As CBAM carbon border tax looms, EU wants to help Western Balkans to adapt

Businesses in the Western Balkans are facing the introduction of the European Union’s CBAM carbon border tax in 2026, but they also have to start reporting emissions four months from now. The EU needs to help both the governments and industrial producers adapt to the changes and overcome the initial impact, according to officials who spoke at a workshop organized by the Energy Community Secretariat in Brussels.

The Carbon Border Adjustment Mechanism is just around the corner. Importers of electricity, aluminium, cement, fertilizers, hydrogen, iron and steel to the EU will be charged a tax from 2026 for the greenhouse gas emissions that were created during production.

Companies in the said sectors inside the 27-member bloc already pay such a levy through the Emissions Trading System – EU ETS. It gives their competitors from third countries like the Western Balkans an advantage, which the EU intends to adjust through CBAM. Within a few months, the authorities in Brussels are set to publish more detailed rules. In any case, the affected exporters are obligated already from October 1 to measure their emissions and send data to their clients inside the EU, the importers, who report on a quarterly basis.

If third countries, including the Western Balkans, roll out their own emissions trading schemes, they will avoid the EU’s carbon border tax and keep the revenues for their own decarbonization projects

Furthermore, the EU is working on a framework to make CBAM equivalent to the EU ETS as the system is expanding to other sectors. If third countries introduce their own emissions trading schemes, the money that they collect would be kept for domestic decarbonization projects instead of being paid to the EU.

The governments in the region have to make up for lost time fast. The EU is aware that it needs to provide technical support and funds to implement the changes, according to officials who spoke at a workshop called Making the Energy Community Fit for CBAM, which was held today in Brussels. Also, industry representatives offered suggestions at the event and pointed out their concerns.

Responsibility is on governments

The Energy Community Secretariat, which organized the gathering, will help the contracting parties to align with the EU’s energy and climate aquis and their fulfillment of the conditions for exemptions, the organization’s Director Artur Lorkowski said.

Energy Community Secretariat Director Artur Lorkowski urged contracting parties to adopt a regionally coordinated approach to adapting to CBAM

“Let us not overlook the fact that CBAM places the onus of responsibility primarily on commercial entities. Nevertheless, the power to cushion the CBAM impacts and seize the full benefit of the exemption offered lies with the governments,” he stated. Lorkowski reiterated that the contracting parties would amplify the effectiveness of the necessary reforms through a regionally coordinated approach.

“Countries receiving a CBAM exemption in electricity must also establish an effective system to prevent indirect import of electricity into the Union from third countries that do not fulfill the exemption conditions. That is why, I believe, progress in electricity market coupling and launching an emission trading scheme should be pursued in parallel, and in a coordinated manner at the Energy Community level,” he underscored.

The Energy Community Ministerial Council is expected to give guidance in June on the upcoming challenges.

Lafarge’s Knjeginjić: No construction without cement, iron, aluminium

Carbon dioxide emissions and CBAM are not even a topic yet in the Western Balkans and the issue isn’t critical for any minister, Chief Executive Officer of Lafarge Srbija Dimitrije Knjeginjić warned at the workshop. Earlier this month, he also spoke at the Belgrade Energy Forum (BEF 2023) about the cement industry’s woes.

Knjeginjić asked for the EU’s financial and legislative support. “Someone has to produce cement. Someone has to produce iron and aluminium and all other materials as no building can be constructed without them,” he stressed.

Electricity consumption accounts for only 10% of cement maker Lafarge Srbija’s emissions

The head of the Serbian cement maker explained that electricity accounts for only 10% of his company’s emissions. The processing of calcium carbonate accounts for half of the CO2 and 32% comes from burning petroleum coke (petcoke) or coal, Knjeginjić added. He pointed out that mostly the electricity sector was in public focus so far with regard to the introduction of CBAM.

Without help, nothing will happen, Knjeginjić said and estimated that 55% of the cement industry’s emissions could be addressed within a year without any cost. Namely, the rules need to be changed to facilitate the use of alternative fuels and processing construction waste to make recycled cement and concrete, he asserted.

Serbia still doesn’t allow alternative fuel imports

“We can put back all materials coming from demolishing activities and the waste which we generate during the building of new facilities,” according to Knjeginjić, who called circular economy a game changer for the sector. But in Serbia, in particular, it is not allowed to import alternative fuel, unlike in the surrounding countries.

In the Western Balkans, no one would want to buy a cement plant because of the CO2, Lafarge Srbija’s CEO claimed. Any alternative fuel is better than traditional fuel when it comes to emissions, Knjeginjić said.

“It is far better to support those who are close by than those who are far. Why? Because if you support Bosnia or Serbia or Moldova, the distance to travel for the goods is far smaller than if you expect someone from China or from India to pay a CO2 price,” he stated.

CBAM is no protectionist measure

Maria Elena Scoppio, director for indirect taxation and tax administration at the European Commission’s Directorate-General for Taxation and Customs Union (DG TAXUD), said the reporting obligation is a rehearsal, a process of “learning by doing” to make companies familiarized with the scheme.

The reporting obligation coming into force in October is a rehearsal, the EU’s top tax official Maria Elena Scoppio explained

“CBAM is not a protectionist measure. It is not done to protect our industry. Our industries pay nonetheless. But it is to make sure that at least in our territory we enjoy the possibility to use raw materials that are compatible with environmental standards that we abide to,” in her view. The new carbon border tax is a tripartite relationship between the European Commission, a business and a state, Scoppio said.

The EU official went further to stress that the new system is meant as an incentive. “A CBAM that works is a CBAM that dies, a CBAM that doesn’t exist. Because we will not need it anymore. Because all the products will be so compliant that we will all be on the same level,” Scoppio stated.

EU ETS needs to be complemented, replaced

Member of the European Parliament Viola von Cramon-Taubadel is of the opinion that the EU’s Emissions Trading System failed to facilitate the necessary reduction.

“The ETS has not been a sufficient incentive to reduce emissions effectively. Therefore, it is not working, and the ETS needs to be complemented and replaced. This is why we are here. This is where the carbon border adjustment tax, CBAM, finally comes in. It is a stop sign for those who want to continue importing CO2-intensive products into our market, while alternative, less CO2-intensive products are already available,” she underscored.

Low-carbon practices would make industries in the Western Balkans more competitive in the EU market

CBAM should encourage third countries to strengthen their climate policies, implement stricter emission reduction targets and invest in renewable energy infrastructure, according to Von Cramon, who also acknowledged that the transition “must be supported by generous funding opportunities.” She expressed confidence that industries in the Western Balkans would become more competitive in the EU market by applying low-carbon practices.

“We need to look into the ways to close the 16 coal power plans in the Western Balkan. It’s a bit difficult to speak about that while we in Germany have now been back to coal,” Von Cramon added.