Lorkowski: Carbon pricing is condition for electricity sector to avoid EU’s carbon border tax

Market coupling combined with the establishment of an emissions trading system is a prerequisite for an exemption from the CBAM carbon border tax for exporters of electricity to the European Union, Energy Community Secretariat Director Artur Lorkowski said. He suggested that the international organization’s contracting parties should coordinate their efforts and warned that time is limited.

The EU is preparing to launch the Carbon Border Adjustment Mechanism or CBAM, under which a carbon border tax will be phased in from the beginning of 2026 for imported iron and steel, cement, aluminum, fertilizers, hydrogen and electricity. Simultaneously, the allocation of free CO2 emission certificates for domestic companies will be gradually eliminated.

The entire system is scheduled to be fully implemented at the start of 2034. Energy Community contracting parties including the Western Balkans can secure an exemption until 2030 for electricity.

Avoid new CBAM borders

However, there are conditions. The informal Energy Community Ministerial Council in late June in Albania is expected to give guidance on whether the contracting parties want an exception, and if yes, whether they want to achieve it collectively under the organization’s framework, Energy Community Secretariat Director Artur Lorkowski revealed.

It is in the contracting parties’ best interest to act in a coordinated manner under the Energy Community framework, Lorkowski said

Speaking at the Energy Community Electricity Forum in Athens, he stressed it is in their best interest to act in a coordinated manner and avoid “new CBAM borders” within the Energy Community. Electricity market coupling and carbon pricing are the main prerequisites alongside long-term energy and climate objectives, Lorkowski explained.

Moreover, an effective system must be established to prevent indirect imports of electricity into the EU from non-exempted third countries, the secretariat’s chief pointed out.

Deadline to establish ETS is 2030

“It would be necessary to create a CBAM road map aligning the market coupling in electricity with the commitment to the decarbonisation objectives, including establishing an emissions trading system (ETS) by 2030, achieving domestic climate neutrality by 2050, aligning with the United Nations Framework Convention on Climate Change (UNFCCC) in terms of mid-century greenhouse gas emissions strategy, and making significant progress towards aligning with union law in the field of climate action and market integration,” Lorkowski stated.

The meeting in Albania will be instrumental for cushioning the impacts of CBAM as the responsibility lies within the governments, he added. “The room for delaying the decisions is limited. The deadline for submitting the road map with evidence that the conditions are met is 2025, therefore contracting parties must act now in order to continue cross-border trade without administrative barriers from 2026 within an integrated European power market,” Lorkowski said.