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Credits Share this on: Share on LinkedIn Share on X/Twitter Share on Facebook Executive Summary Poland’s energy transition, while it abounds with challenges due to the scale of the transformation, offers growth opportunities that should be properly evaluated and utilised. As one of the most carbon-intensive economies in Europe, the country needs to expedite necessary reforms for a fully decarbonised energy system that enables economic prosperity. The historical dominance of coal in Poland’s energy sector presents unique challenges toward a sustainable, low-carbon future. As the country moves away from imported Russian fossil fuels and attempts to transition to a coal-free economy, a diverse decarbonisation strategy is crucial for a feasible, reliable, and socially responsible energy transition. Additionally, a stable and enduring regulatory framework and energy policy, immune to political fluctuations, are essential to boost investor confidence and ensure a resilient energy transition, laying the groundwork for sustainable investments and successful decarbonisation. Decarbonising Poland’s economy requires a comprehensive, sector-specific approach. Assessing solutions – considering supply chains, critical raw materials, availability of alternative options, and geopolitical shifts, among others – is vital to reduce dependencies. Uncertainties of the multipolar world underscore the need for a diversified solutions portfolio: over-reliance on a narrow set of technologies is inherently risky in case of major disruptions or lack of availability of certain solutions, which could hinder the energy transition. For a resilient decarbonisation path, it’s crucial to plan for a diverse portfolio of solutions, like electrification along with carbon capture and storage (CCS) and zero-carbon fuels to ensure industrial decarbonisation without compromising competitiveness. With massive demand for electrification and Poland’s power system’s need to shift from coal, which currently makes up 70% of the power mix, the complexity of the transition becomes more pronounced. Clean Air Task Force (CATF) has commissioned a power system optimisation study to provide in-depth insights on probable transition pathways that could aid the newly formed government with independent expert advice. This new power modelling approach was designed to build a decarbonised Polish power system that meets hourly power demand and capacity reserve requirements throughout the year while ensuring profitability for the producers and evaluating decarbonised power systems based on their total system investment and operational costs, using comprehensive scenario-based electricity market modelling. A summary of the modelling study has been published alongside this report under the title Decarbonising Poland’s Power System: A Scenario-Based Evaluation. The modelling highlights1 the need for a rapid2 and thorough phase-in of a diverse set of solutions – renewables, nuclear energy, storage, and biomass – to replace the economically and environmentally burdensome coal power. These findings support the broader vision presented in this report, which dives into the wider policy recommendations and specific technology areas. The coming two decades are crucial for Poland’s energy transition, a process marked by disruption due to its vast scale. It’s vital to view this clean transition not as an externally imposed burden but as a chance to sustain Poland’s economic vitality and competitive edge. This report lays out Poland’s energy transition vision, underpinned by four key principles, and includes policy recommendations for decarbonising the power system, advancing carbon capture and storage, developing low-carbon hydrogen, nuclear energy, reducing methane emissions, and exploring superhot rock energy. Four principles of a new vision 1. Technology optionality within Poland’s energy system Climate neutrality in Poland will require the availability and deployment of a wide range of technologies, ensuring sector-specific decarbonisation with appropriate tools for specific situations and challenges. 2. Long-term planning and energy infrastructure Poland’s energy transition should be based on proactive and effective planning. An integral aspect of long-term planning is developing an energy infrastructure strategy and roadmap, which needs to become a cornerstone of any decision pertaining to climate and energy plans. 3. Public participation The scale of the transition to net zero will require thinking carefully about social fairness, workforce transition and how to involve local communities and municipalities in decision-making. By involving stakeholders at the outset, planning challenges are tackled when drafting the key policy documents head-on, and a sense of shared ownership and accountability among all parties involved is fostered. 4. Cross-regional and international cooperation Cross-regional cooperation has always been an important component of regional development dynamic. Given the complex challenges, reviving and tailoring these partnerships is urgent. This means developing a shared clean transition vision and refocusing on region’s added value both within Europe and through international fora. High-level Recommendations Power System Decarbonisation Promote technology optionality to enable accelerated departure from coal Enable nuclear energy and gas equipped with CCS to complement extensive onshore wind expansion Develop a flexible system by reinforcing the grids and enabling adequate demand-side response Carbon Capture and Storage Advance first CCS projects in Poland to Final Investment Decision Cooperate with other EU Member States on cross border CO2 transport and storage Harness Poland’s CO₂ storage resource potential Clean Hydrogen Implement an optionality approach to clean hydrogen production Prioritise clean hydrogen off-takers in ‘no regrets’ sectors Focus on segments of the transportation sector where clean hydrogen is needed the most Plan any hydrogen trade and transportation carefully Utilise available mechanisms to support the most promising clean hydrogen projects Nuclear Energy Formulate financial strategies for sustainable nuclear energy development Embrace new pathways for the nuclear industry, focusing on a product-based business model, integrated project delivery, and de-risked finance Explore Small Modular Reactors (SMR) and advanced reactors as a potential pathway for electricity and energy de-carbonisation Reduce Methane Emissions Ensure consistent application of the EU’s Methane Regulation Encourage national oil and gas companies to join OGMP 2.0 Superhot Rock Energy Develop a strategy for geothermal energy that considers superhot rock resources greater than 400 degrees Celsius with the potential to produce gigawatts of clean firm cost-competitive power and heat Support an ambitious and focused research agenda, enabled by robust public funding and collaboration with other member states Carry out a heat reservoir assessment and mapping to understand the national deep high temperature geothermal and superhot rock energy potential – and keep an open-access centralised data repository Create a platform for stakeholder collaboration on superhot rock energy in Poland and across Europe Introduction The energy crisis in Europe, amplified by Russia’s war in Ukraine, has exposed the perils of over-reliance on a single energy supplier. It has also questioned the related decarbonisation narrative in the European Union (EU), which, for years, has been characterised by a narrow set of clean technology options. The new geopolitical reality is starting to shift perceptions of energy security and decarbonisation, with a new awareness of the need to assess strategies through the lenses of economic growth, innovation, and renewed partnerships.3 Poland faces a pivotal moment in reshaping its energy landscape, transitioning away from a coal-dependent energy system to meet ambitious decarbonisation targets. The historical dominance of coal in Poland’s energy sector presents unique challenges as the country strives for a sustainable and low-carbon future. The frequent changes introduced between outgoing and incoming governments further complicate the energy landscape, introducing uncertainties in market conditions and regulatory consistency. To foster investor confidence and ensure a resilient energy transition, Poland requires a stable and enduring regulatory framework and energy policy that transcends political changes, providing a foundation for sustainable investments and successful decarbonisation efforts. Momentum and urgency for a clean transition are here. It needs to be leveraged with long-term, robust climate policies that underpin revitalised energy security and industrial competitiveness in the era of major geopolitical shifts and new partnerships. Poland remains an industrial hub of Central and Eastern Europe (CEE) and is a significant producer of steel, cement, petrochemicals and fertilisers. Heavy industry4 also provides a high employment rate (approx. 20% of the total workforce) and gross value added (20%), while also being responsible for 42.56 million tons of CO₂ emissions – 14% of the country’s total emissions. Therefore, transforming Poland’s industrial base in an economically viable and climate-beneficial way will be one of the most important tasks for the new government. The outcome of Poland’s October parliamentary election marked the arrival of a new coalition government comprised of Civic Platform (Platforma Obywatelska), Third Way (Trzecia Droga) and The Left (Lewica). With many compound challenges ahead, including the update of key climate and energy documents, it is critical that the energy transition is elevated on the agenda. This report is anchored in CATF’s options-based strategy5 and is informed by different analyses: high-level findings of CATF’s Polish power system modelling6, public perception polling7, deep overview of key thematic areas, and actionable policy recommendations. This report outlines a new vision for a clean energy transition in Poland by exploring: The urgent need and opportunity to pivot Poland’s energy transition. A path forward for Poland’s energy transition and key principles of an options-based approach to energy security, climate, and economic growth. A thematic deep-dive and policy recommendations. SECTION 1 Opportunity to pivot Poland’s clean energy transition Background on Poland’s energy transition Poland stands at a critical juncture in its energy landscape, grappling with the challenge of transitioning from an energy system heavily dependent on coal to one that aligns with ambitious decarbonisation goals. The dominance of coal, historically ingrained in Poland’s energy sector, poses unique challenges as the nation endeavours to meet its commitment to a sustainable and low-carbon future. In the EU, Poland is the third biggest emitter after Germany and Italy in terms of total annual emissions. Even today up to 85% of Poland’s energy is sourced from fossil fuels, making its energy sector one of the most carbon-intensive in Europe. While reducing emissions from the transportation and building sectors—which account for 17.8% and 11% of total greenhouse gas emissions respectively—will be pivotal, this report focuses on Poland’s power and industrial sectors, making up around 47.8% and 14% of country’s total emissions. Looking at Poland’s power sector alone in the light of increased demand for electrification of key sectors means that the country will need to make a complete U-turn from 70% of coal generation as of today to almost a similar percentage of zero-carbon sources by mid-century. As of 2021, the country’s power system had the highest carbon intensity8 in the EU. This means an urgent need for significant upgrades and investment in the power grid estimated at PLN 500 billion9 (approx. EUR 114 billion) to cope with the transmission of electricity generated from clean energy sources. Dubbed as the industrial powerhouse of Central and Eastern Europe, developing economically viable industrial decarbonisation strategy will likely be one of the key tasks of the Polish government. Industrial facilities are responsible for 42.56 million tons of CO₂ emissions, approximately 14% of total Polish emissions annually, that are primarily in the cement, petrochemicals, steel and fertilizer production sectors. Poland, like many other Central and Eastern European countries, has some of the highest industrial employment shares (standing at around 400,000 people10) and industrial gross value-added shares11 in the EU. Hard-to-abate sectors will need actions to be on the path of timely decarbonisation. Without a strategic industrial approach to support businesses in achieving their goals, and turning the transition into a competitive edge, Poland will likely not meet its climate targets. Figure 1. Electricity production by source in Poland12 Despite a rather challenging start, Poland has managed to make some notable progress in various directions: for instance, the country’s solar PV deployment rate has been one of the highest in the EU. Between 2016 and 2021, Poland witnessed a remarkable surge in PV capacity13, from a mere 0.2 gigawatts (GW) to an impressive 7.7 GW. As discussed below, Poland has managed to position as a prominent hub for lithium- ion battery production. The country has been also experiencing a heat pump boom14 – as an example, more than 203,000 heat pumps of all types were sold in Poland in 2022, only 33,000 less than in Germany, which has a population over twice as large. As it will be further discussed in the report, Poland is also at the cusp of some pivotal decisions regarding developing nuclear energy, carbon capture and storage projects and clean hydrogen economy, among others. While Poland’s solar PV breakthrough is noteworthy, it should be mentioned that so far, the country’s renewables deployment rate, much like other countries in the region15, has not been on par with its decarbonisation needs. Updates from Poland’s Energy Policy until 2040 (PEP 2040) and the National Energy and Climate Plan (NECP) are still pending, but the existing versions offer indicative insights: Poland’s 2021- 2030 NECP, updated in 2019, set a target of 21-23% of renewable energy in gross final energy consumption by 2030, a goal already met. A review of PEP 204016 provides similar insights. With updates on the horizon, more ambitious targets, as well as more focus on the required infrastructure are critical. With major changes to Poland’s energy infrastructure looming over the country’s energy transition, a thorough assessment of infrastructure needs should be a cornerstone of Poland’s long-term energy strategy. For example, insufficient grid capacity contributing to a high rejection rate for interconnection of new renewable projects17 would have detrimental effects on Poland’s ability to accelerate renewables. Moreover, the switch from a heavily coal-reliant, centralised grid to a more decentralised grid with significant weather- dependant renewable capacity incurs problems like generation oversupply18 which, without grid upgrades, adequate storage integration, and other grid planning efforts, might become more pronounced with more renewable intake in the system. With Russia’s war in Ukraine, Poland finds itself in a particularly challenging situation: navigating through the energy trilemma of secure, affordable and sustainable energy which should support the transition of the energy system while enabling economic growth and competitiveness. Being cut off from Russian supplies (Poland and Bulgaria were among the first countries in the EU to which Russia cut off gas supplies in April 202219) had direct implications for Poland’s energy security. Gas supply disruption didn’t result in increased coal generation, although research shows20 that the search for alternative and sometimes uncertain fuel import, coupled with increased commodity prices, has translated into a record spending on energy materials (PLN 193 billion) in 2022 compared to 2021 (PLN 100 billion). On the quest to strengthen energy security, Poland has started to look into developing nuclear energy both through conventional nuclear power plant (NPP) and Small Modular Reactors (SMRs). Several countries in the region are already generating a substantial share of electricity from nuclear energy: Bulgaria (44%), Czechia (36%), Hungary (46%), Romania, (18%), Slovakia (54%), and Slovenia (37%). Based on Poland’s clean transition so far, four general observations can be made: Dominance of fossil fuels across all sectors means that further delays of energy transition should be avoided at all costs. This undertaking requires mobilisation of massive funds, however significant delays will likely make transition more costly. With observed success on solar PV deployment, it is crucial that onshore wind also gets sufficient support – CATF’s power system modelling21 indicates an important role that onshore wind can play in clean transition. Poland’s interest and potential to develop nuclear energy and first-mover CCS projects should be supported with enabling policy and regulatory environment. Our analysis also shows that limiting technology options significantly increases system costs. Assessment and planning for enabling energy infrastructure, such as transmission lines, carbon dioxide, and clean fuel pipelines, should be an integral part of Poland’s long-term energy transition. Opportunity for growth Pursuing both energy security and decarbonisation while maintaining competitiveness and growth will shape Europe’s future. In the face of geopolitical uncertainty and compound socioeconomic challenges, there needs to be steadfast support for a climate and energy strategy that is de-risked, long-term, and inclusive of a diverse set of options.22 Poland’s unique contribution, especially in terms of clean tech manufacturing capacity, should be thoroughly analysed and fully realised. This is especially important in light of the Net-Zero Industry Act23, which aims to boost Europe’s internal clean tech capacity. Being ahead of the curve by creating enabling policy and regulatory environment and, thus, high investor confidence, will be decisive. Despite turbulent geopolitical dynamics, Polish Economic Institute24 shows that for example in September 2023, Poland experienced only a slight decline in industrial production, decreasing by only 0.9%, contrasting with more significant drops in neighbouring countries. This resilience can be partly attributed to the post-COVID-19 expansion of Poland’s industry and subsequent nearshoring trend25. Industrial activity as of November 2023 was 20% higher than in January 2020. On the same note, Poland has significantly ramped up its lithium-ion battery production26 capacity in recent years, with exports in the sector climbing from PLN 1 billion (EUR 0.21 billion) in 2017 to PLN 38.6 billion (EUR 8.24 billion) in 2022. Some other major initiatives in the sector like LG Chem’s battery Gigafactory, as well as investments from Korean SK Nexilis and German Mercedes Benz gave additional boost to the industry. Poland needs to make up for years of underinvestment in its clean energy transition, and with critical climate targets looming on the horizon, it is important that this task is viewed as an enabler of economic growth rather than a destabiliser. Poland’s aspirations to remain an industrial leader of Central and Eastern Europe and, more importantly, to play a meaningful role in strengthening Europe’s clean tech capacity offers a momentum for transformation. There is a renewed sense of urgency and opportunity which should be a driving force for the Polish government in coming years. Where does public opinion stand? Meaningful public engagement is one of the key enablers for a successful energy transition, hence understanding where the public stands should be a standard practice while designing climate policies. To this end, CATF has conducted public polling in Poland and other European countries to understand the population’s opinion on different energy matters. In August 2023, CATF conducted public polling on awareness and perception of clean firm energy technologies27 (including CCS, superhot rock energy, advanced nuclear energy, and low-carbon hydrogen) across six different European countries, including Poland. The polling covered questions on the interest in climate news, awareness of clean energy technologies, and perceptions of clean energy technologies. Overall, the results demonstrate widespread public support for a range of clean firm energy sources and technologies in Poland and beyond. In Poland, superhot rock energy and advanced nuclear energy are well supported, with 66% and 63% of respondents showing support, respectively. Levels of rejection are some of the lowest out of the surveyed countries, with all technologies showing less than 10% rejection. Figure 2. Public support for clean technologies in Poland Question: “Based on what you’ve read, how in favour are you of [TECH] being rolled out across [COUNTRY]?”. Respondents had an 11-point scale to reply, ranging from 0 “ I am completely against it” to 10 “I am completely in favour of it”. The graph shows aggregated percentages for “Reject” (0-3), “Neutral” (4-6), and “Support” (7-10). These are some other technology-specific findings from Poland: Diving deeper into the reasons for supporting or rejecting advanced nuclear rollout, respondents who want less nuclear rollout mention safety and waste concerns (80% and 29%, respectively), followed by worry for costs (23%) and site location (23%). On the other hand, those who want more nuclear rollout mainly highlight that nuclear is a constant source of energy (75%) and a carbon-free technology (59%). 70% of respondents in Poland are in favor of government investments in SHR development. 17% need to know more before making an informed decision, 9% believe the private sector should be responsible for SHR investment and only 4% oppose investment in SHR. 95% of respondents in Poland believe CCS should be used, depending on some factors. A total of 23% believe CCS should always be utilised, 50% only if it’s the cheapest option available, 21% if it’s the only option available and only 5% think it should never be used. When asked about sectors in which low-carbon hydrogen should be used, responses were varied. In Poland, power generation, transportation and energy storage were commonly mentioned, but no specific sector garnered significantly higher support than others, with none surpassing the 50% threshold. This means that more techno-economic analysis and active public engagement are needed to identify and communicate where it makes the most economic and climate-beneficial sense to deploy hydrogen. In July 2022, CATF conducted public polling on knowledge about and attitudes towards methane pollution and the EU methane regulations 28in Poland, France, Germany and Italy. Overall, the results show the following: There is strong support (90% or higher) across respondents in all four countries for regulating methane emissions in the oil and gas industry by reducing leaks, establishing equipment standards, and applying regulatory measures to EU suppliers. There is high support for extending EU rules to regulate methane pollution to supplier countries, with 90% of respondents in Poland providing ‘strongly support’ or ‘support’ for an extension of EU rules. A total of 66% of Polish respondents claimed that methane poses a major problem for the climate Figure 3. Support or opposition to regulations to reduce methane leaks Question: Would you support or oppose regulations to reduce methane leaks? SECTION 2 Path forward for Poland’s energy transition Looking at Poland’s transition path ahead, this section first explores what the options for its power system decarbonisation are and then delves into four principles that should be applied by the Polish government while developing the country’s climate and energy outlook. There are a number of different pathways that can enable Poland to achieve a decarbonised power system. CATF has commissioned a power system optimisation study to provide an in-depth perspective on probable transition pathways for Poland that can aid the newly formed government with an independent expert advice. The summary of the study, Decarbonising Poland’s Power System: A Scenario-Based Evaluation29, was published alongside this report and provides additional clarity on trade-offs in different techno-economic pathways through a 2050 horizon, as well as actionable policy advice. The results of the study, summarised in Figure 4, can help inform power system design strategies to enable Poland to transition to a competitive and fully decarbonised electricity grid by 2050. In addition to the economic aspects of these pathways, the study explored environmental ramifications, land requirements, and use of critical minerals to allow for further examination of overall sustainability and trade- offs in system design. Furthermore, the study evaluated the performance of the resulting electricity generation portfolios under thirty-five different historical weather years to ensure reliability. The input assumptions were designed to reflect Poland’s existing policies. The study approach was designed to achieve the following: Build a decarbonised Polish power system that meets power demand and capacity reserve requirements every hour of the year whilst ensuring profitability for the producers Evaluate decarbonised power systems based on their total system investment and operational costs and through comprehensive scenario-based electricity market modelling This study delivers a comprehensive perspective that includes estimates for necessary transmission, CCS and hydrogen infrastructure development to deliver on climate targets across a number of scenarios and sensitivities. These necessary infrastructure investments are crucial to understanding the full picture of the decarbonisation challenge and are often excluded in other studies available for the Polish context. Figure 4. Summary of key characteristics of main scenarios considered in the study The study suggests Poland to adopt a diverse, optionality-based decarbonisation strategy, including renewables, nuclear, storage, demand response, and biomass. It warns that restricting technology options, like excluding new nuclear or carbon capture enabled gas power plants, could significantly increase costs and triple the necessary energy infrastructure, such as transmission. Recommendations distilled from this study can be found in Section 3. Thematic deep-dive and policy recommendations of this report. Considering the importance of a wider solutions portfolio for Poland’s energy transition, the rest of the report provides a closer look at key principles for navigating such a transition and offers deeper analysis and recommendations of each proposed solution. Key principles of an options-based approach Technology optionality within Poland’s energy system Energy transition in Poland necessitates taking a systems-based approach to the challenge at hand and assessing all options that can bring Poland closer to its climate targets. Renewables will likely represent a large part of the emissions reduction towards net zero but cannot cover all the abatement needed. While these measures are necessary, they have limits in terms of deployment pace, land use, and application to decarbonise specific industries. Climate neutrality in Poland will require the availability and deployment of a wide range of technologies, ensuring sector-specific decarbonisation with appropriate tools for specific situations and challenges. Increased interest in diversifying Poland’s clean technology portfolio, including nuclear, carbon capture and storage, low-carbon hydrogen among others indicates that technology optionality can and should be an important pillar of the country’s energy transition. And there are already several positive developments that need to be further accelerated: renewables generated 26% of Poland’s electricity in 202330, up from 19.3% the previous year. There is a substantial offshore wind potential at the Baltic Sea, where work on Poland’s first offshore wind farm is set to begin and, once operational, is estimated to provide 3% of total electricity generation. On nuclear energy, Poland considers building both large-scale nuclear power plants, most notably in Lubiatowo-Kopalino31 in northern Poland, as well as several small modular reactors. While Poland doesn’t yet have a Carbon Management strategy, there has been an increased interest in CCS in recent months, like the Innovation Fund-supported project Go4ECOPlanet32 at the Lafarge cement plant in Kujawy, and the recent CO₂ storage project in Norway’s Arctic by the country’s utility giant Orlen, as well as the potential amendments to the Polish Geological and Mining Law, allowing for onshore CO₂ storage. Poland also has substantial CO₂ storage potential33, most of which is located onshore. However, lack of policy support and insufficient political recognition can considerably hinder further innovation in this critically important technology to decarbonise hard-to-abate sectors. Hydrogen is another critical lever in Poland’s energy transition. The country is currently the third biggest producer 34of hydrogen in the EU, with around 1.3 million tonnes produced every year – while it sounds compelling, this is primarily grey hydrogen, produced almost exclusively from carbon-intensive steam methane reforming. Much like its power sector, hydrogen production will need to undergo a thorough transformation both by installing CCS technology on the existing Steam Methane Reforming plants (blue hydrogen) and accelerating renewables deployment for green hydrogen production. In 2023 alone, the EU has earmarked EUR 158 million35 to partially replace grey hydrogen at the Gdansk petrochemicals facility with green hydrogen. There is more good news in the pipeline, however, much more deliberation and techno-economic analysis is needed to both create realistic assessments of developing the Polish hydrogen economy and to identify key sectors where limited hydrogen resources should be deployed without jeopardising energy security. Poland is at the pivotal moment of developing a broad portfolio of clean technologies, which comes at an important time with major geopolitical shifts and a new wave of industrial policies36, most notably the Inflation Reduction Act (IRA)37 in the Unites States and the Net-Zero Industry Act38 (NZIA) in the European Union. Increased focus on localising clean tech manufacturing across the full value chain along with diversifying strategic partnerships for critical raw materials is clearly visible. Industrial competitiveness and economic growth were also clear frontrunners in President von der Leyen’s 2023 State of the Union Address39. It is crucial for the Polish government to incentivise development and deployment of these clean technologies outlined above and beyond with tailored support mechanisms. To this end, CATF has undertaken a thorough assessment of what should be key pillars of Designing a business case for clean technology in Europe40. Based on lessons learned from the Inflation Reduction Act, but also its preceding legislations, like Energy Act of 2020 and Infrastructure Investment and Jobs Act of 2021, the report offers a refreshing view of how policy incentives should be designed to accelerate the development of clean tech from Research and Development (R&D) to early commercialisation and expansion. Figure 5. Taxonomy of instruments that can be used at the stages of technology to support scale-up and market take-up At this stage, there are several actions that Polish government can undertake: Support technology innovation and embrace an approach that maximises the number of pathways and solutions available. In addition to supporting the rapid scale-up of renewable energy, policymakers should support an expanded set of options that includes conventional and next- generation nuclear energy, carbon capture and storage, climate-beneficial zero-carbon fuels, and their enabling infrastructure. Clarify the current technology deployment policy funding landscape, assessing whether it is suitable to deliver deployment, and how it could potentially be improved and simplified. One of the key learnings from the Inflation Reduction Act is that a broad spectrum of available incentives should be applied to different stages of technology development. It is critical that research and development-focused grants are subsequently complemented with other tailored incentives to bridge the gap between R&D and technology expansion. Enable faster deployment through regulatory streamlining and faster permitting based on simple and clear criteria. Make information transparent and easily accessible on dedicated web platforms. Address infrastructure needs with proactive planning and coordination. This helps surmount barriers standing in the way of building out shared energy infrastructure such as carbon dioxide and hydrogen transport and storage, transmission, interconnection, and others. 2. Energy Infrastructure and Long-Term planning Poland’s energy transition should be based on proactive and effective planning. The country’s past record shows that planning has been a somewhat overlooked area in energy policy. With pending revisions of the National Energy and Climate Plan (NECP) and Energy Policy of Poland until 2040 (PEP 2040), the Polish government should contemplate how to facilitate planning processes, including cross-ministerial coordination on key energy and climate topics. CATF’s report Bridging the Planning Gap: Transforming European NECPs to Deliver on Climate Targets41 looks at how the NECP can and should be used as an interim planning tool since “interim plans can break these longer-term goals into manageable pieces, delegate responsibility for discrete tasks over shorter timeframes, facilitate buy-in and engagement on near-term objectives, and allow for recalibration if and when wider contexts shift, or plans change”. This itself means strengthening institutional capacity to develop, implement and monitor climate and energy strategies backed up by evidence and techno-economic analysis. To this end, one of the viable proposals has been put forward by the Warsaw-based think-tank Instrat Foundation,42 to create an agency “ that would strengthen the analytical capabilities of the administration and drive the work on the energy strategy and monitor its implementation.”43 An integral aspect of long-term planning is developing an energy infrastructure strategy and roadmap, which needs to become a cornerstone of any decision pertaining to climate and energy plans. The sooner we can understand the size and infrastructure needs of a net-zero and energy secure future, the more efficient and less costly the transition can be. Policymakers should develop a comprehensive approach on infrastructure deployment, based on long-term planning and robust energy system models, with intermediate goals and contingency strategies. The success of Poland’s energy transformation will largely depend on the government’s ability to modernise Poland’s ageing electricity grid so it can accommodate electricity generated from weather-dependant renewables and baseload power sources. Additionally, as traditional coal regions located mostly in southern part of the county have been providing energy to the rest of the country, major offshore wind, hydrogen and nuclear projects located in northern Poland will change clean energy transmission routes dramatically, and infrastructure will need to adapt. Considering the importance of proactive planning for required energy infrastructure, CATF’s report Pledges to Plans: Principles & Components of Durable Energy Transitions44 provides helpful guidance to governments to successfully navigate to the desired end-state, i.e. achievement of climate targets through effective and proactive planning. Often overlooked, planning is a highly nuanced and integral part of energy policy. Our report concludes that within a triad of target-plan- incentivise45, governments in general have been more proactive on setting climate targets and implementing programs to fund or support decarbonisation efforts and slower to reform energy planning or develop comprehensive and forward-looking plans. Such a lacklustre approach towards planning can become a “valley of death” in the energy policy. To overcome this pitfall, it is critical that the government recognizes planning as a critical element of energy policy and invests in improving planning processes to ensure that deployment policies are both effective and durable. Effective planning should be proactive and risk-aware, cross-sectoral, co-created with all relevant stakeholders, comprehensive, transparent, scenario-based and should include systems-perspective, actionable roadmaps and real-life progress tracking. Policymakers should also incorporate opportunities to revise and amend plans to adapt to any economic, geopolitical, and social shifts on the pathway to net zero. Figure 6. Planning as critical step between targets and incentives Public Participation Considering the direct impact of climate and energy policies on society, proactive and meaningful public engagement is critical for effective policy planning and safeguarding democracy. To achieve both goals, early engagement of key stakeholders, widely promoted public surveys, and transparent updates on the key policy documents are essential. Given that short-to-long-term climate and energy policies touch on every aspect of people’s lives – from daily commutes to work to consumption habits – efficiently involving the public is imperative to democratically validate the country’s chosen trajectory, increase ownership and accountability, and thus improve the chances of success. In the Polish context three key topics are worth mentioning: Clean energy transformation will require profound changes in the way climate policy is designed, implemented and monitored. Just transition will continue to be a key pillar of the energy transition in Poland and wider CEE region. Poland should tap into its clean technology potential as an enabler of energy security, economic growth and industrial competitiveness. These points, coupled with soaring energy prices and increased cost of capital, mean that households and industrial players will be affected by the energy transition, which requires an early and proactive engagement with all relevant stakeholders. For instance, if Poland is to retain its role as the industrial leader of the region and reinvigorate its potential as a clean tech manufacturing hub, there needs to be a broad and inclusive dialogue with industry to better understand how their growth can be coupled with decarbonisation efforts especially considering the projected CO₂ prices within the EU Emissions Trading system. In the same way, the just transition – affecting more than 80,000 workers directly employed in coal and lignite sectors and the broader economies of those regions – requires participatory decision-making devoid of vested interests and based on an analysis of what brings most economic, climate and community benefits. To facilitate a wide-scale transformation, it is imperative to create space for meaningful public participation in a way where expertise and perspectives from a broad set of stakeholders help to inform key decisions. By involving stakeholders at the outset, planning challenges are tackled when drafting the key policy documents head-on, and a sense of shared ownership and accountability among all parties involved is fostered. Engaging stakeholders early in the process helps identify the viable and non-viable compromises, allowing for proactive management of political- economic challenges. This approach minimises the risk of implementation delays by vetoes later in the process. Ideally, such a process should also harness the expertise of stakeholders to supplement institutional capacity for execution. Stakeholders bring diverse skills and knowledge to the table, which should be leveraged not only to foster a breadth of perspectives but also to alleviate the personnel and capacity burdens faced by planning entities in the region. The scale of the transition to net zero will require thinking carefully about social fairness, workforce transition, and how to involve local communities and municipalities in decision-making. All of this is crucial for developing well-informed, comprehensive and bespoke sectoral and technology roadmaps reflecting industry and societal needs, and aligned with on the ground realities. Involving the public efficiently will also allow a broad range of stakeholders to ask hard questions to determine if current national energy and climate policies are fit for purpose. To this end, CATF has produced a comprehensive assessment46 how an effective multilevel governance platform can be set up within the context of National Energy and Climate Plans. With key policy documents to be revised, CATF recommends the Polish government to facilitate inclusion of stakeholders’ engagement in the NECP process based on the model outlined below. Figure 7. Climate and Energy Dialogue Platform Cross-regional and international cooperation Major geopolitical shifts triggered first by value chain disruptions caused by the COVID-19 pandemic, further exacerbated by Russia’s war in Ukraine, and subsequent realignment of international partnerships means that Poland and Central and Eastern Europe47 are recalibrating their positions. While countries in the region should not be subject to one size fits all approach due to their unique characteristics, there are several factors that converge their transition trajectories: Structural dependencies on Russian fossil fuels: in 2020, most of the countries in the region were more than 50% dependent on Russian gas, with Latvia at the highest (92%), followed by Bulgaria (79%), Slovakia (68%), Hungary (61%), Slovenia (60%), Czechia (55%) and Poland (50%) as well as ageing infrastructure that needs to be urgently repowered and repurposed. Dominance of coal in the energy mix of countries across the region, with a high number of just transition regions. Historically slower rate of renewables deployment48 compared to the EU average. Renewed interest in clean technologies spanning from advanced nuclear to low carbon hydrogen to CCS, as well high uptake of heat pumps49 especially in Poland. Diversified portfolio of both domestic natural gas production (e.g. Romania’s Neptune Deep project), new pipe connections (e.g. Baltic pipe50) and LNG terminals, including Floating Storage Regasification Units (FSRU) like Klaipeda’s LNG terminal51 in Lithuania, Świnoujście LNG terminal in Poland among others. While natural gas is going to play an important role in CEE’s energy security in the near and medium-term future, it is critical to raise awareness and deploy strict regulations to reduce methane emissions52 in the gas sector (detailed recommendations on reduction methane emissions can be found in Section 3. Thematic Deep-dive and Policy Recommendations). Moreover, there needs to be a focus on supporting production of low-carbon hydrogen from natural gas with carbon capture and storage technology to meet high hydrogen demand in the region. This set of common challenges and opportunities means that there is room and urgency for closer coordination, especially on developing a regional value chain and enabling cross-border infrastructure. As an example, for carbon capture and storage, under the ‘Projects of Common Interest’ (PCI), a clear and increased focus on cross-border CO₂ transport and storage networks has emerged. The 6th PCI list53 published in late 2023, includes 14 CO₂ infrastructure projects – more than doubling the number in the previous list – and includes the ECO₂CEE project which plans to connect Polish industrial emitters with CO₂ storage sites in the North Sea. With PCI status, projects like ECO₂CEE will now be able to benefit from a number of advantages including streamlined permitting and eligibility for financial assistance under the Connecting Europe Facility (CEF) in the form of grants. The most recent round of funding from the CEF54 in late 2023 included just under €480 million in grants being awarded to four CO₂ transport and storage projects, out of a total of €594 million available, clearly showing the high level of ambition to deploy carbon capture and storage across the Union. Apart from infrastructure-related cooperation, there is an ample opportunity for cross-learning, especially on new and emerging technologies: The EU Commission’s recent announcement55 on the launch of the SMR Industry Alliance has been a result of months-long engagement from the countries in the region56, however, there is more to be done on leveraging demand aggregation and creating space for learning and expertise sharing. Another notable example is CCS4CEE57 – a cross-regional consortia for building momentum for the long-term CCS deployment in the region. The 3 Seas Hydrogen Council58 is another first- of-a-kind initiative which brings together countries in Central Europe and Baltic states. Cross-regional cooperation has always been an important component of regional development dynamics. In the light of existing compound challenges there is an urgent need to revive these partnerships and make them fit for purpose. This means developing a shared clean transition vision and refocusing on region’s added value both within Europe and through international fora, including transatlantic partnership. In the multipolar world, Poland needs to diversify and bolster strategic partnerships to avoid over-reliance on any single partner or supplier. Figure 8. Diagram of alliances and allied organisations59 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 Where hydrogen imports are necessary, transportation via pipeline from nearby neighbouring countries is recommended, particularly where import distances are relatively short. To avoid costly but ultimately unsuccessful ventures and stranded assets, Poland must carefully assess and select the most efficient pathways for importing clean hydrogen and ammonia and coordinate closely on international projects before any significant investments are made. Utilise available mechanisms to support the most promising clean hydrogen projects Poland should leverage existing support mechanisms at the EU81, national and regional/local levels and consider setting up additional mechanisms to provide support to the most promising clean hydrogen projects. Such projects should cover the development and deployment of the entire clean hydrogen value chain, covering production, transportation, and deployment. Poland must work closely with EU level officials to advocate the need for supporting the development of its clean hydrogen economy as one of the priority Member States. ‘Champion’ projects should be identified and prioritised, mitigating any barriers to accessing support. For example, any public funding relevant to clean hydrogen development should be open to all forms of truly low-carbon hydrogen, based on projects that will move the decarbonisation needle (rather than based on arbitrary colour coding) and scale up the clean hydrogen economy in a timely and efficient manner. Poland must involve relevant demand-side industries from ‘no regrets’ sectors in clean hydrogen planning and implementation, and work to build public-private partnerships to ensure off-take and a higher chance of projects reaching a FID. In addition, Poland must also consider the socio- economic implications of any clean hydrogen project, to build local support and demonstrate regional benefits, including benefits to the local workforce and economy, as well as ensuring that any hydrogen developments deliver environmental benefits, such as improved air quality and water availability and security. Nuclear Energy The report focusses on three aspects, which we believe are the most pertinent to Poland as it embarks on its first nuclear project: financing for new nuclear plants, long-term structure of the nuclear industry and the potential of Small Modular Reactors. Financing new nuclear – models and options for Poland Regardless of the financing options, the financial model and funding for future Polish nuclear power plants (NPP) will require a thorough assessment on what type of model could be more suitable to each specific project. Defining the funding structure (private equity, government financing, ECAs, bonds, and other debts alternatives) will be a very important aspect on nuclear deployment. That might involve studying potential financial models such as: Contract for Difference (CfD), joint equity cooperative model (such as the Finnish “Makala model”), Regulated Asset Based (RAB), the Polish SaHo model82, equity and electricity bill added fees, etc. Modelling could be key for success by finding the right balance of risk between investors, government, customers, off-takers, and developers, while still finding adequate revenue models to make nuclear power projects feasible. New financial models to reduce risk and capital cost can be crucial, since the economics of new nuclear plants are heavily influenced by their capital cost, which accounts for at least 60% of their levelised cost of electricity83. Therefore, financial support policies might be needed in the form of tax incentives, low interest long-term loans, sovereign guarantees, etc. New business model applications for non-electric uses such as industrial heat, hydrogen production, and desalination might also be key for future success and reinventing the industry financial and business models. Moreover, the report “A Global Playbook for Nuclear Energy Development in Embarking Countries Six Dimensions for Success84” offers that it is key to: Establish clear signals welcoming nuclear investment. Generate orderbook for multiple builds of the same design. Require implementation of integrated project delivery (IPD) best practices. Share risk of cost overruns on early deployments. Choose an appropriate project delivery approach. Work with certified designs and proven delivery entities. Promulgate an adequate revenue model ahead of time. Poland has several financing options available85, including the following: Government Financing Options Direct Government Financing: In this form of project financing, the government serves as the sole funding agency for a nuclear development project. For example, the Chinese government funds the Qinshan 1 and 2 projects.86 Loan Guarantees: This is a more traditional form of international nuclear development financing, especially in government managed or tightly regulated energy markets. For example, the U.S. government offers loan guarantees, essentially enabling very low interest loans, that may provide support for domestic advanced reactor development through the DOE Loan Programs Office, but not for overseas projects. Government-to-Government Loan: In this mode of financing, the lending government usually has a stake in a state-run NPP vendor, so this financing method provides a market for its plants. In many cases, the goals of government-to-government financing include a geopolitical component and may lead to very favourable repayment terms. This type of financing is provided by China to Pakistan and offered by Russia to multiple countries including Belarus. Commercial Financing Options Vendor Financing: Vendor financing covers options that include corporate financing via equity or loans provided from the NPP vendor. This is only viable for very large vendors or vendor coalitions. In some cases, the vendor can also be a conduit for government financing by arranging credit from affiliated banks and export credit agencies. This model can take multiple forms to include partial or full ownership by the vendor as well as transfer/return of any used nuclear fuel to the vendor nation, enabling the host nation to avoid the cost and challenge of developing a storage or disposal capability. In some cases, the vendor may operate or a time and then transfer to the host nation once workforce capacity has grown (“Build-Own-Operate- Transfer” or BOOT). In other cases, the vendor retains all own/operate responsibilities and is simply providing energy output to the customer (“Build- Own-Operate” or BOO). Many vendors are unfamiliar with these financing arrangements today. Two US companies87 involved in one of the Polish projects, Westinghouse and Bechtel, have already declined to invest equity in the project. Investor Financing: Investor financing through special project financing vehicles, like long term PPAs, which could be signed by private or public off-takers. This form of financing has been used in energy investment but has not been used in nuclear project development. In this case, investors make a bet on the revenues from the resulting project (versus investing in the developers). This may be more challenging for advanced reactor developers given the higher uncertainty in plant reliability (capacity factor) for advanced reactor designs. Export-Import Bank: In the past, a primary source for financing foreign projects by U.S. companies was the U.S. EXIM Bank, chartered by the Export-Import Bank Act of 1945. The Bank is backed by the U.S. government’s full faith and credit, providing support for U.S. exports to augment/supplement private sector finance and/or to counter foreign Export Credit Agency (ECA) financing (EXIM Bank 2021). In 2019, funding approvals from the Bank totalled $5.3 billion, placing the United States in the seventh position among foreign export credit agencies and dwarfed by the $33.5 billion allocated by China in that year (Akhtar 2022). Given the scale of most nuclear projects, the limited availability of ECA backing for U.S. vendors has been a significant cause of concern. Fortunately, in 2019, the Congress approved a long-term funding authority increase through 2027 capped at a level of $135 billion (total exposure) (Akhtar 2022). A New Pathway for Nuclear Energy Since 1990, global nuclear energy output has remained flat, hobbled by the high cost and slow pace of nuclear development in most of the world. Public opinion has played some role in this slowdown. But today, significant majorities in most of the world favour expanding nuclear power, with diminishing opposition. The problem is that the nuclear industry, even as it has gained public support in recent decades, particularly in Poland, is not well positioned to deliver. CATF has produced a report, “Nuclear Energy at Scale: A New Pathway to Meet the Climate and Human Development Challenge88”, that attempts to reform nuclear industry by focusing on commercial and regulatory solutions that, together, provide nuclear energy a pathway to future success. The solutions at the heart of CATF’s report (Figure 21) are intended to be mutually reinforcing. A more product-based business model, combined with integrated project delivery, can reduce risks, time to market, and costs – including both capital costs as well as risk premiums demanded by lenders – therebyincreasing bankability. Regulatory harmonisation and a boost to host country capability building can speed up deployment in support of a business model focused on global scaling. Finally, de-risked finance will help a product-based industry reach transformative scale. What is now a vicious circle of poor finance, low scale, and high regulatory risk, can be turned into a virtuous cycle of investor confidence, project certainty, and more efficient regulation. CATF’s analysis (summarized in Figure 19) suggests that a combination of these measures could result in an overnight cost reduction of as much as 60% from “first- of-a-kind” to “Nth-of-a-kind” reactors. The solutions we propose are not specific to reactor types or technologies. They apply as much to large light water reactors as they do to small modular reactors using different fuels, coolants, and processes. Undoubtedly, smaller reactor systems may lend themselves more readily to productisation, but many elements of large reactors can be productised as well, if parts are sufficiently standardised and made for upstream assembly. Moreover, recent experience with the Barakah units89 in the United Arab Emirates demonstrates that large-orderbook, multi-unit builds, combined with unified product management, can bring down the costs of even large light water reactors. Figure 19: The virtuous circle: profound change in the commercial and regulatory ecosystem for nuclear energy around the world is needed to support rapid scale-up