EPBiH foresees CO2 taxation to be introduced in BiH in three to eight years

State-owned power utility Elektroprivreda BiH (EPBiH) expects the introduction of carbon taxation in Bosnia and Herzegovina within three to eight years. According to its Business Plan for the period 2023-2025, it is one of the biggest risks in the company’s operations, and an expense that will reduce its profit.

The introduction of a CO2 tax is a decision that awaits the Western Balkans as they committed themselves to total decarbonization by 2050 under the Sofia Declaration. An analysis showed that half of the countries in the region are seriously working on the introduction of such a system while the rest are lagging behind.

There are no binding deadlines for the introduction of the CO2 tax, but things are likely to be accelerated by the recent decision of the European Union to introduce the Carbon Border Adjustment Mechanism (CBAM) in 2026. It means a levy would be rolled out for commodities and electricity imported from countries that do not tax CO2 emissions, which currently includes all Western Balkan countries.

EPBiH’s expects carbon pricing to be rolled out when the CBAM is introduced

EPBiH expects the carbon pricing system in BiH to be rolled out at a time when the EU’s CO2 cross-border tax is scheduled to be introduced. Although the company sees CO2 taxation as a risk, it is in a more favorable position compared to some other electricity companies in the region. Namely, in 2021 it started to calculate CO2 costs internally. Elektrani na Severna Makedonija (ESM), North Macedonia’s government-controlled power utility, has said it would do the same.

The authorities in BiH have said that a system for charging and trading carbon dioxide emissions would be ready by 2026, in order to avoid paying the EU’s CO2 cross-border tax.

EPBIH said it has to fight, together with the government, for the introduction of the CO2 tax to be gradual

According to the Business Plan for the period from 2023 to 2025, EPBiH is certain that the CO2 emission tax would come into force in the next three to eight years for coal power plants in BiH. The company said it needs to fight,  together with the government, to make it gradual.

BiH and EPBiH must demonstrate their willingness to reduce CO2 emissions in line with the global trends, which will be specified in the National Energy and Climate Plan (NECP), the document reads.

CO2 tax heavily affects business results

EPBiH warned that the high level of power prices in the market should not be a reason for it to relax and and give up on cost efficiency in the long term. It argued that market prices for 2024 and 2025 are already significantly lower than for 2023 and that the introduction of the CO2 tax is becoming more likely.

The calculated internal cost of CO2 emissions for 2021 amounted to EUR 12.3 million, with a 95% share of free allocation. With the reduction of the share of free allocation by 5% per year, and an increase in the market price of emissions, internal costs are estimated at EUR 34.5 million for 2022, at EUR 52 million for this year, at EUR 72.1 million for 2024 and at EUR 98 million for 2025.

The utility said including the item in its costs would bring a negative result for 2021 and 2022 and that this year the profit would be reduced to EUR 7.7 million.