SIM Report: Eastern Europe, Issue 1

POLAND: PiS’ re-election victory means that Poland’s reliance on coal will likely continue

Introduction  

The conservative Law and Justice party (PiS) won a majority in the lower house of parliament after general elections were held on 13 October. The result bears important implications for the future direction of the country’s energy policy.  

Reliance on coal likely to continue under PiS government

Coal mining has been instrumental in ensuring Poland’s energy independence. The PiS regards coal as strategic natural resource that will increase its opportunities to be less reliant on imports from Russia, which uses energy exports as a geopolitical tool to exert political leverage over neighbouring Ukraine as well as Poland. After Germany, Poland is Europe’s second-largest coal producer and mining is mainly concentrated in the southern region of Silesia. While coal will be used to drive energy independence, increased extraction will continue to have its downsides, namely on the country’s climate and public health.

 


Bełchatów power station and coal mine @Shutterstock


High levels of coal consumption have deteriorated air quality in many towns and cities across the country. This worsens during winter as many people use low-quality coal to heat homes. In June 2019, the European Environment Agency estimated that pollution causes 44,000 premature deaths a year in Poland. Growing awareness over environmental issues has led to a shift in popular support towards renewable energy, compelling some political parties to formulate policies to achieve ambitious climate change goals (that are in line with the EU’s) . For instance, in July the liberal Civic Platform party – the main opposition party – said it wanted to end the use of coal to heat homes by 2030 and for electricity generation by 2040. Indeed, with concerns about air quality growing domestically and rising EU pressure to cut emissions, PiS has indicated it was in favour of decreasing coal’s share in the energy mix by developing nuclear and offshore wind power.    

But progress in developing renewable energy, including wind and hydropower, will likely be hindered due to entrenched political incentives for the ruling party, which has sought to avoid antagonising powerful trade unions representing coal workers. Despite affirming that it will invest more in renewable energy, PiS expects about 50 per cent of electricity to be generated through burning coal by 2050. Successive years of economic growth – in 2018 the country reported a 5.1 per cent increase in GDP growth – have driven demand for energy, particularly from energy-intensive industries such as steel and paper manufacturing. Energy demand will continue to rise as industrial activity increases. Indeed, even as domestic production has fallen in recent years, coal imports from abroad, including from Australia, Colombia, Mozambique, Russia and the United State have steadily increased to supply Poland’s power stations. In 2017, coal imports rose to nearly 13 million tonnes from 8.3 million the previous year.



Lack of legislative clarity also dims the outlook for renewable sources of energy. For instance, in May 2016 the PiS government adopted a new law banning the construction of wind farms near houses, which also resulted in higher property taxes for wind farm owners. However, in July 2019 the lower house of parliament approved a revision to Poland’s renewables legislation, paving the way for onshore wind auctions. Seemingly contradicting policies will send mixed signals to renewable energy companies considering investments in Poland.  

The party’s pro-coal policy was also highlighted when in September, the government announced plans to introduce new legislation that would allow the construction of new mines without approval from local authorities. The Złoczew lignite open-pit mine is one of these new projects, however, it is facing local resistance as it will displace around 3,000 local residents from the area. The same month the Debina coal mine – the first coal mine to open since 1994 – officially began operations near the southern town of Jastrzębie-Zdrój. Prime Minister Mateusz Morawiecki said the mine, which will reach full production capacity by 2025, will help boost Poland’s industry.

The coal sector also benefits from financial assistance provided by the government through subsidies. However, such initiatives will almost certainly become more contentious as renewable sources of energy become cheaper and coal more expensive. This trend will likely continue, which will in turn require more financial commitment from the government towards coal production. In the longer term, a decision to use public finances for highly polluting sources of energy will probably prove unpopular with environmentally sensitive voters. This could be reflected in the 2020 presidential elections as PiS’ candidate, incumbent Andrzej Duda, seeks re-election.   

The government’s commitment to coal has also had an adverse impact on investor sentiment at a time of heightened sensitivity towards climate change, while a growing number of financial institutions are seeking to invest more on renewable energy. For instance in May, French banking group BNP Paribas (BNP) said it would stop financing electricity producers in Poland as part of an effort to reduce loans to high-polluting industries. BNP will reduce loans ‘significantly’ from 2019 to 2023 with the overall goal of achieving zero exposure to coal-burning electricity companies in Poland by 2028.

Outlook

The governing party’s stance is unlikely to change in the one-year outlook unless popular support for coal subsides. Determining factors for this will be growing concern over the health risks associated with pollution and voters shifting support to opposition parties like the Civic Platform with more ambitious climate change policies.

EU-Poland relations will likely continue to deteriorate as the PiS pursues an energy policy that is clearly at odds with the EU’s increasingly ambitious goals to cut CO2 emissions. 

In practice, this means that in the short-medium term, Poland’s reliance on coal will continue. This will be driven in part due to limited political will to pursue a bolder strategy towards developing renewable energy. Indeed, electoral considerations, pressure from trade unions, and financial commitments to maintain coal as the dominant energy source, including through subsidies and investing in new mines, will act as a strong disincentive to redirect public resources in favour of cleaner energy sources.

Despite this, external pressures, including from the EU and increasingly cheaper renewables, means that the long-term trajectory for coal production is far less certain.  

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