Transition towards a low carbon economy: A computable general equilibrium analysis for Poland Christoph B ¨ ohringer a,n , Thomas F. Rutherford b a Department of Economics and Center for Transnational Studies, University of Oldenburg, Germany b Department of Economics, University of Wisconsin, Madison, USA HIGHLIGHTS c Economic impact assessment of the EU climate and energy package for Poland. c Sensitivity analysis on where-flexibility, revenue recycling and technology choice. c Application of a hybrid bottom-up, top-down CGE model. article info Article history: Received 10 November 2011 Accepted 26 November 2012 Available online 22 January 2013 Keywords: Climate policy Impact assessment Computable general equilibrium analysis abstract In the transition to sustainable economic structures the European Union assumes a leading role with its climate and energy package which sets ambitious greenhouse gas emission reduction targets by 2020. Among EU Member States, Poland with its heavy energy system reliance on coal is particularly worried on the pending trade-offs between emission regulation and economic growth. In our computable general equilibrium analysis of the EU climate and energy package we show that economic adjustment cost for Poland hinge crucially on restrictions to where-flexibility of emission abatement, revenue recycling, and technological options in the power system. We conclude that more comprehensive flexibility provisions at the EU level and a diligent policy implementation at the national level could achieve the transition towards a low carbon economy at little cost thereby broadening societal support. & 2012 Elsevier Ltd. All rights reserved. 1. Introduction Between 1988 and 2005 Poland’s transition to a market econ- omy has been accompanied by a sharp decrease in CO 2 emissions along with structural changes towards less energy-intensive pro- duction as well as overall energy efficiency improvements. How- ever, a positive correlation between GDP and CO 2 emissions has reemerged from 2005 onwards confronting Poland with a potential trade-off between CO 2 emission reduction and economic growth. While compliance to its reduction target under the Kyoto Protocol at the end of 2012 is ensured, the challenge comes along with Poland’s new obligations under the ambitious EU climate and energy package which imposes an EU-wide emission decrease by 20% in 2020 compared to 2005 emission levels. Poland is among the Top-6 emitters within the European Union accounting for roughly 8% of EU-wide emissions over the last years. The per capita emissions are similar to the EU average, but given its low income level the Polish economy comes out as among the most emission-intensive. A distinctive feature of Poland’s composition of CO 2 emissions is the dominance of the power sector with an extraordinary dependence on coal. Around 85% of Poland’s CO 2 emissions stem from the energy sector, in particular electricity and heat production. More than 90% of electricity is generated by lignite-fired power plants which emit the highest levels of CO 2 per unit of electricity across alternative fossil-fuel based power generation technologies—between two to three times as much as gas-fired plants. The heavy reliance of Polish industry and power stations on coal explains concerns in Poland that stringent CO 2 emission constraints as put forward by the EU energy and climate package will not only boost domestic electricity prices but also negatively affect competi- tiveness and overall economic performance. How costly will it be for Poland to move to a lower carbon path? Will Poland be more burdened than the rest of the EU? How will alternative strategies to achieve the EU’s emission reduction targets up to 2020 affect the magnitude and distribution of economic adjustment cost? To gain insights in these questions we make use of a computable general equilibrium (CGE) model that incorporates key determinants of economic impacts triggered by emission regulation. In our numerical simulations we find that compliance to the energy and climate Contents lists available at SciVerse ScienceDirect journal homepage: www.elsevier.com/locate/enpol Energy Policy 0301-4215/$ - see front matter & 2012 Elsevier Ltd. All rights reserved. http://dx.doi.org/10.1016/j.enpol.2012.11.056 n Corresponding author. Tel.: þ49 441 7984102. E-mail address: boehringer@uni-oldenburg.de. (C.B ¨ ohringer). Energy Policy 55 (2013) 16–26