RESET: European Green Deal is chance for energy transition in BiH

The European Green Deal is an opportunity for development in BiH and the country can modernize its energy system and make it competitive and sustainable with regard to the environment, experts from RESET said in a policy brief on the energy sector and its perspectives.

Regional center for sustainable energy transition – RESET, a new think tank gathering experts and members of the academic community in Bosnia and Herzegovina, published its first strategic document on the country’s energy policy “EU Green Deal – the last chance for sustainable and inclusive development of energy sector in BiH”.

By promoting an energy transition that would decarbonize BiH in the decades to come and lead to a switch from fossil fuels to renewable energy sources alongside the electrification of the heating and transportation sectors and improvements in energy efficiency, RESET plans to become an influential stakeholder in the creation of a comprehensive sustainable energy transition policy.

The center’s activities are based on a multidisciplinary and innovative approach in creating policies and transformation measures for the energy sector while taking into account the aspects of socioeconomic sustainability and just transition.

Joining EU Green Deal would open way for energy investment

The authors of the policy brief on BiH’s energy sector and its perspectives are Mirza Kušljugić, Vjekoslav Domljan, Damir Miljević and Ognjen Marković. The experts analyze the effect of the European Green Deal on BiH and other Western Balkan countries, but also underscore that joining the plan enables states in the region to obtain the necessary investment in sustainable energy capacities.

The European Green Deal envisages complete decarbonization of the energy sector by 2050. and the reduction of greenhouse gas emissions by 55% by 2030, with the possibility to increase the ambition in the meantime, as well as total decarbonization by mid-century.

The first step in the process for all EU countries, but also the countries in the region, including BiH, is to bring and implement a National Energy and Climate Plan – NECP.

EU preparing tax on carbon dioxide

The authors warn that Western Balkan countries that don’t opt for decarbonization can expect the union to introduce measures to protect its climate policy, energy sector, and the economy from unfair competition. They point to the possibility, among others, for a cross-border tax on carbon dioxide, the so-called Carbon Border Adjustment Mechanism or CBA, to be rolled out by mid-2021.

Namely, power exports from non-EU members from the region that don’t apply the emissions trading system or ETS (a scheme for limiting CO2 emissions and trading the allowances) into the EU will be burdened with an additional levy, CBA, on the export price of electricity.

Also, the introduction of the CBA mechanism is not intended only for power exports but also for exports of goods that are produced by using electricity from fossil fuels.

In order for BiH to participate in the European Green Deal, it must regulate the electricity, natural gas, oil and derivatives markets, and separate energy companies, the policy brief reads.

Mirza Kušljugić, Professor at the Faculty of Electrical Engineering at the University of Tuzla and the Chairman of RESET

According to a recent study of the International Renewable Energy Agency (IRENA) “Renewable Energy Prospects for Central and South-Eastern Europe Energy Connectivity (CESEC)”, the Western Balkans region has enormous cost-effective potential for renewables. Thus, it is justified to base the development of the energy sector, and especially the electric power sector, on renewable energy sources, primarily solar and wind energy.

Since the power production in the wind and photovoltaic solar plants, which are currently the cheapest, is variable and stochastic, its integration requires changing the planning and operational management concept of the electric power system. The precondition for the effective balancing of production from variable renewables is to establish liquid organized markets – power exchanges (day-ahead and intraday) in all Western Balkan states, as well as their interconnection and the integration into the exchanges in the European Union.

Besides, it is necessary for electric power system operators to access the frequency regulation mechanisms that have been successfully implemented within the ENTSO-E association – the IGCC and MARI initiatives – so that balancing costs caused by the stochastic nature of renewables would be decreased. These measures should have priority within the forthcoming national energy and climate plans.

Bosnia and Herzegovina would gain access to funds by introducing ETS

The alternative to the said CBA cross-border carbon dioxide tax would be to join the European Emissions Trading System (ETS), Ognjen Marković said. It would elevate power prices but the energy sector would get funds to fuel the energy transition, he added.

Of note, Montenegro is the only country in the region that rolled out auctions of emission credits and trading in the instruments. The emitters in the industry and energy sectors are undergoing gradual adjustments as the total number of certificates is reduced by 1.5% per year. The proceeds must be used for environmental protection measures, support for the production of energy from renewable sources, and innovations.

A calculation with an equivalent model and the price of EUR 24 per ton of CO2, the benchmark from Montenegro, shows BiH would get EUR 156 million in its fund in the first year after introduction, RESET said.

Ognjen Marković, energy expert, member of the Board and Chief of the Advisory Council of RESET

According to several studies, exports of electricity could be burdened with a CBA tax of EUR 14 to EUR 17 per MWh. Under certain assumptions including export competitiveness of power (which is questionable in this case), the funds of countries that import electricity from BiH would get EUR 52 million to EUR 63 million more and BiH wouldn’t have any benefits from the funds.

It has to be stressed that the possible introduction of the CBA mechanism could also be applied for export goods that are produced using power from fossil fuels, and the total share of BiH’s exports to the EU is 72%.

Decarbonization, digitalization

Decarbonization and digitalization are the basis for the upcoming world industrial revolution, the authors said and added the energy transition has to be fair toward the losers and inclusive, which implies including as many citizens and other elements of the society as possible.

All Western Balkan states are in the group of the least economically developed European countries and, mostly due to political and economic reasons, they are on the margin of serious developments and the changes in the world, and especially in Europe, Ognjen Marković asserted. The energy transition and decarbonization have only begun in the region and they are still understood as an obligation accepted unwillingly rather than a chance for accelerated development on new foundations, he said.

Damir Miljević, economist and energy consultant, member of the Board of RESET

Missing the opportunity to include the Western Balkans into a new industrial and development paradigm and clutching onto the existing condition and a slow transition process, primarily in the electric power and transport sectors would cost these countries far more than necessary and, even worse, leave them to lag behind in development after surrounding countries.

Therefore, an urgent change in the prevailing way of thinking and, with it, the current policies, development plans, and activities in all segments of society, and especially in the energy sector, represents not only an opportunity for the Western Balkan countries to overcome the impact of the recession and the economic and social peril but also the last chance to secure a basis for economic growth and development.

The problem becomes even bigger taking into account that the COVID-19 pandemic already left very serious consequences on nature, citizens, and the budget of Western Balkan countries and that its impact will be even harder considering that no one can predict with certainty how long it would last and when it would end. What can be predicted with certainty is that nothing after the pandemic will be the same as before it.

Country’s future is in solar energy

Coal is in the past for the responsible part of the planet and so are the thermal power units that come with it, Vjekoslav Domljan stressed. BiH, and especially the Herzegovina region, must turn to the construction of big solar parks and installing panels on roofs of houses, buildings, facilities of small firms and the buildings of public institutions. He added solar power plants of 60 MW and 200 MW are planned to be built.

The European Parliament has called on the European Council and the European Commission to increase the aid for the Western Balkans in the environmental and energy efficiency legislation. Some of the recommendations are to include the membership candidates from Southeastern Europe in the Trans-European Transport Network (TEN-T) and the Trans-European Networks for Energy (TEN-E) and to double the grants from the Western Balkans Investment Framework (WBIF), the document notes.

Vjekoslav Domljan, Dean of the Sarajevo School of Science and Technology (SSST) University and member of the Management Board of RESET

The precondition for further development is to fundamentally change the structure of the outdated laws and regulations, enable prosumers (producers of power for their own needs) and energy communities to emerge, and to radically transform the renewable energy fund.

Instead of contributing to bringing down electricity prices and thus increasing social wellbeing, the surcharge for the fund was actually elevated recently. Even a most superficial cost-benefit analysis would show how damaging it is for social wellbeing if a group of privileged investors devastates the natural and social environment and gets a reward in the form of money from taxpayers, who pay tariffs above market level.

Coal threatens to obliterate foreign income

So far the state produced drafts of the strategies for adapting to climate change and low-carbon development by 2030. on a national level and for the development of the Federation of BiH from 2021 to 2027 as well as of a framework for domestic development with regard to goals envisaged by the United Nations.

In the case of inadequate management of the decarbonization process, the foreign exchange income from exports of uncompetitive power from coal would dry up and additional foreign currency would be necessary to buy the cheaper and more globally accepted green energy, RESET concluded and pointed to the fact that nature gave BiH abundant renewable sources.

Nihad Harbaš, energy expert and Secretary of RESET

The EU’s policy is clear – energy efficiency is the priority! Therefore the key energy efficiency thesis is to lower energy expenditure and costs by implementing measures with keeping the level of comfort or increasing it, produce an equal or larger number of products, boost competitiveness, etc.

It means less energy should be consumed for the same or larger effect in energy savings and spending and smaller emissions of polluting matter. This way the need to produce energy would decrease but it would also open the possibility of economic development without an additional burden for the environment.