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SECTION 3 Thematic deep-dive and policy recommendations Navigating Poland’s energy transition in the coming years will require long-term and proactive planning encompassing a wider portfolio of solutions. This section builds on Poland’s options-based vision outlined earlier in the report and provides in-depth overview and helpful next steps for the Polish government across: Decarbonising Poland’s power system – for full study please consult CATF’s report Decarbonising Poland’s Power System: A Scenario-Based Evaluation.60 Carbon Capture and Storage Clean Hydrogen Nuclear Energy Methane Emissions Reduction Superhot Rock Energy Decarbonising Poland’s power system The following policy recommendations have been drawn exclusively from the CATF modelling exercise61 introduced in Section 2, and are independent of the wider cross-sectoral and thematic recommendations presented in this section of the report. Establish technology-inclusive foundational groundwork Develop regulatory frameworks and permitting processes to support the expansion of a diverse set of clean technologies. Focus on reducing costs, eliminating barriers, and resolving conflicts of interest to facilitate cost- effective and scalable deployment. Promote onshore wind expansion Maximise the deployment of onshore wind power within the limitations of conflicts of interest. The CATF study corresponds to approximately 70 GW in this study, a sevenfold increase from the current capacity. Maximise the build rate to expedite the phase-out of costly and environmentally detrimental coal power, thereby limiting CO₂ emissions. Advance nuclear power Target the establishment of a nuclear fleet surpassing a total capacity of 8 GW in the long term. Investigate measures to facilitate the repurposing and repowering of coal power plant sites with nuclear reactors. Facilitate natural gas power plants with carbon capture Facilitate the implementation of natural gas power plants equipped with carbon capture capabilities, providing dispatchable capacity to complement weather-dependent wind power. Establish infrastructure for the transport and storage of captured CO₂. Swift transition away from coal In the short term, replace coal power with more cost- effective natural gas combined-cycle and open-cycle gas turbine power plants. Promote CCS retrofitting of natural gas power plants to achieve climate targets in time. Encourage demand-side flexibility Promote initiatives to increase demand-side flexibility, particularly in electric vehicles and industrial hydrogen demand as well as household heating with accumulator tanks. Significant demand-side flexibility is an important ingredient across all modelled scenarios. Develop robust policy and regulatory environment to assure optimum scaling and operation of demand- side flexibility. Reinforce transmission grids Reinvest and make new investments to strengthen local, regional, and national transmission grids. Significant grid reinforcement is a prerequisite for the extensive deployment of cost-effective onshore wind capacity. Beyond the above, we caution Polish policymakers to closely follow technology costs62 as these evolve dynamically with recent macro-economical and geopolitical events. This involves timely review of crucial technologies and associated costs alongside with their uncertainties. We urge Polish officials to conduct risk assessment on portfolio level to clearly apprise shortcomings in chosen decarbonisation pathway across all its elements to enable targeted action safeguarding against failure to achieve Polish climate and economy targets. Developing and deploying clean technologies Carbon capture and storage What is carbon capture and storage? Carbon capture and storage (CCS) is a technology that will be needed if Europe is to reach climate neutrality. CCS is a solution which can eliminate CO₂ emissions from processes where CO₂ is generated by fossil fuels, biomass or feedstocks. It involves the separation of the CO₂ from other gases, with the CO₂ being captured, compressed, and transported to geological storage sites. It is then stored deep underground in porous rock formations, covered by an impermeable cap rock that effectively traps the CO₂ in place. As scientists have determined63, when CO₂ is stored in suitable geological formations, it is kept there permanently, with the injected CO₂ staying trapped in the subsurface for millennia. Why does Poland need CCS? In Poland, industrial facilities are responsible for 42.56 million tons of CO₂ emissions, approximately 14% of total emissions annually. These are primarily in the cement, petrochemicals, steel and fertilizer production sectors. While a significant portion of these emissions could be abated through means like direct electrification, improvements in energy efficiency, or the use of hydrogen, there will be a need for CCS to reduce emissions, particularly in the cement, lime and chemicals sectors, where CO₂ is produced or used as part of the production process. In Poland, there are already some planned CCS projects, such as Go4ECOPLANET64, which is a cement carbon capture and storage project supported by the EU Innovation Fund. The project aims to capture over 1 million tonnes of CO₂ emissions annually from LaFarge Holcim’s Kujawy plant. CO₂ will be captured and transported via rail to Gdansk where it will be shipped to storage sites in the North Sea and is estimated to create 200 new jobs along the value chain, as well as preserving the jobs at the production facility for decades to come. Additionally, the ECO₂CEE project, which has been selected as an EU Project of Common Interest, aims to construct a CO₂ pipeline connecting the Port of Gdansk with Polish industrial emitters, as well as the construction of a CO₂ export facility, which would enable the captured CO₂ to be stored offshore. Figure 9. An outline of major point sources of emissions from Polish industrial production facilities. Data from Capture Map by Endrava Figure 10: The cost of a bridge construction with carbon capture and storage An advantage of CCS as a means to decarbonise industrial processes is its comparative cost- effectiveness, particularly when considering the cost to end consumers. As the International Energy Agency (IEA) has outlined65, pathways which use CCS to produce low carbon industrial products, are among the cheapest. For example, if using carbon capture and storage to produce low-carbon cement and steel, the cost of a bridge construction would increase by just 1%66 while more than halving its emissions. The cost of CCS varies from facility to facility and hinges upon many factors, especially the availability of CO₂ infrastructure and sufficient storage capacity. In Europe, the key barrier to CCS development has been the development of storage sites, which has been recognised by the Commission in the Net Zero Industry Act67. CATF’s CCS cost tool68 examines a range of scenarios including current storage site developments in Europe (the majority of which are in the North Sea), an expansion of storage development to areas which are suitable for CO₂ storage, and the availability of new CO₂ pipelines (Figure 11). Ultimately, European industries will only be able to equitably utilise CCS at lower cost if Europe achieves widespread availability of both CO₂ transport and storage infrastructure. The CCS cost tool also allows the user to select an individual Member State, which provides a clearer picture of the cost distribution across different sectors, and also shows which sites may have better access to storage in the near- and long-term. As Figure 12 (a) shows, when focusing on Polish industrial sectors such sites are quite evenly distributed across the country, particularly in the south, with costs ranging from €60 to €246 per ton in the low estimate case. However, for most facilities the costs of CCS would range above €200/t. At carbon prices of €150/t only a few facilities close to the coastline would be economical, as shown in Figure 12(b). The cost of CCS in Poland is comparatively higher than that of other EU Member States as CO₂ storage is currently de facto prohibited in Poland. Without access to CO₂ storage sites in Poland, emitters face considerably higher costs – potentially 5-6 times higher – than competitors in other EU Member States who have access to CO₂ transport and storage infrastructure. Figure 11: The estimated cost of CO₂ transport and storage in Europe under different scenarios for storage and pipeline infrastructure availability.68 Figure 12 (a): Point sources of CO2 abatement cost curve in Poland and their cost of abatement through CCS on a marginal cost Figure 12 (b) Point sources of CO2 in Poland with total costs of CCS estimated below €150 per ton Recommendations: What can Poland do to accelerate CCS? There are several key measures which the Polish Government can take to accelerate the development of CCS. These will be key to ensure Polish industries can decarbonise at the lowest cost and retain economic competitiveness compared to other European regions. Harness Poland’s CO₂ storage resource potential CO₂ storage capacity estimates vary both in quantitative and qualitative terms. These estimates range from theoretical capacity, based on applying standard assumptions to suitable geological basins, to practical capacity, where technically feasible injection rates have been validated for a specific storage site. Estimates of effective capacity, which identify specific geological traps where CO₂ can be safely stored, can provide a valuable overview prior to project development; these are often known as CO₂ storage atlases when conducted at the country level. Assessment of the Polish storage resource in 2014 has identified 10-15 Gt of effective capacity, associated mostly with saline aquifer formations. As Poland and other countries gain a greater understanding of their subsurface, theoretical storage capacity estimates become effective and ultimately practical capacity estimates, which will reduce the overall European storage capacity (Figure 13). Only a fraction of theoretical storage capacity will be commercially developed for a variety of technical, economic, legal and social reasons. Figure 13. Resource pyramid for CO₂ storage capacity69 Action is needed from EU Member States like Poland to support the development of storage atlases with the most detailed and comprehensive overview of the storage resource. In many cases, storage data is privately held by companies or geological surveys in Member States. Making this publicly available can help advance carbon capture projects for industrial emitters, by providing greater certainty that potential CO₂ storage sites can be developed closer to their facilities. Further characterisation of the most promising sites (including exploratory drilling and pilot injection) could also be supported. Advance first CCS projects to Final Investment Decision A key first step would be to assess announced and planned CCS projects in Poland, particularly to ensure what measures are needed to bring these projects to Final Investment Decision (FID). The economic advantage obtained by using CCS is derived from the EU Emissions Trading System (ETS), through the avoidance of surrendering allowances for emitters for each ton of CO₂ that is verifiably captured, transported and stored. While the ETS is expected to eventually rise high enough to drive industrial decarbonisation, many governments, like the UK, Netherlands, France, Denmark and Germany, are now choosing to implement policies that can cover the prevailing cost gap and provide greater certainty to developers and investors – thus helping industries to get ahead of the ETS impact and cut emissions sooner rather than later. The emerging policy of choice for this task is the ‘carbon contract for difference.’ Originally a concept from the financial sector, the ‘contract for difference’ has been used to great effect in the UK for deploying low-carbon power generation. The project developer offers a power price that can cover its costs (the ‘strike price’, and a government-owned counterparty guarantees to pay the difference between that price and the market power price in each year of operation. If the market price goes over the strike price, the project pays money back. Carbon contracts for difference apply this concept to CO₂ abatement. Industrial decarbonisation projects offer a price and volume of carbon they can cut and, if they are awarded with a contract, government guarantees they will be paid the difference between the offered price and a reference price for CO₂ emissions – usually the EU ETS (Figure 14). Crucially, this means that the size of the subsidy is expected to decline over time as the carbon price rises. Figure 14. Illustrative payment flows in a carbon contract for difference Carbon contracts for difference have been used to advance strategically important projects like Porthos70 in the Netherlands and Kalundborg71 in Denmark which have taken FID and are currently under construction. These projects are necessary to justify infrastructure projects like Northern Lights72 as well as pipelines, which will be used by future projects connected to other EU Member States. For Poland, it is critical that projects which have secured PCI status like ECO₂CEE and those with funding from the Innovation Fund are brought to FID, given the strategic importance of CO₂ infrastructure for future CCS projects in Poland. This infrastructure will be critical to ensure Polish industrial emitters can decarbonise fully and rapidly, in order to shield them from future EU ETS prices. Co-operate with other EU Member States on cross border CO2 transport and storage Given that each EU Member State has unique characteristics including industrial emitters, geological conditions, existing pipeline and other transport infrastructure, capturing, transporting and storing CO₂ across borders will, in some cases, be the most economically efficient option. As Figure 15 shows, when assessing how the sources of CO₂ from industrial facilities will find access to planned storage sites in Europe, it is clear that CO₂ will need to be transported across borders. Figure 15. Where European industrial emitters can store their CO₂ in Europe Indeed, the nature and routes for matching CO₂ sources and storage sites can vary considerably. Figure 15 (left), for example, is based on existing plans for CO₂ storage sites. This stands in stark contrast to an alternative scenario, where more storage sites are developed by more EU member states (Figure 15 right). As CATF’s analysis shows73, the overall costs of developing less storage sites in fewer EU Member States will be significantly higher – up to 3x greater – which will ultimately mean higher costs for European industrial manufacturers and their consumers. Nevertheless, it is important that Poland establishes bilateral and multilateral cooperation agreements with other EU Member States to enable CO2 to move across borders. Such agreements could take the form of bilateral agreements, like the ones prepared by the governments of Belgium and Denmark74, as well as a multilateral agreement like the Aalborg Declaration75 which was signed by the governments of France, Germany, Sweden, Denmark and the Netherlands in November. These political agreements are important to show political support which is a necessary prerequisite for investment security. For Poland, attention must be given to cooperation with EU Member States in the Baltic region in particular, given the lack of adequate geological conditions for CO₂ storage site development in neighbouring countries like Latvia, Lithuania, and Estonia. Moreover, aggregating demand among Polish industrial producers to seek CO₂ storage prospects collectively abroad will ensure greater bargaining power and the necessary cost reductions for CO₂ transport and storage over time. Clean hydrogen What is clean hydrogen? As a part of the future decarbonised energy mix, clean hydrogen has emerged as a pathway to enable global decarbonisation, particularly with its application in some of the most hard-to-abate sectors. When we refer to clean hydrogen, we are covering both ‘renewable’ hydrogen (often referred to as ‘green’ hydrogen) and ‘low-carbon’ hydrogen (covering all other clean production pathways, such as ‘blue’ or ‘pink’ hydrogen). Hydrogen is already produced and consumed in high volumes today, around 95 million tonnes globally in 2022, and used as a crucial feedstock and fuel in several heavy industry processes that produce many of society’s essential commodities. However, today’s hydrogen typically has very high associated emissions due to the process of producing the molecules. Hydrogen is rarely found in a naturally abundant state and therefore must be liberated from a compound form. Most of the hydrogen produced today is via steam or autothermal reforming of methane from natural gas, with a smaller percentage produced through coal gasification, and collectively this emits almost 1 Gt of CO2 per year. Making clean hydrogen to replace carbon-intensive hydrogen is possible through different pathways. Producers can install carbon capture technology and impose strict methane emissions controls onto the methane reforming process, or they can use electrolysis powered by clean firm or renewable energy, such as wind, solar, nuclear, or other emerging technologies like superhot rock energy (Figure 16). Figure 16. Low carbon hydrogen production pathways Why does Poland need clean hydrogen? Poland has a long history of both producing and consuming unabated hydrogen, due to its large industrial sector where this hydrogen is crucial for industry processes. The demand for hydrogen in Poland is substantial, with the country producing around 1.3 million tonnes in 2022. This positions Poland as the third-largest hydrogen producing country in Europe, behind Germany and the Netherlands. The Polish industrial sector, which includes refining, (petro-)chemicals, ammonia and steel production, faces significant challenges in decarbonising. Industrial emissions make up around 14% of Poland’s total greenhouse gas emissions and considerable portion of these emissions comes from industrial production processes, rather than from a facility’s electricity demand. Poland needs to begin decarbonising its existing hydrogen production and consumption as a crucial first step to assist some of the highest emitting segments of the national economy to decarbonise. Additionally, hydrogen holds potential in sectors where it is presently not utilised, particularly as next generation, low emission technologies evolve. This will include segments of Poland’s transportation, a sector contributing almost 18% of total greenhouse gas emissions where limited decarbonisation alternatives are available. To decarbonise these hydrogen-dependent, energy intensive sectors, Poland will face increasing demand for clean hydrogen. At the same time, Poland will likely be faced with limited domestic resources to produce enough of its own clean hydrogen. Europe as a whole is in short supply of domestic natural gas for producing hydrogen and although renewable capacity is increasing, which could be used for electrolytic hydrogen production, this available clean electricity will be in competition for deployment elsewhere, such as grid decarbonisation, as further sectors continue to electrify. By 2040, annual demand for hydrogen in Poland is anticipated to exceed 100 TWh. In order to meet this target with clean hydrogen, Poland developed its National Hydrogen Strategy76, published in 2021, outlining six strategic objectives that will supports the development of its national clean hydrogen economy: 1) Hydrogen technologies in the power and heating sector; 2) Hydrogen as an alternative fuel for transport; 3) Decarbonisation of industry; 4) Hydrogen production in new installations; 5) Efficient and safe hydrogen transmission, distribution, and storage; and 6) Create a stable regulatory environment. The National Hydrogen Strategy is a commendable initial step in outlining how and in what ways clean hydrogen can be produced and used for decarbonising Poland’s economy. It also acknowledges the regulatory reform that will be needed in the near term to kickstart the clean hydrogen economy. It does, however, lack a deeper level of granularity on how Poland will prioritise and implement production and consumption projects, as well as what policy reform will be brought forward to support streamlining this effort, particularly in the medium- to long-term (2030-2050). In support of this, and grounded in CATF analyses, several considerations can be made for the next iteration of Poland’s National Hydrogen Strategy, outlined below. Recommendations: What can Poland do to get clean hydrogen right? Implement an optionality approach to hydrogen production In Poland, available renewable energy (e.g., wind and solar) is unlikely to be sufficient and to satisfy demand for clean hydrogen over the next several decades by itself. This is due to both resource and capacity constraints and competing demands. Using scarce renewable power to produce hydrogen in the short- to medium-term would be counterproductive from a resource deployment perspective. This is particularly relevant while Poland’s exceptionally carbon-intensive electricity grid has not yet been fully decarbonised, and electricity consumption is increasing in other sectors. Therefore, other low-carbon production pathways must be pursued in order to start building a nation-wide clean hydrogen economy. In its National Hydrogen Strategy, Poland already favours a technology open approach to hydrogen production, so long as any produced clean hydrogen is truly low-carbon, based off the European Commissions’ hydrogen emissions counting methodology. This is an astute approach and by supporting a diverse set of clean hydrogen production pathways, it will ensure that suitable volumes of the gas are available at more cost- competitive prices, kickstarting the clean hydrogen market in Poland. For example, low-carbon hydrogen produced from steam methane reforming with installed carbon capture facilities can be scaled quickly, often at a lower cost and with higher capacity factor and utilisation rates compared to electrolytic hydrogen, as the technology is more mature, and the input energy source is more readily available today. Any incentives in Poland targeted at clean hydrogen production should be measured against greenhouse gas emission reduction merits based on rigorous emissions accounting. CATF has published a lifecycle analysis (LCA) tool77 for calculating and comparing different emissions profiles associated to delivered clean hydrogen, covering production and transportation, so that the entire value chain is captured. Poland is encouraged to work with the EU and neighbours to implement a collective certification framework and strong standards, so that any produced and delivered clean hydrogen is truly low-carbon. Prioritise clean hydrogen off-takers in ‘no regrets’sectors Given the limited domestic energy resources, clean hydrogen should be prioritised for use in hard-to-abate sectors (i.e., ‘no regrets’ sectors), where it is needed as either a critical feedstock or fuel. By ‘no regrets’ sectors78, we mean sectors where clean hydrogen will be necessary to complete industrial processes, often heavy industry where carbon-intensive hydrogen is already being consumed today, and where no other energy- or cost-efficient decarbonisation options are available. Examples include oil refining, ammonia production, methanol production, and primary steel manufacturing (Figure 17). Poland’s National Hydrogen Strategy highlights several sectors as priority off-takers for forthcoming clean hydrogen, which includes ‘no regrets’ segments of heavy industry. End-use sector prioritisation, especially in the near term, is needed given the limited availability of clean hydrogen. Poland must take a sectoral prioritisation approach, ensuring that ‘no regrets’ sectors are first in line to receive the available resources, in particular, to replace existing carbon- intensive hydrogen. This approach will ensure that highly emitting sectors can start their decarbonisation journeys as soon as possible. Figure 17. CATF priority ranking of potential low carbon hydrogen end use sectors Other sectors are also identified in the National Hydrogen Strategy as priority, which may want to be reconsidered for decarbonisation via alternative means. Most prominently are the power and heating sectors, listed as the first objective for clean hydrogen deployment. CATF has conducted extensive analysis on hydrogen’s role in the power sector, which demonstrates that it will be a costly and energy- intensive process, whilst achieving only limited reductions in emissions. Alternative methods to cleaning up the power sector would bring higher cost-, energy- and emissions-savings compared using clean hydrogen. Blending clean hydrogen into the national gas grid for use in heating, either in commercial or residential settings, would dilute the environmental benefits of a scarce commodity that could be put to better use in other required sectors. For home heating specifically, numerous independent studies79 have concluded that alternatives such as heat pumps, solar thermal systems, and district heating are more economic, more efficient, less resource intensive, and have a smaller environmental impact. Additionally, there are serious safety hazards associated with hydrogen use in residential settings owing to its high tendency for leakage and an ignition or explosive range that is six times that of natural gas. Clean hydrogen provides an essential tool for reducing emissions in certain sectors but is far from a silver bullet for decarbonisation. It should not be deployed indiscriminately to all sectors as if every potential end- use has equal merit. Focus on segments of the transportation sector where clean hydrogen is needed the most As well as ‘no regrets’ sectors, clean hydrogen is likely to be needed to decarbonise segments of Poland’s transportation sector that are difficult to electrify, such as maritime shipping, aviation, and parts of heavy-duty road transport. In aviation, sustainable aviation fuels (SAF) continue to draw interest as an alternative to electrification as they offer compatibility with existing infrastructure and engines, often referred to as ‘drop in’ fuels. Clean hydrogen will be required to upgrade biomass-based sustainable aviation fuels (bio-SAF), to synthesise jet fuel from hydrogen and captured carbon (synthetic SAF), and, potentially, to power aircraft that directly utilises hydrogen as fuel. However, biomass feedstocks are limited, and synthetic fuel production is at present technically and economically challenging. In shipping, clean ammonia is a strong contender as a sustainable fuel, provided that it is made from a clean hydrogen feedstock. Health, safety, and environmental concerns attributed to ammonia combustion would also need to be thoroughly examined before any wide-scale sectoral applications. Furthermore, developing a clean ammonia fuel market should not draw away from any efforts to decarbonise existing ammonia production for present day applications, (e.g., for making low- carbon fertilisers). Another potential low-carbon marine shipping fuel is methanol and many cargo ships being built today incorporate dual fuel capability to handle a future mix of marine oil and low-carbon methanol. However, unlike ammonia, methanol emits carbon at the point of combustion, so to produce a low-carbon fuel, ‘sustainable’ carbon atoms would need to be sourced for the methanol production process. In road transport, long-haul hydrogen fuel cell vehicles (FCEVs) can play a role alongside battery electric vehicles (BEVs) in decarbonising the trucking sector. The role that FCEVs play and their scale up will ultimately be influenced by several factors, including cost, fuel and fuelling infrastructure availability and well-to-wheel lifecycle emissions.Whilst parts of the transportation sector may require hydrogen and its derivatives to decarbonise, other forms of transportation, such as light-duty vehicles, may benefit by prioritising electrification as their primary pathway to decarbonisation, for reasons of cost as well as scalability. Given its established and sizeable industries across these three transportation sub-sectors, Poland should review where to best apply hydrogen and other decarbonisation options (e.g., BEVs) in the transportation sector. It should prioritise volumes of the clean hydrogen to priority transport segments as the technologies begin to scale, whilst also not drawing limited available clean hydrogen resource away from priority ‘no regrets’ sectors in the short term as clean hydrogen transportation technologies are developing. Plan carefully and accurately for any hydrogen trade and transportation When setting clean hydrogen targets, Poland should carefully forecast their national hydrogen demand, identifying what share can be met with domestic production and what share will need to be imported. This analysis would also enable the setting of realistic hydrogen targets. Any shortfall in domestic production should be pursued by the most cost-effective, energy- efficient methods of import from nearby regions. A CATF report80 explores pathways for importing clean hydrogen to Europe from various potential export regions. The report concludes that importing large quantities of hydrogen over long distances into Europe will be expensive and relatively energy inefficient due to hydrogen’s inherent properties, particularly its low volumetric energy density. Of the transport options available, pipeline is the most cost-effective method, ideally over the shortest distances possible, followed by maritime transport of low-carbon ammonia for direct use. ‘Cracking’ ammonia to liberate pure hydrogen incurs significant energy penalties, making the process even less efficient and more costly. Hence, prioritising imported ammonia for use in industry applications that specifically require ammonia is advised (e.g., in agriculture and maritime shipping). Applying ammonia directly will be a much more effective method to importing hydrogen due to avoidance of the dehydrogenation step at the end of the value chain. Compared to pure hydrogen, ammonia is much cheaper and more stable to transport via ship and truck. Figure 18. Hydrogen transportation pathways