At a time when the EU strives to achieve net-zero greenhouse gas emissions by 2050, coal still represents more than half of electricity across much of the Western Balkans and other EU neighbouring countries, writes Janez Kopač, director of the Energy Community Secretariat on the Euractiv website. Making things worse, coal plants are intensively supported by Chinese and US capital, without active opposition of the EU, he says.
The burden of coal at the doorstep of the Energy Union
The Energy Union was introduced as a political programme by the Juncker Commission in an attempt to move away from energy silos and ensure a holistic approach to European energy policy-making.
The traditional trinity of objectives (competitiveness, security of supply, sustainability) was refocused on decarbonisation and the fight against climate change. With the Clean Energy Package, the objectives of the Energy Union became part of a legal framework of the EU.
The Energy Union project is thus about to end. It could be considered a happy end if it were not for a few countries on the periphery of the Energy Union which are home to some 15% of Europe’s, largely forgotten, population.
The Energy Community Contracting Parties (Albania, Bosnia and Herzegovina, Georgia, Kosovo, Moldova, Montenegro, North Macedonia, Serbia and Ukraine) with a population of 70 million have been included in the EU’s internal energy market by a Treaty and follow, at least partly, the same energy market rules. Yet the one policy – energy – which was meant to draw them closer to the EU may end up pushing them further away.
To date, the Energy Community Contracting Parties have taken no steps to follow the EU in its decarbonisation pathway. The Energy Community’s acquis related to decarbonisation essentially ends with energy efficiency and renewables targets for 2020.
A common target for the reduction of CO2 emissions, let alone the incorporation of the Emission Trading Scheme Directive, has not even been seriously discussed. A proposal for 2030 targets, a prerogative of the European Commission, which would give the Energy Community a similar decarbonisation vision as the EU, is still to be tabled for adoption.
But even if such proposals were tabled now, the reform capacity of the Contracting Parties is doubtful. After neglecting for years the decarbonisation imperative on regional and national levels, the reform efforts in an already difficult social-economic environment would have to be doubled or more.
At a time when the EU strives to achieve net-zero greenhouse gas emissions by 2050, coal still represents 97% of electricity generation in Kosovo, some 70% in Serbia and Bosnia and Herzegovina, more than half in North Macedonia, around half in Montenegro and some 28% in Ukraine.
What makes things worse is that in the absence of a carbon price, the self-illusion of profitability of coal-fired power generation triggers new investments into coal. These are intensively supported by Chinese and US capital, without active opposition of the EU. It could be said that the lack of EU action contributes to the prolongation of the use of coal.
The EU energy watchdog urged a Bosnian regional parliament on Thursday (27 September) not to approve a government guarantee for a China Exim Bank loan that is designed to help power utility EPBiH add a new unit at its Tuzla coal-fired power plant.
All coal power plants in the Western Balkans are more than 40 years old. According to a recent study by HEAL, 16 of them produce more SO2, NOx and particulate matter (PM) than all other 250 coal power plants in the EU together. An average coal power plant in the Western Balkans emits 20 times more sulphur dioxide and PM than the average European plant.
This leads to premature deaths of approximately 2000 people in the Western Balkans annually and some 2000 in the neighbouring EU Member States. Direct health costs can be measured in billions of euros. Sarajevo, Pristina, Skopje are regularly on the list of top 10 most polluted cities globally.
Unlike in the EU, CO2 emissions are not factored into the Energy Community Contracting Parties’ electricity price. Currently, the price of a ton of CO2 emissions in the EU is around €20. Coal power plants in the Western Balkans produce around 45 million tons of CO2 annually (half of it in Serbia) and in Ukraine an additional 46 million tons.
If emitters would purchase CO2 allowances like in the neighbouring EU, Western Balkan countries would collect €1 billion annually and Ukraine an additional 1 billion by itself. As in the EU, this money could be used to support the clean energy transition and those who will be most affected by it.
This hidden subsidy also leads to dumping through the export of low-priced electricity to the EU’s internal energy market, an issue bound to raise serious concerns in the affected EU Member States.
On top of the absence of any internalisation of the damage done to health, environment and climate, direct subsidies for coal are also growing rapidly. In 2015-2017 alone, Serbia, Bosnia and Herzegovina and Kosovo paid more than €160 million to the coal sector from the state budget and public social funds in order to keep a fragile social peace. This is more than these countries paid for supporting energy from renewable sources.
The local state aid authorities turn a blind eye to support schemes that are not compliant with state aid rules. If those countries become members of the EU and have to respect the Emission Trading Scheme Directive, all electricity generation incumbents would go bankrupt at once.
Even the newest, cleanest, most efficient privately-owned coal power plant – Stanari TPP in Bosnia and Herzegovina – would have more than €20m annual losses. This puts the prospects of EU accession in a new perspective.
Continuing the current coal/lignite-based energy policy with its hidden subsidies is bound to cause serious political, economic and social trouble in the next few years.
To reflect the price of electricity without cross-subsidisation and to reflect the cost of CO2 emissions under the EU’s emission trading scheme, the price of electricity for households would have to be increased by some 17% in North Macedonia, 45% in Kosovo, 58% in Bosnia and Herzegovina, 62% in Montenegro and 137 % in Serbia. Prices for industrial consumers would be increased by 12% in North Macedonia, 34% in Serbia, 35% in Bosnia and Herzegovina, 48% in Montenegro while in Kosovo it would be decreased by 14%.
One can easily imagine the political trouble such adjustments would bring in countries where electricity is still perceived as a public good. In 2013, the Bulgarian government fell due to a rise in electricity prices of only 14%.
Inaction will turn the self-chosen dependence on coal increasingly into a social issue and a playground for populism. In October 2000, the Serbian dictator Milosevic did not lose his position due to a failed war against NATO but because of protests of around 13,000 coal miners. The politicians in the region remember this well.
Most Contracting Parties, except Montenegro, are very slow in the deployment of renewables and energy efficiency measures. Renewables are expensive due to high feed-in tariffs which Serbia, Kosovo, Bosnia and Herzegovina and Ukraine still did not replace with competitive auctions for a market premium. Absurdly, energy efficiency is not pursued in practice since prices for electricity are artificially low.
Coal is a curse for the Energy Community Contracting Parties, which their energy ministers cannot fight alone, even if they wished. In this process, only the EU can help – with money, experience sharing and political support in discussions with trade unions and coal regions. The current mandate of the Commission pushed for more connectivity in the energy sectors of the Western Balkans.
Yet the lack of infrastructure has never been the main problem in the electricity sector of the former Yugoslavia. The real problem is an energy mix based on coal and cross-subsidisation of the ensuing costs. The Contracting Parties need new forms of assistance.
An investment in a wind turbine in a Western Balkan Contracting Party is twice as expensive as the same turbine in Germany, due to the higher cost of capital caused by political risk. The Contracting Parties should directly benefit from the renewables investment risk mitigating scheme which the EU is planning for itself in the next financial period.
The Contracting Parties need assistance also in making the transition a truly just one, a transition producing winners, not losers. This is evidently an extremely complex political challenge. But complexity is not a reason to shy away from tackling it. Inertia only makes things worse.
We need to start changing mindsets, and changing the rules. Like the EU, the Contracting Parties should also be encouraged to define their 2050 low carbon strategies with net-zero greenhouse gas emissions.
They should gradually impose a CO2 price and start with gradual taxation of CO2 emissions. The European Commission should propose the missing parts of the acquis, like the Emissions Trading Scheme or Air Quality Directives, for adoption in the Energy Community.
Most importantly, the EU must stop closing its eyes. The widening energy policy gap will move the Contracting Parties, especially the Western Balkan countries, not closer to the EU but further away.