Coal fouls Balkans’ EU ambitions

28 August 2015, Politico

The western Balkans aren’t buying in to the EU’s energy policies.

The western Balkans are hoping to join the European Union one day, but governments across the region are investing in new coal-fired power plants at a time when the EU is championing renewables and energy efficiency.

The EU has committed to slash emissions by 40 percent, to increase the share of renewables by at least 27 percent as well as to boost energy efficiency by at least 27 percent by 2030. The bloc is taking the lead in tackling global warming during the upcoming Paris global climate talks and countries like Germany have made the very expensive shift away from nuclear and fossil fuels a core part of their energy programs.

But the view in the much poorer Balkans is very different.

Coal-powered Balkans

The region, including Albania, Bosnia and Herzegovina, Macedonia, Kosovo, Montenegro and Serbia, is heavily reliant on coal, which generates over 50 percent of the electricity in the majority of the countries, according to a new report by Climate Action Network Europe, a global network of NGOs.

And that dependence is expected to grow. About 6 gigawatts of additional coal power capacity is due to be built by 2030, the report states.

Bosnia and Herzegovina and Serbia are leading the pack, according to the report, each planning on adding over 2 GW of new coal capacity.

“Coal is needed to ensure the energy balance and guarantee power,” said a senior official from the federal energy and mining ministry in Bosnia and Herzegovina.

Brussels is aware of the energy picture in the western Balkans, but so far, reform efforts have mainly focused on natural gas infrastructure in a region that is traditionally reliant on Russian supplies.

“What is very important, which we highlighted, is more focus on energy efficiency, more focus on renewables and progressive energy technologies, which can bring a lot of saving and modern management of energy needs in these countries,” the bloc’s energy chief, Vice-President Maroš Šefčovič, said at this week’s Western Balkans Summit between regional and EU leaders.

Flagging enthusiasm for enlargement

The problem is that Brussel’s main tool for pushing its energy priorities on the Balkan countries is the carrot of eventual EU membership. But in the crisis-ridden EU, enthusiasm has faded for accepting yet more poor former communist countries that have problems with building well-functioning institutions and tackling corruption.

“Recent lack of tangible progress in the accession talks results in the western Balkan countries losing appetite for much needed energy system reforms,” said Dragana Mileusnić of Climate Action Network.

The countries of the region do belong to the Energy Community, a grouping of EU neighbor states who have committed to following EU energy priorities. However, it has only limited powers to enforce rules.

“Indirectly, of course, coal is part of our business,” said Janez Kopač, director of the Community’s secretariat. “Of course, we are very careful and sensitive in observing any new investments” to check whether they comply with environmental rules.

But with limited enforcement teeth, there is only so much the organization can do, said Pippa Gallop of CEE Bankwatch, a group that monitors the activities of international financial institutions.

The lack of pressure to follow the EU’s lead can be seen in the lackluster pledges from the region in advance of the COP21 climate summit.

While the EU is promising to cut its greenhouse gas emissions by 40 percent on 1990 levels by 2030, Serbia has committed to cut emissions by only 9.8 percent from 1990 levels. Macedonia said it would cut 30-38 percent compared to a business as usual scenario, which is equivalent to increasing emissions by 20-31 percent compared to 1990, according to Carbon Brief.

Without domestic and external pressure, there is not much will to undertake the expensive and politically tricky business of deeply reforming local energy structures.

Energy systems in the western Balkans are energy intensive and inefficient. They are also marked by state ownership, monopolistic structures and a lack of competition. Reforming them by shaking up murky structures, and combating entrenched business and political interests will take time and money.

“Implementing EU environmental and climate policies will require one of the most expensive reforms for western Balkan states on their path to joining the EU,” said Anna Dimitrova, a researcher with the Brussels-based Center for European Policy Studies. “The investment is unthinkable in a state-controlled sector where suppliers don’t compete to produce the most cost-effective solution, but rather to offer electricity at the lowest price to the state.”

Lignite — the most polluting type of coal — is widely available and appealing as a way of promoting domestic resources and supply security. Keeping jobs, power prices low and influential miners and heavy industries happy are all top priorities for politicians, making energy reform a risky political gamble.

“Political leaders fear taking actions to stop these practices due to the effect of an increase in electricity prices and damaging effect on the mining sector,” said Dimitrova.

The same dynamic is present in EU member Poland, where politicians from both leading parties strongly defend the coal that generates almost 90 percent of the country’s electricity. In fact, the Balkans look to Poland as an example of how to buck EU energy policies.

“They look up to this coal-reliant EU member state, and say ‘If they can do it, so can we’,” said the Climate Action report.

Balkan governments are also unconvinced of the economic case for renewables, said Gallop.

The EU is increasingly turning its back on coal, and financial institutions like the European Investment Bank are committed to halting lending for new coal power plants. But the Balkans do have other sources of cash.

Chinese state banks, Exml Bank and the China Development Bank have signed financing deals for lignite power plants in Serbia and Bosnia, research from CEE Bankwatch shows. China also has been involved with three other coal projects in Bosnia and one in Romania, an EU member.

While building coal-fired plants may make economic sense in the short term, it could prove to be a problem in the future if the western Balkan countries ever join the EU. Also looming over the coal projects is the carbon price set by the EU’s Emissions Trading Scheme. It is currently only around €8 per ton, but is projected to rise to about €30, adding enormously to the costs of coal-fired power.

“They are locking their dirty energy systems into outdated and heavily polluting coal infrastructure for decades to come,” said Mileusnić.