the pandemic, I came up with an idea more or less at the time that Czech Prime Minister Andrej Babiš started to talk about it. The Czech Republic, by the way, is the author of the resolution calling for ETS reform — it is our potential ally. I believe that there are industrialists and heads of states who will oppose the planned shape of the ETS. Germany is investing in renewables on the one hand, and gas on the other hand — to become an energy hub, and to make other countries dependent on each other. Did you know that because of the barrage of power connections, energy from the north of Germany to the south of the country is transmitted through the Polish system of power grids? This has a negative impact on Polish transmission lines.

We are currently at the end of the third EU ETS settlement period, which cost us dearly. The new period begins on 1 January 2021, and this is a good time to reform the EU ETS. This is an opportunity for us to say that we can implement some points of the ETS strategy in our own way. We are able to pursue our climate goals in our own way. We can propose climate protection based on the Polish specificity of using forests for this purpose. Experts are able to make the air cleaner and there are no emissions.

There is no document in which the costs of the EU ETS are calculated. There is no document that calculates the costs of this madness. All EU policy is based on fiction — there are no costs. In Poland, it is said that the cost of the energy transformation is €500-600 billion. These are probably slightly understated bills. No one has calculated it.

The EU makes one of the most important decisions without calculations. From the geopolitical point of view of Germany, it is rational because Germany wants to be a country that exports raw materials and technologies. In this way, it sets the tone for relations within the EU, imposing its ideas on everyone.

There is no document in which the costs of the EU ETS are calculated. There is no document that calculates the costs of this madness. All EU policy is based on fiction — there are no costs.

The question is, what is this all about? I ask simple questions about costs and consequences for the economy and for people. Today, a household pays 100 PLN for energy; in 10 years it will pay 350 PLN. This is a pauperisation of Polish society. It will be similar with heat prices.

If it is to be so bad, what do you propose? What does Poland propose?

Together with our government colleagues Michał Woś and Jacek Ozdoba, we have prepared a proposal of the Polish Emission Trading Scheme — Pl ETS. This would be synchronized with the EU system. The adoption of the Green Deal by the European Council in December 2019, while guaranteeing Poland its own path to reduce emissions, even forces Poland to prepare its own legislative proposal.

An uncritical adoption of the Green Deal in Poland would be a social and economic shock comparable to the one that Poles survived after the fall of communism. It will cause huge social problems. It will be a bomb with delayed ignition. Industry will close down, energy will become more and more expensive. In an ideal model, this should be an agreement of all political forces, because it concerns the next 30 years. It cannot be the subject of political negotiations.

Ursula von der Leyen, President of the European Commission, after the adoption of the Green Deal in December 2019

I am sceptical about mechanisms such as the Fair Transformation Fund; the Union gives us a billion euros and we have to spend between €1.5 billion and €3 billion of our own. Our answer should be, ‘Well, then we will finance the construction of nuclear power plants with this money.’ But the European Union says no to investments in nuclear power. This proves that the European Green Deal is in fact the implementation of the SPD-CDU/CSU coalition agreement of February 2018, which states that the goal of German policy is to export the German “Energiewende” model to the European level so as to make Europe dependent on the export of German RES and gas technologies from Nord Stream.

Today, everyone wants to be “green”, but this has nothing to do with climate protection. ETS is a mechanism to control the Polish economy. Or to control the economy in general. It is a denial of the essence of the free market. In a few years’ time our successors will ask: where were you when those decisions were made? Today, we must fight the consequences of these decisions.

For me, the best situation would be if Polish politicians would come to an agreement. Everyone wants energy prices to be as low as possible and everyone also wants to protect the climate. But we must agree on what model we are building. Or we go into nuclear power. Or we build our own emissions trading system that will not kill the competitiveness of the Polish economy.

But you do not need a political consensus. Your government is in charge today.

I don’t bury my head in the sand. Only once, in the case of the Świnoujście gas port, did we manage to reach an agreement somehow, and today, this gas port functions. This is one of the few examples from the last 30 years, where a key decision about Poland’s security, was made in consensus.

Today, everyone wants to be “green”, but this has nothing to do with climate protection. ETS is a mechanism to control the Polish economy.

Polish politicians often lack perspective and strategic thinking. Our policy was to adopt the goals of Berlin and Brussels, and this is not my anti-German phobia speaking. Fortunately, the Law and Justice government is in a real denial of this philosophy. Just like the fact that the navigability of the Oder River is two classes lower, because then most of the water transport in the region will be through Germany. This is a normal business game, there is nothing wrong with it. But we have to do our job. We must have our own agenda. Because we’re going nowhere.

The share of renewable sources in the energy mix in Poland is increasing. What is your outlook on this?

I think that this should also be done sensibly. A sudden jump of photovoltaic prosumers is starting to blow up the power system because these are no stable sources. This may soon be a serious problem for the system.

I don’t think gas is just atomic energy. And we must respect the carbon specifics that already exist. If coal-fired power plants continue to operate on the same principles for 20 to 30 years, it will give us time to build more nuclear power plants.

Photovoltaics is not rocket science.

But only the Germans and Chinese do it.

Everybody around us is getting green. Is Poland to become a coal island?

But we are the island. This is our geological structure. We won’t change that.

But we have to import coal.

The same can be said of having an army when there is no war. Why do we need our own power generation when we can always import gas? Energy security has advantages in conflict situations, like if someone were to cut off our gas and energy flow. The question is simple, do we want to become dependent on external resources and technology? If we have a raw material, then why should we adopt the policies of countries that have a completely different energy mix?

Germany does not make all decisions rationally. On the one hand, they have shut down nuclear power, on the other hand they use the most lignite. They know that in a few years’ time, they will face the problem of where to get energy from.

I have the impression that many decisions are made politically, without asking: how much does it cost? How much does the transformation in Poland and other countries cost? There is no such information.

What about the role of subsidies?

In Germany, the renewable energy sector is subsidised. It is interesting that nobody writes about it. Subsidies are a question of what you want to see in this data. There is no information in any EU document signed by Poland that we want to liquidate mining. Suddenly, in 2014-2015, the decision is announced that we are going to close down the mining industry. Suddenly. Why such a decision?

Perhaps because of the rapidity of global warming?

The question is whether we are only looking at climate change or economic consequences that will lead to the pauperisation of Polish society. The whole philosophy of using natural resources is changing. A decade ago, you were breathing, bathing and drinking normally. When you start paying for the same resources and it becomes rationed, the approach to it will change. It will be madness that will have a big impact on our wallets and our lives.

Źródło: Investigate Europe