On December 20 last year, the European Parliament adopted the Carbon Border Adjustment Mechanism (CBAM), a mechanism that will be effectively applied from October 1 this year, and will also apply to Serbia. This means that a special tax will be paid for carbon dioxide (CO2) emissions when exporting goods to the EU.
The mechanism applies to imports of iron, steel, aluminium, fertiliser, electricity and cement, which are produced in a process that emits more CO2 than is allowed in the EU.
Those processes are also related to the use of coal, so when importing, they will be subject to additional customs duties for the amount of these costs borne by producers in the EU.
As Blic reported, although coal is important for our energy security until 2050, it is the Electric Power Company of Serbia (EPS) that will have to gradually shut down the blocks in its thermal power plants.
As it is added, in the next 10 years, Serbia will shut down 10 units in EPS thermal power plants, and this is defined in the EPS Green Path plan.
The first thermal power plants on the list for shutdown are Morava Thermal Power Plant and Kolubara A Thermal Power Plant until the end of 2024.
After that, it will be the turn of TENT A1 and TENT A2 until December 2027, and a year later TE Kostolac A1 and A2, while all other long-term plans will be defined in the National Strategy and the integrated energy and climate plan, which is what the New Economy is about already wrote.
And while long-term plans are necessary, some commitments are already in the offing, such as the one tied to a so-called carbon tax for excessive carbon dioxide emissions from coal-fired power generation.
What does the CO2 tax bring?
Experts claim that this standard would cost Serbia dearly because it would have to pay between one and a half to two billion euros per year just for CO2 taxes, due to the fact that it produces 70 percent of its electricity from coal, which our portal also wrote about at the time discussed in public the possible construction of the new Kolubara B thermal power plant.
Movement of carbon taxes per ton of CO2
40 euros in December 2022
100 euros in February 2023
84.1 euros in 2024 (estimates)
This practically means that the export of electricity to the EU, as well as goods in the production of which energy produced from coal participates, would be burdened with those taxes.
How much of a blow it would be, is shown by the fact that Serbia achieves almost two thirds of its trade with EU countries.
“This mechanism will have a negative effect on the competitiveness of companies from third countries that export to the EU.” As Serbia has about 60 percent of its foreign trade with the EU, it is evident that companies from Serbia will be directly affected by this instrument,” the text adds.
In the five sectors covered by the CBAM mechanism, iron and steel, aluminum, fertilizer, electricity and cement, the introduction of these taxes increases the price of products from Serbia.
“In the long run, it can discourage investment, especially in countries that are the biggest exporters.” This will be a big blow for the Serbian economy, not only for exporters from these sectors, but also for all small businesses that are integrated into supply chains,” said recently Sanja Filipović , scientific advisor at the Institute of Social Sciences.
According to the opinion of economist Ivan Nikolić , which he presented in the author’s text in the journal Macroeconomic Analysis and Trends (MAT), the aim of these EU measures is to force companies to follow Brussels’ climate policy.
“The mechanism will have a negative effect on the competitiveness of companies from third countries that export to the EU.” This also applies to those companies operating in Serbia,” said Nikolić.
As it was added, the products of these five sectors accounted for 11.8 percent of Serbia’s total merchandise exports to the EU. The increase in the price of products from Serbia can discourage investment, especially by foreign companies that are also the biggest exporters
EPS (does not) reduce coal use
EPS is also aware of this, so its documents predicted the decline of coal in the production of electricity.
“In all the scenarios presented in the EPS Go Green Road document, coal use declines.” The TENT A1 and A2 blocks should operate until 2026 and 2027, respectively, while the remaining EPS thermal blocks will gradually reduce the number of operating hours until 2035.
As a result, the emission factor would gradually fall from 0.86 tons of CO2 per MWh (megawatt-hours) from 2019 to 0.51 tons of CO2 in 2035,” said Vladimir Šiljkut, advisor to the director of EPS.
According to his words, investments of 2.2 billion euros are planned for the reconstruction of capacities for the production of electricity and coal, 5.8 billion euros for the construction of replacement and new capacities, and 500 million euros for environmental protection.
On the other hand, the energy coordinator of the Center for Ecology and Sustainable Development (CEKOR) Zvezdan Kalmar claims that these investments in coal-fired EPS plants would not be profitable.