The dependence on coal-fired electricity generation from Sarajevo to Skopje may leave the Western Balkans vulnerable to significant economic repercussions when the EU’s green tariffs are implemented next year.

Coal-fired electricity is one of the most carbon-intensive exports from the Western Balkans and will fall under the EU’s new Carbon Cross-Border Adjustment Mechanism (CBAM), which imposes duties on imports with high carbon footprints.

The economic and geographical connections between the region and the EU are “immense,” making it challenging to evade these new taxes, said Janez Kopac, former director of the Energy Community Secretariat, which aims to establish an integrated pan-European energy market in collaboration with the EU and its neighbors, in an interview with Reuters.

In the Western Balkans, coal accounts for 60% to 95% of electricity generation, depending on the country, and constitutes 60% of the region’s electricity exports, as reported by the British agency.

Albania, Bosnia and Herzegovina, North Macedonia, Montenegro, and Serbia border six EU member states, making the bloc their primary trading partner.

Some energy analysts argue that the forthcoming environmental taxes could motivate the region to invest in clean energy as they move closer to EU membership. Nonetheless, failing to take prompt actions may lead to significant financial repercussions. “They will adapt sooner or later, but it will be a challenging journey for them,” Kopac remarked.

The impact of the new environmental tariff will vary across countries based on the carbon emissions associated with their electricity exports. The CBAM levy is expected to increase the costs of electricity exports from the Western Balkans to the EU.

Albania’s heavy reliance on hydropower mitigates its exposure to these new measures, whereas Bosnia and Herzegovina could lose over 220 million euros ($231.99 million) annually in electricity sales revenue to the EU, according to calculations made by CEE Bankwatch, a consortium of environmental NGOs from Central and Eastern Europe.

As per the Energy Community’s CBAM readiness monitoring, the decarbonization efforts of Western Balkan countries are largely stagnant, according to Reuters.

Analysts highlight the ongoing lack of investment in renewable energy and continuous state subsidies for aging coal-fired power plants as obstacles slowing the green transition, prompting governments to seek delays or exemptions from CBAM.

However, obtaining any exemption entails certain stipulations, such as significant investments in clean energy or implementing specific state taxes on carbon emissions, complicating the reform process before the CBAM takes effect.

“No one is genuinely prepared,” said Pippa Gallop, energy advisor for Southeast Europe at CEE Bankwatch, in her comments to Reuters.

Nonetheless, she emphasized that there is increasing recognition of the necessity for decarbonization in order to “evade the worst consequences.”

The shift from coal to clean energy carries substantial social and economic costs.

The German clean energy institute “Agora Energiewende” estimates that the energy transition in the Western Balkans will cost approximately 40 billion euros, not accounting for retraining or severance payments for about 30,000 workers in the coal industry.

Rather than promoting a phase-out of coal, environmental tariffs may hinder the Balkans’ green transition by limiting the funds available for financing this shift, according to Christian Egenhofer, a senior energy policy researcher at the Brussels-based CEPS Institute.

“These individuals need financial support, not these kinds of incentives,” he argued.

The EU has established a dedicated Just Transition Fund, valued at €17.5 billion, to assist workers and regions in managing the economic impacts of the clean energy transition, including the closure of thermal power plants. Conversely, the Western Balkans lack such a specific fund.

To facilitate the region’s integration into the EU, the EU has allocated up to €9 billion for financing the green and digital transitions, as well as up to €20 billion in investments through the Western Balkans Guarantee Fund, which supports all reforms necessary for EU accession, not solely the modernization of the energy sector.

Gallop from CEE Bankwatch asserts that these funds are “insufficient” for achieving a just transition. Regardless of the amount of assistance provided by the EU, part of the initiative for change must originate from the Western Balkan countries themselves, according to Kopač.

“Perhaps this is no longer a concern for the European Union,” he concluded.

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