The criteria that the CBAM regulation sets for electricity as a CBAM product are incompatible with the key characteristics and principles on which electricity trading is based.
As a result, the position of electricity produced from renewable sources within the scope of the current CBAM regulation is so unfavorable that it is almost certain that when importing electricity produced from renewable sources into the European Union, the CBAM tax will need to be paid, directly linked to the EU ETS price for certificates that CO2 emitters within the EU provide and pay.
Contrary to the intention of EU legislation to equalize the conditions for products imported into the EU with equivalent products from the EU, electricity produced from renewable sources upon import into the EU finds itself in a position that is entirely unequal with electricity from renewable sources produced within the EU.
At the same time, and in contrast to the EU's global efforts to raise awareness about climate change and the need to reduce harmful gas emissions, this creates an unfavorable climate for new investments in renewable energy production capacities, which will, in fact, slow down the decarbonization process in the Western Balkans.
Furthermore, the CBAM regulation foresees restrictions on recognizing real emissions for electricity subject to trade agreements, which, after more than 20 years of efforts to optimize electricity flows and harmonize regulatory and market conditions across Europe, will lead to the disintegration of electricity markets. As a result, setting up CBAM as a barrier will not only affect production and decarbonization in the Western Balkans but also the transit of European-origin electricity across the Western Balkans.
Considering the positive stance of the relevant institutions in the Western Balkans regarding the decarbonization process, as confirmed by the Sofia Declaration, and the steps and plans of the Western Balkan countries to align with European regulatory frameworks and legislation (such as the formation of energy exchanges in Albania, Montenegro, North Macedonia; harmonization of National Climate Plans; establishment of the MRVA system), it raises the question of whether it would be more sensible to exempt electricity from CBAM and focus all available resources and energy on establishing the necessary frameworks for full integration into European systems, with the goal of achieving Net Zero by 2050.
It is certain that the countries of the Western Balkans, predominantly due to their economically disadvantageous position, cannot align with the EU countries in a short time. However, it is also certain that, with uninterrupted dedication to the necessary steps for integration, they can catch up with the EU countries within reasonable timeframes.
Text: Uroš Bojanić – EFT Head of Asset Management