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What do the Carbon Taxes mean for Serbian economy and trade?

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From October this year, importers of certain products to the European Union will have to report how much CO2 was emitted in the process of their production, and from 2026 they will also start paying taxes to the European Union, which will depend on the amount of the emitted CO2.

They will be introduced in phases, so that by 2034 they will reach the amount of carbon taxes in the EU, which currently amount to 80 euros per ton of emitted carbon dioxide.

This de facto environmental tax, called CBAM (Carbon Border Adjustment Mechanism), will apply to imports of iron, steel and products made from them, aluminum, cement, artificial fertilizers and electricity.

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According to the analysis of the World Bank from the regular economic report for the Western Balkans, according to the data for the year 2022, about 10 percent of exports will be affected by this mechanism, and more than half relate to iron and steel, i.e. to the export of the ironworks in Smederevo owned by the Chinese Hbis .

In addition, the most affected would be the export of electricity and, to a lesser extent, aluminum and artificial fertilizers. Last year, the export of these products from Serbia to the EU amounted to about two billion dollars.

“The new tax in practice also means that our products will be more expensive on the EU market. In the future, this may discourage investment, especially by foreign companies that are also the biggest exporters. At the same time, the EU will bear the negative effects, although all the mentioned products coming from the markets of China, Russia, Turkey and other third countries will become more expensive, which does not support the current fight against inflation,” says economist Ivan Nikolić, editor of Macroeconomic Analysis and Trends.

The World Bank estimates that CBAM would have a modest effect on Serbia’s GDP, with around 0.23 percentage points. However, there is also a proposal on the table for Serbia to introduce its own carbon emission charging system in order to push the green transition, removing coal from the energy mix and reducing greenhouse gas emissions.

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In addition, the SB in its report indicates that all the countries of the SB have already accepted to implement the EU laws on energy and climate change by signing the Sofia Declaration on the Green Agenda and all subsequent documents within the energy community, among which is the introduction of national taxes on carbon emissions .

Their assessment Is that the introduction of domestic carbon taxes would affect the reduction of GDP by 0.4 percent in the first years after the introduction, that “full alignment with EU carbon taxes would contribute to GDP growth by 0.1 percent above the projected growth without of this system”.

At the same time, it would bring from 270 million to one billion euros per year for the budget, according to estimates published in the report. However, experts point out that we have yet to see all the effects of the implementation of carbon taxes, but that the introduction of our carbon tax system would increase inflation.

Analyst Bogdan Petrović points out that CBAM will not affect our economy much, because Serbia does not have a large export of electricity, and will not have it in the next ten years.

“We exported electricity this year because it was a mild winter, and because electricity was produced from Russian gas, not from our own resources. The question is how much longer it can last. Under normal circumstances, we do not have a large export of electricity, and our needs will continue to grow. We do not export cement, very little artificial fertilizer, and the only thing that will be significantly affected is iron and steel, which are produced only by the Chinese. Let the Chinese choose whether they will pay the tax for exporting to the EU or whether they will sell, for example, to Africa where there are no carbon taxes. Why should we introduce our own taxes and burden the entire population”, notes Petrović.

He points out that the introduction of a carbon tax would particularly affect our construction industry. “If cement, iron and steel were to rise in price. Even if EPS also had to pay, it would raise inflation,” warns Petrović.

According to experts’ calculations, if Serbia were to introduce a carbon tax of 80 euros per ton of CO2, which is in the EU, EPS would have to pay the state about 60 euros per megawatt hour of electricity produced for that tax.

Currently, EPS sells electricity to the population at 45 euros, and to the economy at around 100 euros per megawatt hour. If Serbia were to charge a carbon tax in the same amount as it is in the EU, then companies that export to the EU would not have to pay it. If they were to pay less than the EU tax, then they would only pay the difference.

The World Bank report states that from 2025, the WB countries will have a tax of 4 to 26 euros per ton of carbon dioxide and that it would gradually increase to 80 euros, as in the EU, by 2040.

EPS announced in March that together with other power companies from the region, it is discussing the introduction of regional power companies into the EU carbon dioxide emissions trading system (ETS) and the use of dedicated funds to finance the construction of replacement capacities. Montenegro has already introduced a national ETS and charges a fee of 24 euros per ton.

 

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