Importance of setting a clear path to net-zero economy in the Western Balkans

The Western Balkans region is progressing towards cleaner energy, despite stickiness stemming from the legacy of its coal-based power generation. Many positive developments are underway, such as the adoption and/or implementation of national energy and climate plans (NECPs) in line with the European Union’s Green Agenda, and their commitments under the Energy Community Treaty. However, countries are facing multiple challenges on the road to a net-zero economy, such as the need to build up supportive infrastructure, set up a consistent regulatory framework with simplified administrative and permitting procedures, and address skills shortages.

Furthermore, the success of a large intake of renewables depends strongly on the integration of the regional energy market, which can enable higher transparency around pricing, facilitate trading and increase competition. For these developments to occur, a sound policy framework is needed to ensure consistency and reliability for investors, which seek favourable balancing conditions and low-risk prospects. Finally, flexible electricity systems would need more interconnections and a reinforced grid with storage solutions.

New carbon pricing could spur green investments

As pointed out, a decisive factor for greening the Western Balkans remains the respective countries’ clear policy decision on moving away from coal, taking into consideration both energy security and climate goals, but also the positioning in the global value chains. The European Union’s Carbon Border Adjustment Mechanism (CBAM), part of the ‘’Fit for 55’’ package aiming to reduce EU gas emissions by at least 55% by 2030, is certainly going to be a game-changer for the regional market. Under new rules to be applied for certain goods imported into the European Union, importers are required to report total verified greenhouse gas emissions embedded.

From January 1, 2026, Western Balkan countries will be required to introduce carbon pricing or their exports to the European Union will be taxed for untaxed carbon content in the country of origin to mitigate carbon leakage. While we are yet to see the concrete impact, regional economies will unquestionably be pushed to reconsider their carbon footprint, especially since the European Union has traditionally been the main trade partner for the region. Regulation (EU) 2023/956 on the CBAM enables electricity imports in the European Union to be exempted, if the contracting party’s electricity market is coupled with the EU internal electricity market and meets certain conditions related to climate and energy legislation. Consequently, carbon pricing and progress on market integration are expected to be favourable to renewable energy investments. As underlined by the Energy Community, these conditions include implementing an emissions trading system (ETS) by 2030, at least with regard to electricity, as well as the development of renewable energy sources.

Navigating the climate challenges and energy transition

In light of these regulatory developments, but also bearing in mind the growing climate risk, such as the severe disruptions inflicted by climate events last summer, early adoption of policies towards net-zero transition can help mitigate climate challenges and hopefully prevent further calamities. Scientists reported that almost 62,000 deaths in Europe last year were caused by summer heat, and summer temperature records were again broken this year.

As a recently published UN report indicates, global emissions need to fall by 42% by 2030 to put the world on track to limit temperature rise to 1.5 degrees Celsius by 2050, or by 28% to hold temperature increases to the 2 degrees Celsius targeted by the Paris Agreement. Doing so would require a sudden reversal in global emission trends, which have risen steadily in recent decades.

The EIB Enterprise Survey indicates that around 20% of firms in the Western Balkans are already affected by climate risks. Industries that rely on highly polluting resources will increasingly face both physical and transition climate risks, which could be reflected in higher production costs or loss of equipment in case of extreme weather events.

Ensuring positive socioeconomic outcomes

At the same time, we know that the transformation around clean energies may affect people and regions that depend heavily on carbon-intensive activities by potentially causing the loss of jobs and the close-down of businesses. The development of a comprehensive transition plan involving the social and economic aspects alongside environmental goals is the first step to preventing these negative outcomes.

To support this process more structurally, the European Union adopted a Just Transition Mechanism to enable EU Member States to gradually tackle the most pressing challenges arising from the phasing-out of coal. It aims to deliver climate objectives while enabling positive socioeconomic outcomes. On top of that, the European Commission’s Initiative for Coal Regions in Transition is aiming to help the Western Balkans and Ukraine move away from coal. Selected regions will be provided with access to technical assistance in the form of expert support to develop transition roadmaps for relevant public authorities. The initiative also aims to improve access to finance for
transition projects or programmes and the European Investment Bank is glad to support its implementation.

Record volume of climate finance

Multilateral financial institutions such as the European Investment Bank (EIB) have an important role to play in providing support for clean energy projects to crowd in private-sector engagement. In 2022, the EIB delivered record volumes of USD 32.9 billion of climate finance for high-income economies and USD 4.2 billion for low and middle-income economies through its specialised development arm EIB Global. EIB-mobilised global private finance stood at USD 32 billion. For every euro spent by the EIB on its energy operations, it attracts a further EUR 1.4 from the private sector. The EIB has already raised its financing worldwide for clean energy projects to unprecedented levels, and recently announced an additional EUR 45 billion for the REPowerEU plan, on top of its regular lending volumes.

For the Western Balkans, billions of euros are required on an annual basis to facilitate the region’s phasing-out from coal to renewable energy until 2030. EIB Global is engaging with private and public partners to bring in more clean energy projects, such as wind farms, solar plants and modernised electricity grids and infrastructure. We believe our goal to be twofold — to provide financial support to the energy transition, and at the same time make sure this transition is just.

As a reliable partner for the whole Western Balkans region, the Bank has been supporting its sustainable development for 45 years and has invested over EUR 11 billion since 2009. Looking ahead, we are continuing the investments planned under the Economic and Investment Plan and are ready to support the rollout of the new Growth Plan for the region, recently announced by the European Commission to accelerate socio-economic convergence. Aimed at bringing the benefits of membership to the region in advance of accession, as well as boosting economic growth to the tune of EUR 6 billion, the plan will also support the integration and decarbonisation of the regional energy market.

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