The Western Balkans can transition away from coal with closer collaboration between each other and more targetted support from the European Union
EU SUPPORT
Support programmes by the European Union to help the region transition away from coal are not as effective as they could be EMISSIONS TRADING
Establishing an effective carbon trading mechanism at mirrors the EU’s system could have a lasting impact in the Western Balkans KEY QUOTE
Across the region, the influence of coal producers and the lack of dedicated aid for a just transition are preventing the Western Balkan countries from breaking their dependence on coal.
The European Union is supporting the Western Balkans in its transition away from coal-dependent economies, with the six non-EU countries in the region—Serbia, Montenegro, Bosnia and Herzegovina, Albania, North Macedonia and Kosovo—signing up to the “Green Agenda for the Western Balkans” in 2020, making a commitment to decarbonise their economies and become climate neutral by 2050. But the region faces several challenges and the large majority of these countries remain deeply rooted to the coal industry. The region as a whole still generates about 63% of its electricity from coal. Shares of coal range from about 30% in Montenegro to 53% for Bosnia and Herzegovina to about 97% for Kosovo. The notable exception is Albania, which has no coal plants and produces its electricity almost entirely from hydropower. The entire region’s carbon intensity is about six times the EU average. “Western Balkan countries have a very, very old power system relying on polluting and inefficient coal and lignite. And it is in dire need of modernisation and of shutting down these old and inefficient units and [to] replace them with mainly renewables,” says Sonja Risteska at German think tank Agora Energiewende. Only two of the six countries have joined the Powering Past Coal Alliance (PPCA)—a coalition of national and sub-national governments, businesses and organisations working to transition away from coal—and have set themselves a phaseout date: North Macedonia in 2028, and Montenegro in 2035. 
JUST TRANSITION Across the region, the influence of coal producers and the lack of dedicated aid for a just transition are preventing the Western Balkan countries from breaking their dependence on coal. “Coal consumption is not only a burden to the health sector but is also heavily subsidised. Therefore, it is a financial disaster for the countries in the region,” says Viktor Berishaj, from green NGO Climate Action Network (CAN) Europe. “It is also hard for the policymakers [in the Western Balkans] to commit to something that will pay off in 10-20 years, so they usually leverage the coal sector in political campaigns,” he adds. In 2019, the amount of direct subsidies awarded to coal producers across the region amounted to €72.71 million, according to Energy Community estimates. This is preventing free-market competition in the Western Balkans and continues to make the development of renewable energies expensive compared with coal across the region. Moreover, Serbia and Bosnia and Herzegovina are pressing ahead with plans to build new coal plants, backed with loans from China as part of its Belt and Road Initiative—the country’s global infrastructure development strategy—which risk undermining the region’s climate efforts. Chinese President Xi Jinping’s announcement at the 2021 UN General Assembly that China would not build any more coal plants abroad put the fate of the China-backed coal projects in the Balkans into question. It remains unclear what the impact of the announcement on loans that have already been signed or even on the projects which are under construction will be, says Risteska. TARGETTED FUNDING As signatories of the Energy Community Treaty, many of whom aspire to join the European Union, Western Balkan nations have committed themselves to gradually transpose the EU’s energy and climate-related legislation into their national policies—including rules on liberalised energy markets, laws tightening air pollution, energy efficiency standards and the establishment of carbon pricing. The Energy Community, a Vienna-based intergovernmental organisation formed by the EU, the six Western Balkan countries as well as Moldova, Ukraine and Georgia, is supporting the region in implementing these legislative and market reforms. The six Western Balkan countries aspire to eventually join the European Union, which would give them full access to the bloc’s internal market and access to 500 million consumers and would grant free movement to its citizens, services, goods and capitals. But the gap in climate ambition between the EU and its Western Balkan neighbours is getting bigger and existing EU funds do not match the real needs to support the region’s climate objectives, says Janez Kopac from the Energy Community secretariat. “Coal regions in transition need a specific type of funding and the EU’s current financing instruments are not fit to support the whole range of those needs. The EU should adapt its supporting mechanisms to assist in a more targeted way,” Kopac adds. The EU is mainly channelling funds to the Western Balkans through the €14 billion Instrument for Pre-Accession Assistance (IPA-III) for 2021-27. This fund encompasses all of the EU’s financial support in the region in all policy areas—meaning that programmes to support the Western Balkans’ energy and climate objectives only get a portion of these funds. According to a report by the Buildings Performance Institute Europe (BPIE), only about 11% of the IPA funds in 2014-20 were estimated to be dedicated for climate and energy objectives. With the green agenda being one of the main objectives of the IPA-III for 2021-27, the share of funds channelled into climate objectives should be larger, but may not be enough to decarbonise the Western Balkans’ coal-intensive economies. The region is also receiving funds from the European Bank for Reconstruction and Development (EBRD) and the World Bank to finance its clean energy transition. In turn, in 2020 the European Commission co-founded the “Platform in Support of Coal Regions in Transition for the Western Balkans and Ukraine” with the College of Europe’s Natolin campus in Warsaw, the Energy Community, the European Bank for Reconstruction and Development (EBRD), the Polish government and the World Bank. The platform is mainly supporting the region through technical and financial assistance and the sharing of experience and knowledge of transitioning among coal regions. 
Coal dominates Kosovo derives 97% of its electricity from coal power generation
CARBON PRICING MEASURES Experts across the region believe that carbon pricing and an integrated regional energy market can considerably support the Western Balkans in their decarbonisation efforts. The Energy Community proposed a roadmap for its members to establish their own emissions trading systems, mirroring the EU ETS established in 2005 and which has seen prices breaking continuous record-highs to reach over €65 per tonne of CO2e at the end of September 2021. The objective is for its contracting parties to gradually adopt and implement all legislation and instruments required to establish a carbon market, to test these markets across the region, until they are mature enough to join the EU ETS. The Energy Community expects its members to set up their own national ETSs by 2025, in order to fully align with the EU ETS by 2040. Currently, Montenegro is the only country out of the six that has nearly set up its own carbon market for power and industry, with only secondary legislation pending approval before trading begins. The allowance price is set at a minimum €24 per tonne. A launch date, however, has not yet been announced. In turn, Serbia recently approved its climate law setting the parameters for monitoring, verification, and reporting (MRV) of emissions and the preparation of national registries—two stepping stones towards the establishment of carbon pricing systems. In the private sector, two electricity producers in the region—North Macedonia’s ESM and EPBiH, Bosnia and Herzegovina’s largest coal plant operator—have set themselves internal carbon pricing systems. From 2022, these companies will monitor the CO2 emissions from their power plants and will introduce the emissions costs in their annual company reports. “Carbon pricing would create additional sources that should be dedicated to finance decarbonisation efforts and transition of coal regions, to make it just as much as possible,” says the Energy Community Secretariat’s Kopac. Moreover, introducing carbon markets and other reforms could shield these countries from the EU’s planned carbon border adjustment mechanism (CBAM) kicking in in 2026. Energy Community members are exempted from the measure for power exports until 2030, so they can introduce the necessary changes such as market coupling, carbon pricing, long-term decarbonisation strategies within the next decade. After 2030, however, Western Balkan countries risk that their power exports are taxed under the bloc’s carbon levy. If anything, the threat of the EU’s CBAM is likely to accelerate reforms that should have been taken long ago, said Agora Energiewende’s Risteska. RENEWABLES POTENTIAL Carbon pricing could provide additional financial revenue to pay for the just transition of its coal regions. It would also make renewables much more competitive in comparison with coal, but there are still few support instruments to incentivise the deployment of renewables in the Western Balkans. “Renewables are becoming popular and we are seeing many investments across the region. But in the context of artificially low, non-cost reflective prices of electricity they will still require support, such as a feed-in premium,” says the Energy Community’s Kopac. “All in all, we need to make them competitive compared with coal. And from this point of view, carbon pricing would help the development of renewables,” he adds. 
RENEWABLES FUTURE The Western Balkans region has an “underutilised” potential for renewable energy sources, said Agora Energiewende’s Risteska. An Agora report released earlier this year found the entire region could exit lignite by 2040 and transition to a power system mainly based on renewables, while some gas capacity would be needed for flexibility. “The Southeastern part of the continent has quite good solar potential, and in some parts of the region, you also have quite good prospects for wind energy. Some countries already have good utilisation of hydropower, as well,” Risteska says. Investments in renewables have increased in recent years. In Bosnia and Herzegovina, EPBiH intends to install 700 megawatts (MW) of renewables capacity by the end of the decade. North Macedonia alone aims to install over one gigawatt (GW) in the coming years, while Serbia wants to double its share of renewables in its energy mix to 40% by 2040. But the region will need to step up their efforts on two fronts: grid interconnectivity, and energy efficiency, says CAN Europe’s Berishaj, to effectively realise the renewables potential of the region. “Each country in the region considers itself as an island and thinks they need to produce all energy by and for themselves. But there is a need for their energy markets to connect: it helps lower the costs, and helps to address where we need to increase capacity for clean energy,” he explains. “And we need to put emphasis into energy efficiency to lower power demand. Once we meet these two criteria, we can start talking about the capacity for renewables needed in the region,” he adds. •
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Anna Gumbau PHOTO
Amir Bajric