Region, A CO2 tax can accelerate the energy transition in the Western Balkans

, SEE Energy News

If the Carbon Cap Adjustment Mechanism comes into force in 2026, as the EU has proposed, and the electricity exported by the region to the EU is taxed by Brussels instead of Western Balkan governments, the six countries will lose over €500 million a year to the EU budget.

In six countries of the Western Balkans, there is a danger of delaying the withdrawal of coal. These countries could raise at least €2.8 billion a year to spend on a just and sustainable energy transition if they set up a domestic carbon pricing mechanism, according to a new report by the CEE Bankwatch Network, a network of environmental NGOs.

The report, entitled “Electric power sector of the Western Balkans: Between crisis and transition”, offers an overview of the electric power sector of six countries of the Western Balkans – Albania, Bosnia and Herzegovina, Kosovo, Montenegro, North Macedonia and Serbia, and their electricity trade with the European Union markets.

It states that the six countries exported 88 TWh of electricity to the EU in the period from 2011 to 2020, which is 12.7% of the total electricity production in the Western Balkans. Over 60% of this electricity was produced from coal, which means that the EU has played a significant role in maintaining coal-based production in the region.

If the Carbon Boundary Adjustment Mechanism (CBAM) comes into effect in 2026, as the EU has proposed, and the electricity exported by the region to the EU is taxed by Brussels instead of Western Balkan governments, the six countries will lose over €500 million a year to the EU budget.

If countries are to avoid being affected by this mechanism, planning for a just transition and introducing carbon pricing is more important than ever. “The energy crisis in the Western Balkans is attracting the attention of governments, but the fact remains that coal is no longer a reliable, cheap and abundant source of electricity, and CBAM will only make it worse,” says Pippa Gallop, energy advisor in Southeast Europe and co-author of the report. “Governments must take the initiative if they want to use carbon pricing to finance the transition instead of letting the EU collect the CBAM revenues.”

According to the European Commission’s proposals, the EU will start imposing fees on electricity imports from 2026, with a greater impact on countries with higher exports, higher emissions and a higher percentage of fossil fuels in the energy mix.

Bosnia and Herzegovina is the largest exporter of electricity in the Western Balkans and a continuous net exporter, with approximately 20% of electricity exports to the EU in the period from 2011 to 2020.

Electricity export to the EU from Montenegro did not exist before November 2019, when the interconnection with Italy was completed. Exports have risen dramatically to over 50% of the country’s total production in 2020. However, production relies on the illegal operation of a coal-fired power plant in Pljevlja, which has exhausted its permitted operating hours under the Energy Community Treaty. Profitable exports to the EU encourage this illegal production, says CEE Bankwatch.

The Western Balkans has been hit hard by a quadruple energy crisis caused by the high prices of electricity imported from the EU in the last year, a series of technical problems in coal-fired power plants and mines across the region, an extremely dry year for hydropower production and a huge increase in biomass prices.

However, the energy transition is slowly starting, as the development of wind and solar projects accelerates in Albania, Bosnia and Herzegovina, North Macedonia and Serbia. However, the withdrawal of coal threatens to be delayed.

The report recommends that the EU increase momentum towards a just and sustainable energy transition and carbon pricing, in particular through the creation of a dedicated Just Transition Fund. It should also provide a strict CBAM that will convince decision-makers in the Western Balkans to introduce their own carbon prices and increase compliance with EU energy, competition and environmental laws.

Source: bankwatch.org