With the current prices in the EU’s Emissions Trading System, power utility Elektroprivreda Bosne i Hercegovine (EPBiH) would have to pay EUR 200 million for the CO2 from its coal-fired power plants. The amount exceeds the total cost of electricity produced from coal and it would make the activity unprofitable.
EPBiH, which intends to lay off 1,500 employees in the restructuring of its coal mines, published a statement called Challenges for Coal in the Light of Fulfilling BiH’s Obligations. The company said it has prepared a development strategy based on European Union’s goals and policies with regard to Bosnia and Herzegovina’s commitments under the Energy Community Treaty. The opportunity for a painless transition is long gone, EPBiH underlines.
The cost of CO2 threatens all power companies in the region
Companies in the EU have been paying for CO2 or emissions allowances for a long time, and now it is slowly becoming a reality for power companies in the region. They could soon be faced with the option of introducing national emissions trading systems modeled on the EU ETS, or to pay a carbon border tax (carbon border adjustment mechanism – CBAM) planned by the EU.
EPBiH is among the power companies in the region, together with peers in Montenegro, Northern Macedonia and Serbia, which face major challenges in the energy transition. For example, in order to prepare for the inevitable changes, power utility Elektrani na Severna Makedonija (ESM) recently decided to implement internal carbon pricing. Prices of emission allowances have been setting record highs since late last year and even companies from the EU, such as Slovenian power plant TEŠ, expect a large increase in costs.
BiH will determine the maximum allowed level of GHG emissions
Of note, EPBiH stated in the announcement that the maximum allowed level of annual greenhouse gas emissions will be determined in BiH like in the EU. In the beginning, allowances will be allocated to emitters free of charge.
The cost of producing electricity in coal power plants will be multiplied and they will become uncompetitive
The share of free allowances will be gradually reduced until they are completely abolished and all emissions are priced. It will be an additional economic impulse that will reduce the use of coal because the production costs of coal power plants will be multiplied and they will become uncompetitive, EPBiH said.
As an illustration, the company said the approximate cost of emissions produced by its power plants, with the current CO2 prices, would be EUR 200 million, which exceeds the total cost of electricity production from coal and makes the activity unprofitable.
With the Sofia Declaration, BiH accepted to be climate neutral by 2050
EU made a long-term commitment to decarbonize the energy sector, phase out coal gradually close thermal power plants and mines, EPBiH underscored.
The Stabilization and Association Agreement, the Energy Community Treaty, and the Sofia Declaration on the Green Agenda for the Western Balkans, which was signed in November 2020, are the most important documents that determine BiH’s international obligations and affect the development of the electricity sector. According to the documents, BiH has a duty to gradually align its laws with the EU acquis.
Commitment to climate neutrality implies setting a time frame for the closure of coal power plants and mines
As a signatory to the Sofia Declaration, BiH has accepted the EU’s path to climate neutrality by 2050. It implies a gradual reduction in coal use and a time frame for the complete closure of coal power plants and mines, EPBiH said.
BiH is obliged to adopt a national energy and climate plan (NECP) in which, among other things, it will set targets for reducing CO2 emissions. Taking into account the draft document, the power sector can expect a 30% cut goal for emissions in 2030 compared to 2014.
The time for a completely painless transition has passed
According to EPBiH, it is clear that a reduction of emissions and high costs of emissions allowances will lead to a significant output decline in thermal power plants and coal mines, until total cessation.
“The process of energy transition in BiH has begun. How long it will last and how efficient it will be depends on the participants in the energy sector. Unfortunately, we missed the opportunity for a completely painless transition a long time ago,” EPBiH concluded.