Electricity

Western Balkans can’t secure CBAM exemption for electricity in time

Western Balkans can t secure CBAM exemption electricity in time

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Published

October 23, 2024

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Published:

October 23, 2024

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According to the Energy Community Secretariat’s CBAM-Readiness Tracker, no Western Balkan country has met the prerequisites for officially starting the process of coupling its electricity market with an EU member state. It is the main condition to exempt their electricity exports from the CBAM cross-border carbon tax, which the EU is set to begin charging at the beginning of 2026.

For 2023, CBAM costs for Serbian electricity are estimated at EUR 1.07 billion. If the mechanism was in force, the combined figure for Montenegro, Bosnia and Herzegovina and North Macedonia would be EUR 797 million.

The Energy Community Secretariat monitors policies and measures in the organization’s contracting parties that could help secure an exemption from the Carbon Border Adjustment Mechanism (CBAM) for electricity. Importers in the European Union will be required from the first day of 2026 to pay for carbon emissions embedded in designated goods.

The CBAM-Readiness Tracker is a report on the progress in energy and climate action. The secretariat warned in the new edition that delays in market coupling are reducing the likelihood of securing an exemption for electricity by December 31, 2025. It means power exporters would be burdened with a carbon price through the spillover of costs from their partners in the EU, and on the entire quantity.

Even without necessary legislation, already at least four months behind deadline for CBAM exemption

Electricity market coupling enables exemption from CBAM through the end of the decade. Nominated electricity market operators (NEMOs) and transmission system operators (TSOs) need to adhere to market coupling projects: single day-ahead coupling (SDAC) and single intraday coupling (SIDC). Minimum prerequisites for it include the full transposition of the Electricity Integration Package, the designation of a NEMO, the adoption of a market coupling operator (MCO) integration plan and the operationalization of capacity calculation regions (CCRs).

After that, it takes at least a year and a half for full accession, the Energy Community Secretariat estimated. But the EU said it would gradually start charging the CBAM cross-border tax in 14 months.

There is not yet a single compliantly designated NEMO in contracting parties and no MCO integration plan. Serbia is the only country in the Western Balkans with day-ahead and intraday markets both operational. Bosnia and Herzegovina has neither.

Montenegro might become the first contracting party ready to adhere to SDAC and SIDC via its interconnection with Italy, the report notes.

There is still no action in the Energy Community toward an effective system that would prevent indirect power imports into the EU from third countries that do not fulfill the CBAM exemption criteria, the authors said.

Serbia planning CO2 tax from 2027 with gradual increases

As for the preparations for CBAM in general, no contracting party has submitted a roadmap to the European Commission.

Montenegro and Serbia are the only countries working to align with the EU climate aquis, including carbon pricing and the establishment of an emissions trading system for electricity with a price equivalent to the EU Emissions Trading System from 2030, the data showed.

In its draft Integrated National Energy and Climate Plan, Serbia envisages the rollout of a carbon tax in 2027. Initially it would charge EUR 4 per ton of CO2 equivalent and increase the level gradually to reach EUR 40 per ton in 2030. The plan is to reach the full EU ETS price by 2045.

Deindustrialization in Montenegro essentially dismantled national ETS

Montenegro introduced an emission credit trading scheme in 2020 with a minimum price of EUR 24 per ton of carbon dioxide equivalent.

The market was shallow to start with, as there were only three participants. Two shut down their operations in the meantime, leaving only the state-owned power utility, Elektroprivreda Crne Gore (EPCG). Last year it purchased allowances for EUR 9.26 million, at an average price of just EUR 6.02 per ton of CO2, the CBAM-Readiness Tracker revealed.

Serbia is the most advanced in the Energy Community in the implementation of the system for monitoring, reporting, verifying greenhouse gas emissions and accrediting verifiers (MRVA). At the bottom of the chart is Bosnia and Herzegovina, which doesn’t show progress toward any of the milestones.

ETS electricity costs in Serbia would be two times higher than its CBAM electricity costs

The Energy Community Secretariat laid out an estimate of CBAM costs for 2023 for power exports including transit. Serbian electricity came in at a whopping EUR 1.07 billion. The level would be just above half of the sum of total electricity emission costs at EU ETS allowance prices.

In the same calculation, Montenegro has CBAM electricity costs of EUR 298 million, BiH’s tally would be EUR 237 million and North Macedonia’s came in at EUR 262 million.

CBAM is designed to mirror the EU ETS by charging a carbon price on imported aluminum, cement, electricity, fertilizers, hydrogen, iron and steel from non-EU countries. The tariffs are based on the level of greenhouse gas emissions embedded in their production.

Under the definitive regime starting in 2026, importers’ reporting obligation will be replaced by the obligation to submit annual declarations and to purchase and surrender CBAM certificates. The process incurs administrative costs.

Putting a price on carbon would result in a predictable price signal for green investments, the Energy Community Secretariat pointed out. The resulting capital and operational costs for emission-intensive technologies would be higher but more realistic, according to the report.

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