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Cablegate: Poland Complains About New Co2 Limit, but Will

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DE RUEHWR #1179/01 1411447
ZNR UUUUU ZZH
R 211447Z MAY 07
FM AMEMBASSY WARSAW
TO RUEHC/SECSTATE WASHDC 4311
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE
RUEHKW/AMCONSUL KRAKOW 1712
RUEHRC/DEPT OF AGRICULTURE WASHINGTON DC
RUEAEPA/HQ EPA WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RHEBAAA/DEPT OF ENERGY WASHINGTON DC
RHEHAAA/WHITE HOUSE WASHINGTON DC

UNCLAS SECTION 01 OF 03 WARSAW 001179

SIPDIS

SIPDIS

STATE FOR EUR/NCE, EUR/ERA, EUR/PGI, OES/GC, OES/STC,
OES/ENV, OES/PCI, G, EB/ESC, EUR/PPD
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EPA FOR APHILLIPS, KBUCKLEY

E.O. 12958: N/A
TAGS: ECON SENV EINV ETRD PL
SUBJECT: POLAND COMPLAINS ABOUT NEW CO2 LIMIT, BUT WILL
FIND A WAY

REF: 06WARSAW 2216

WARSAW 00001179 001.2 OF 003


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SUMMARY
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1. The Government of Poland is upset that the EU approved a
CO2 emissions limit 1/3 lower than the GOP requested.
Although the approved limit is close to Poland's current
emission level, and Poland lowered CO2 emissions 18% since
1990, the GOP fears that such a cut-back in emissions will
slow future growth of the Polish economy. The announcement
of the new CO2 limits came a day before the visit to Warsaw
by Margo Thorning, a PAS Strategic Speaker on environmental
issues. Thorning's visit focused on how economic growth can
help reduce emissions, and how Kyoto targets may be
inhibiting growth. The future for Poland's continued
reduction in CO2 emissions lies in increased production of
biofuels and the use of clean coal technologies. END SUMMARY.

- - - - - - -
CO2 Allotment
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2. The EC allotted 208.5 million tons of CO2 to Poland for
the years 2008-2012 as part of the European Emissions Trading
Scheme (ETS). Poland requested 284.6 million tons, based on
an expected growth rate of 5.1% - 6%. Poland's emissions for
2005 amounted to 203.1 million tons, lower than the 239.1
million tons allocated. Because Poland came in under its
targets during the period 2005-2007, Polish industry has not
been forced to innovate to reduce emissions significantly.

3. Although not forced to do so, Poland reduced its CO2
emissions by 18% since 1990, mostly through modernization of
coal-fired power plants. Poland decreased CO2 emissions by
more than 25 other EU countries. By retro-fitting old plants
for cleaner burning, emissions went down significantly
without a major increase in prices. Due to these reforms,
Poland moved from 10th to 20th on the list of the 50 largest
polluters worldwide. But, to meet the new targets, much more
will need to be done.

4. Although Poland is upset about the new CO2 limits set by
the EU, it will not be filing a case in the European court as
Slovakia did. Almost 80% of Poland's CO2 emissions are
generated by the energy and heating sector. The remaining
20% comes mostly from cement producers, and the steel,
chemical, paper, and fuel sectors. Poland is currently
working through how it will allocate credits among various
sectors, with an eye to lessen the potential impact on
economic growth.

- - - - - - - - - - - - - - - - - - -
Economic impact addressed by Thorning
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5. Poland's economy grew at more than 6% in 2006 and
promises to maintain similiar growth rates for the near
future. With such growth comes increased energy use. Poland
is now struggling with how to meet the EU-imposed CO2 targets
without significantly reducing economic growth.

6. This discussion coincided perfectly with the visit of
PAS-sponsored Strategic Speaker Margo Thorning of the
International Council for Capital Formation (ICCF). ICCF is
an organization that promotes economic growth while
maintaining environmental protection. Thorning met with the
Polish Emissions Trading Administration, the American Chamber
of Commerce Environmental Committee, and gave a lecture at
the Warsaw School of Economics.

7. Thorning's main message was that the U.S. economy grew
steadily at around 3-4% while at the same time reducing

WARSAW 00001179 002.2 OF 003


greenhouse gas intensity significantly. She pointed out that
as an economy grows faster, it replaces its capital stock
faster, resulting in newer, cleaner burning, more efficient
capital, machinery, appliances, etc. But, since Europe aims
to meet its Kyoto targets, Europe's economy is growing at
just over 1% and its greenhouse gas emissions have gone up.

8. Thorning's message provides another perspective as the
GOP deliberates how to address the new lower CO2 emissions
allotment. The GOP is concerned that rapid recent growth
could be deterred by the new allotment, as companies would
have to cut back production to stay within the target. Or,
if Poland does not meet its CO2 target, it will have to
purchase carbon credits, which some estimate could cost EUR
2-8 billion if Poland's GDP growth continues to be 6%.
However, with insight from Thorning's presentation, it is
possible that if the Polish is growing fast enough and
replacing capital stock at a faster rate, that their CO2
emissions could go down significantly from the use of more
efficient equipment.

- - - - - - - - - - -
Poland must do more
- - - - - - - - - - -

9. In addition to the lowering of CO2 limits, the EU
requires energy from renewable sources to constitute 7.5% of
total energy produced in each Member State by 2010. The EU
also aims to reduce CO2 emissions by 20%, increase the share
of renewable energy in total energy production in the EU to
20%, and increase the share of biofuels in transport to 10%
by 2020.

10. Currently, 97% of Poland's electricity is generated
through the burning of coal and the share of renewable energy
in total energy production is only 4%. In order to meet EU
targets, Poland needs to invest significantly in biofuels,
the most viable renewable energy source in Poland. The GOP
claims that investments in renewable energy sources is an
economic priority and plans that by 2010, 4.7% of domestic
electric energy production will be generated by biomass, 2.3%
by wind, and 1.2% by hydroelectric power. Poland plans to
earmark PLN 1.6 billion ($570,000 million) for renewable
energy projects over the next six years, most of which will
come from EU funds.

11. Although nuclear power is also an option, and is the
cheapest option, Poland currently has no nuclear power
stations. This year, the GOP announced that it plans to join
Lithuania, Latvia, and Estonia in a joint nuclear power
project in Lithuania, but electric production is not expected
to begin until 2015 at the earliest. Poland is discussing
building its own nuclear power plants, but any such plans
would not produce power for at least 10-15 years.
Investments in wind power are on the rise, with reports of
Japanese and Czech firms planning construction. Although
wind may be an alternative, it will likely not be a major
player in the Polish renewables market as the environmental
conditions are not ideal for wind power. Therefore, biomass
production, which is on the rise, promises to be the easiest
way to increase the use of renewable energy sources. Despite
these efforts, experts unofficially state that they don't
expect Poland's renewable energy use to go much above 9 or
10% by 2020.

12. The real answer to reducing Poland's CO2 emissions will
come with clean coal technology. Poland has already invested
in cleaner burning coal facilities (ref A), but will need to
make the leap to truly clean burning coal to make significant
progress. Poland is in discussion with companies worldwide
who produce such technologies, but the GOP appears to be
awaiting a breakthrough that will lower technology costs.

- - - - -

WARSAW 00001179 003.2 OF 003


COMMENT
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13. Poland is rightfully concerned that its lower emissions
allotment could hamper economic growth. However, such strong
growth is also an incentive to modernize and switch to more
efficient and less-polluting equipment. Other EU Member
States, such as Germany, who received similarly reduced
allotments, are not experiencing such strong economic growth.
Poland has the capacity to increase production of biofuel
and alternative sources of energy, but it is unlikely that
development of these alternatives will occur fast enough to
meet the demands of the next allotment period under the ETS.
However, in the longer term, Poland will need to not only
produce more biofeuls, but also utilize more advanced clean
coal technologies to make any significant reduction in
overall CO2 emissions.
ASHE

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