From Sarajevo to Skopje, reliance on coal-fired electricity generation could expose the Western Balkans to a major economic blow when the European Union's green tariffs come into effect next year.
Coal-fired electricity is one of the exports with the highest carbon footprint in the Western Balkans region and will be covered by the EU's new Carbon Cross-Border Adjustment Mechanism (CBAM), which will impose duties on imports of products with a high carbon footprint.
The region's economic and geographical ties with the EU are "so enormous" that it will be difficult for them to avoid these taxes, Janez Kopac, former director of the Energy Community Secretariat, which brings together the EU and its neighbors to create an integrated pan-European energy market, told Reuters.
In the Western Balkans, between 60% and 95% of electricity generation relies on coal, depending on the country, and 60% of electricity exports from the region, according to the British agency.
Albania, Bosnia and Herzegovina, North Macedonia, Montenegro and Serbia border six EU member states, making the bloc their main trading partner.
Some energy analysts believe that the upcoming environmental levies will serve as an incentive for the region to invest in the clean energy transition as countries move towards EU membership. However, if they do not take the necessary steps, the financial consequences could be significant. “They will adapt sooner or later, but it will be a thorny path for them,” Kopac said.
The new environmental tariff will affect countries differently depending on the carbon footprint of their electricity exports. The CBAM levy for importers to the EU will make electricity exports from the Western Balkans more expensive.
Albania relies mainly on hydropower, which limits its exposure to these measures, while Bosnia and Herzegovina could lose more than 220 million euros ($231,99 million) in annual revenue from electricity sales to the EU, according to calculations by CEE Bankwatch, a network of environmental NGOs from Central and Eastern Europe.
According to the Energy Community's CBAM readiness monitoring, the Western Balkan countries' decarbonization efforts are largely stalled, Reuters writes.
Analysts point out that the lack of investment in renewable energy and continued state subsidies for outdated coal-fired power plants are slowing the green transition, leading governments to seek delays or exemptions from CBAM.
However, any exemption would entail certain conditions, including massive investments in clean energy or the introduction of special state taxes on carbon emissions, making it difficult to implement reforms before the CBAM comes into force.
“Nobody is really ready,” Pippa Gallop, energy advisor for Southeast Europe at CEE Bankwatch, told Reuters.
However, she added that there is a growing awareness that countries will need to implement decarbonization if they want to "avoid the worst consequences."
The transition from coal to clean energy carries with it large social and economic costs.
The German clean energy institute "Agora Energiewende" estimates that the energy transformation in the Western Balkans costs around 40 billion euros, with this amount not including retraining or severance pay for around 30.000 workers in the coal sector.
Instead of encouraging a coal phase-out, environmental tariffs could slow down the Balkans' green transition, as they would reduce the available funds necessary to finance the change, according to Christian Egenhofer, a senior researcher on energy policy at the Brussels-based CEPS Institute.
“These people need money, not these kinds of incentives,” he said.
EU countries have a special Just Transition Fund, worth €17,5 billion, to help workers and regions protect themselves from the economic consequences of the clean energy transition, such as the closure of thermal power plants. However, the Western Balkans do not have such a dedicated fund.
To support the region's European integration, the EU has made available up to €9 billion to finance the green and digital transition, as well as up to €20 billion in investments through the Western Balkans Guarantee Fund, which covers all reforms needed for EU accession, not just the modernization of the energy sector.
Galop from CEE Bankwatch believes that these funds are “not enough” to enable a just transition. Regardless of how much money the EU provides, part of the initiative for change must come from the Western Balkan countries themselves, Kopač said.
"Maybe this is no longer an issue for the European Union," he concluded.
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