From Sarajevo to Skopje, the dependence on coal-powered electricity generation poses a significant economic risk to the Western Balkans when the European Union’s green tariffs are implemented next year.

Coal-fired electricity is among the top exports with a substantial carbon footprint in the Western Balkans and will fall under the EU’s new Carbon Cross-Border Adjustment Mechanism (CBAM), which will impose fees on imports of products that have a high carbon footprint.

According to Janez Kopac, the former director of the Energy Community Secretariat, which unifies the EU and its neighboring countries to establish an integrated pan-European energy market, the economic and geographical connections between the region and the EU are quite immense, making it challenging to evade these taxes, as reported by Reuters.

In the Western Balkans, the reliance on coal for electricity generation ranges from 60% to 95%, varying by country, with 60% of the region’s electricity exports attributed to coal, according to a British agency report.

Countries such as Albania, Bosnia and Herzegovina, North Macedonia, Montenegro, and Serbia share borders with six EU member states, making the EU their primary trading partner.

Some energy analysts argue that the imminent environmental taxes may encourage the region to invest in clean energy transition, especially as these countries approach EU membership. However, failing to take necessary actions could result in severe financial repercussions. “They will adapt eventually, but it will be a lengthy and challenging process for them,” Kopac noted.

The impact of the new environmental tariff will vary between countries based on the carbon footprint associated with their electricity exports. The CBAM levy for EU imports will increase the costs of electricity exports from the Western Balkans.

Albania primarily depends on hydropower, thereby minimizing its vulnerability to these measures, while Bosnia and Herzegovina could potentially forfeit over 220 million euros ($231.99 million) annually in revenue from electricity sales to the EU, as estimated by CEE Bankwatch, a group of environmental NGOs based in Central and Eastern Europe.

According to the Energy Community’s assessment of CBAM readiness, progress on decarbonization in the Western Balkan countries remains largely stagnant, as reported by Reuters.

Experts emphasize that inadequate investments in renewable energy and continued government subsidies for outdated coal-fired power stations are hindering the green transition, prompting governments to request delays or exemptions from CBAM.

However, any exemptions would come with specific conditions, such as significant investments in clean energy or the implementation of special state taxes on carbon emissions, creating challenges in enacting reforms prior to the CBAM’s enactment.

“No one is fully prepared,” stated Pippa Gallop, an energy advisor for Southeast Europe at CEE Bankwatch, in her conversation with Reuters.

Nonetheless, she noted that there is an increasing recognition of the need for countries to pursue decarbonization in order to “mitigate the most severe repercussions.”

Transitioning from coal to cleaner energy sources involves considerable social and economic expenditures.

The German energy research institute “Agora Energiewende” estimates that the energy transition in the Western Balkans could cost around 40 billion euros, a figure that does not account for retraining or severance payments for approximately 30,000 workers currently in the coal sector.

Rather than facilitating a coal phase-out, environmental tariffs may hinder the region’s green transition, as they would decrease the financial resources needed to support such changes, according to Christian Egenhofer, a senior researcher on energy policy at the Brussels-based CEPS Institute.

“These workers need financial assistance, not such incentives,” he remarked.

EU member states have established a special Just Transition Fund worth €17.5 billion, intended to assist workers and regions in mitigating the economic impacts of the clean energy transition, including the closure of thermal power stations. However, no equivalent fund exists for the Western Balkans.

To advance the region’s European integration, the EU has allocated up to €9 billion to finance both green and digital transitions, in addition to a potential €20 billion in investments through the Western Balkans Guarantee Fund, which addresses all necessary reforms for EU accession, not limited to the energy sector modernization.

Gallop from CEE Bankwatch argues that these financial resources are “insufficient” for achieving a just transition. Regardless of the funding provided by the EU, the impetus for change must partly emerge from the Western Balkan countries themselves, Kopač emphasized.

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

News