Economic Repercussions of Environmental Regulations in Poland: the Case of the Second Sulfur Protocol

In this paper economywide effects of SO2 emission reduction in Poland are studied. In order to fulfill the commitments required by the Second Sulfur Protocol (SSP), Poland needs to achieve roughly a 50% reduction of SO2 emission in relation to 1992 no later than in 2010. A 16% reduction was already achieved after two years of the Protocol signature, in 1996, and it keeps progressing. Nevertheless the Polish Government did not ratify the SSP yet, because it is afraid of potential negative consequences for the economy. A Computable General Equilibrium (CGE) model was applied to simulate the likely impact of the SSP policy on the Polish economy. The model was adapted from an earlier one developed by Swedish, Dutch and Polish research teams. For present project the model was modified further in order to let it be capable of simulating the effects of environmental and energy policies implemented in the form of energy input taxes and emission taxes. The model was calibrated for the year 1992. Simulation results show fulfilling by Poland the commitments resulting from the SSP will have a modest impact on economic indicators. Over the period of 18 years GDP may be lower by up to 2 percentage points than under a policy without an emission limit. Compared to other shocks that affect the economy in the transition period, the economic hardships caused by the SSP for the whole economy seem to be negligible.