The European Union’s new Carbon Border Adjustment Mechanism (CBAM) will likely test Western Balkan countries vying for membership in the bloc as they seek to align with the EU acquis. the EU.
Last year, the EU agreed to implement the world’s first levy on imports of carbon-intensive products goods as a way to encourage its trading partners to have stricter climate policies and protect its industries.
The measure will start to have effects from 2026 and will include imports of carbon-intensive electricity, which could lead to a heavy tax on electricity from the Western Balkans entering the EU.
“It was a good wake-up moment for the region,” said Pippa Gallop, energy advisor for Southeast Europe at NGO CEE Bankwatch, speaking at a roundtable hosted by Friedrich- Ebert-Stiftung Dialogue Southeast Europe.
“Before, it was always up to them to decide how quickly they wanted to move forward with their membership of the EU, how quickly they wanted to move forward in the whole energy transition, but the CBAM, because it is a instrument, which is decided in the EU by the EU, that changed the whole configuration,” she added.
The Western Balkan countries now face three options. They can do nothing and face CBAM levies from 2026, introduce carbon pricing to match EU climate policy and avoid it or take advantage of an exemption in the legislation to give breathing space until in 2030.
“None of them are very easy choices, and all of them require a lot more action and a lot more attention on this topic,” Gallop said.
Not introducing a carbon market means that revenue that could be generated by the government and reinvested in locally produced renewable energy will go to the EU, said Peter Pozsgai, governance expert at the Energy Community Secretariat , which works with the Western Balkan countries. on the green transition.
Carbon pricing could also help create finance for the transition. According to CEE Bankwatch, If Western Balkan countries introduced carbon pricing at 50 euros per tonne – significantly lower than the current price – they would raise around 2.8 billion euros per year.
At the same time, choosing the possibility of coupling your electricity system with that of the EU to avoid CBAM levies requires that a country commits to complying with European environmental and competition law in the electricity sector. and to establish an emissions trading system by 2030.
This exemption exists because there is no technical solution to determine where electricity comes from once a country is connected to the EU grid, but this gap could be closed if such a gap were found.
The impact of CBAM will vary by country
In total, the Western Balkans exported 25 terawatts of electricity to the EU between 2018 and 2020, equivalent to 8% of the region’s total coal-fired generation. according to Bankwatch.
Due to artificially low prices in the Western Balkans, the export of electricity to the EU market brings higher profits for companies.
The impact of CBAM will vary between Balkan countries, which have different levels of electricity exports to Europe and progress on climate policies, such as the introduction of a price on carbon emissions and the gradual elimination of coal.
North Macedonia is a net importer of electricity and, between 2011 and 2020, exported 38% of its average annual share of electricity to the EU. The country has committed to closing its coal-fired power plants by 2027, meaning it will only be briefly impacted by CBAM if the phase-out is successful.
At the same time, in recent years, Montenegro’s exports to the EU have increased significantly thanks to the commissioning of an underwater cable to Italy. In 2020, the country exported more than 1,600 gigawatts of electricity, or more than 50% of its total production.
The country has tried to establish a carbon market, but as it stands, it would not be enough to avoid CBAM, according to Gallop. Next to that, about 40% Most of Montenegro’s electricity generation comes from the Pljevlja coal-fired power plant, which operates illegally after its allocated operating hours have expired.
Bosnia and Herzegovina would likely be very affected, with around 20% of its total electricity production exported to the EU, based on 2011-2020 figures. In 2020, 70% of the country’s electricity generation comes from coal, which would result in a heavy tax.
Serbia’s electricity generation also relies heavily on coal, but its exports to the EU are limited and so it is unlikely to be massively affected.
In 2020, Kosovo’s electricity generation came almost entirely from coal, but due to minimal ties with the EU there will be no impact for now.
Albania is also unlikely to see a huge impact since the country exported 7% of its total production between 2011 and 2020, and none of that came from coal. However, this would apply if the country builds a gas plant as planned.
Response to CBAM decides the geopolitical future of the Balkans
According to German MP Delara Burkhardt, how the Western Balkans respond to this tax and progress with their climate legislation also has an impact on their geopolitical future.
“The path to green transition is the path to the EU, and the path to green transition is not to another geopolitical context, it goes to China and Russia,” she explained during of the round table.
But the EU also has a role to play, she added, saying it must make the green transition a central part of its neighborhood policy, notably by adding green conditions to funding for the region.
CEE Bankwatch is also advocating for the creation of a fund to facilitate the transition and mitigate its societal impact in the Balkans, particularly in regions where coal mining and electricity generation constitute a vital part of the economy.
“Nothing has yet been done to use actual CBAM revenues for this purpose, but regardless of that, EU funds could be used for this purpose,” Gallop said, adding that where there is funding, there is political will.
In doing so, however, the unintended consequences of a rush to renewable energy should be avoided, Pozsgai said, pointing to already existing green energy projects, particularly hydropower, which have created environmental problems in the Balkans .
As 2026 approaches and the CBAM comes into force, Western Balkan countries will have to decide how to respond to this levy.
Launching a carbon market could help provide critical funds for the deployment of cheaper, locally produced renewable energy and reduce the Balkans’ dependence on countries like Russia and China. Furthermore, not following EU climate policy could have a high cost.
(Edited by Alice Taylor)