Countries aiming to join the European Union may soon come under fire from the bloc’s new anti-climate-dumping trade weapon. Much needed progress to avoid financial penalties is in short supply.
The Energy Community is an international body whose main purpose is to help those countries seeking EU membership to align their laws and regulations with those of the main bloc.
When it comes to energy in particular, countries need to get on the same page or membership will not be on the table anytime soon.
That is why the six Western Balkan nations that are in the EU queue, Moldova, Georgia, Ukraine and a group of observer states, gather on a regular basis to exchange notes and decide how best to get their energy policies in order.
This week, the Energy Community held a big meeting, where issues like linking electricity markets, deploying carbon pricing schemes and preparing for the EU’s new carbon border tax were all on the agenda.
According to some of the delegates that attended the meeting there was, unfortunately, “a complete lack of urgency” and “a failure to understand that the clock is running out”.
That last point refers particularly to the EU’s new border tax, the carbon border adjustment mechanism (CBAM), which will come into effect in 2026. It will penalise importers of products like steel, iron and aluminium if the goods were manufactured in an unsustainable way.
The idea is to dissuade European companies from offshoring their production to countries that have less stringent climate policies and reimporting their wares into the EU’s single market. It is also an incentive for non-EU countries to invest in greener technologies.
CBAM will apply to all non-EU countries that do not meet the eligibility criteria to get exemptions.
Switzerland, for example, will not pay any charges because its emissions trading system is linked to the EU’s. This means that its exports are already subject to a carbon price, so the EU will not double-charge.
This is an option that the United Kingdom is likely to explore. The incoming Labour government has indicated that it will hold talks with Brussels about linking the UK ETS to the EU’s.
But where do the Energy Community, membership-seeking nations stand in all this?
Serbia is aiming to align with EU electricity market rules by the end of the year and is analysing how the CBAM will affect its exports. The government is also considering implementing a fixed carbon price.
Ukraine, meanwhile, will launch its emissions trading system in demo mode in 2025. The ultimate aim is to have it cover the same sectors as the EU’s and to eventually link them together. That would help exempt the country’s steel exports from extra charges.
Bosnia is also planning to launch an ETS by 2026, while Energy Community observer nation Turkey is also implementing a carbon market by the same year. Turkey is one of the most exposed countries to CBAM charges, according to analysts.
However, most of these plans are just that, plans. Some governments are further along than others in the process but in many cases they are just good climate intentions.
It took twenty years for the EU’s ETS to find its feet and although these new systems would have all of that knowledge to learn from, it will still take a while for their policies to start working properly.
That means that CBAM is likely to affect these countries until maybe the end of this decade. If progress is made on integrating electricity markets then Brussels might be convinced to exempt power trades from CBAM charges. That would be a big win for those countries that border EU members.
Again, this requires governments and politicians to roll up their sleeves and get the job done. There has been a lot of apathy and, in some cases, incompetence in that regard so far.
Perhaps the ticking clock and threat of substantial financial costs will steel minds and catalyse some action.
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