End customers will pay the price of decarbonization in Serbia

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Regardless of the fact that EPS, which supplies 95% of our market, does not have the cost of carbon dioxide emissions, end customers will pay the price that includes that cost.
The latest analysis of the American Action Forum shows that eliminating fossil fuels would increase the annual bill of the American electricity consumer by 1,075 dollars. For the average American, that may not be anything, but for the average Serbian consumer, it certainly is, so the question arises again whether Serbia needs electricity from coal or is the green agenda really what can provide us with the current price of kilowatts and long-term secure supply.
This question is all the more interesting if we know that Europe lacks so much natural gas that the continent, although a pioneer in the global fight against emissions, is turning to coal to meet the demand for electricity, which has now returned to pre-pandemic levels, Bloomberg writes.
European gas storage facilities are currently 25 percent below the five-year average.
“People thought that Russia would reserve more capacity through Ukraine, and that simply did not happen,” said Trevor Sikorski, head of the natural gas sector at the Energy Aspect consulting firm in London. At the same time, electricity consumption in most EU countries is, with the passing of the pandemic, above the five-year average, according to Morgan Stanley. Due to reduced gas supplies, utility companies are forced to turn to coal to keep the lights on. This means that burning coal could still be profitable.
Asked why, in addition to all the above, coal is viewed with displeasure in Serbia, and persistently lobbies for investment in wind and sun, while thinking about what will happen during breaks during the year when we have neither sun nor wind, Zeljko Markovic, consultant at Deloitte says for Politika that before answering this question, he must remind that Serbia is a signatory to the Paris Agreement and that it has thus undertaken the obligation to reduce greenhouse gas emissions. To strive for a cleaner environment and to create conditions for sustainable energy development without the impact of climate change.
– In order to implement the obligations from the Paris Agreement and follow the European Union in its ambition to become carbon neutral by 2050, we must take measures to decarbonise our energy sector, because the production of electricity and heat based on coal contributes the most to total carbon emissions. Also, in November 2020, our country signed the Sofia Declaration on the Green Agenda for the Western Balkans, pledging to work together with the EU to meet the target of a carbon-neutral continent by 2050 – our interlocutor emphasizes.
So, he states, we do not have to leave coal production, but with that we will not fulfill the undertaken international obligations and we will stop our accession to the European Union. The main arguments we can hear for the continuation of electricity production from coal are that we still have enough reserves of lignite, as well as that by shutting down coal production we are shutting down a large number of jobs, which seems worrying, but the real question is whether the damage for Serbia will continue to be even bigger?

These days, record values of the price of carbon dioxide emissions have been recorded, which have exceeded the level of 50 euros per ton of emissions, which, among other things, has affected the prices of electricity, which are reaching record values on the stock exchange. The market price on some days at the end of June was higher than 100 euros per megawatt-hour on the Hungarian Stock Exchange, while electricity was traded on our stock exchange (SEEPEX) only a day later at a price of 120 euros.
Regardless of the fact that EPS, which supplies 95% of our market, does not have the cost of carbon dioxide emissions, end customers will pay the price that includes that cost, because EPS will certainly not offer them a lower one. They will already sell energy according to the market value, so the buyers are already paying the price of decarbonisation, even though it has not started in our country yet, the consultant explains.
– Also, the fact that in our country and the countries of the Western Balkans there is no obligation to pay for carbon dioxide emissions, and therefore the final price of the product does not include the costs of that emission, is only the current situation. In this way, our coal production is unfairly competitive with EU producers, and for them it is an unsustainable situation that undermines EU green policy.
Therefore, on July 14, as part of a broader package of EU climate laws, it is expected to introduce a mechanism for cross-border carbon equalization. Behind this name lies a simple principle of imposing a fee for carbon dioxide on products entering the EU so that European industry can play on an equal footing with foreign producers – says Markovic.
The goal, according to the European Commission, is to avoid “carbon leakage” by relocating industries or new factories abroad in search of lower production costs. This mechanism would apply not only to electricity, but also to products such as steel, iron, aluminum, cement and fertilizers. According to the description of the mechanism, importers of these goods in the EU will have to buy digital certificates, each of which represents a ton of carbon dioxide emissions embedded in their imported goods. The price of the certificate will be linked to the cost of carbon emissions on the EU market, based on the average auction price each week.
– One way or another, we will have to pay the price of emissions, at least for the electricity we want to export to the EU, and then the question arises, whether it will be profitable for EPS at all. I am afraid that it will not, and that then the situation will be reversed, that is, that our coal production will be uncompetitive in relation to the production from the EU – concludes Markovic, Politika reports.