Energy Community De-Carbon Day weighs carbon pricing options

The Energy Community De-Carbon Day explored options for the decarbonisation of the energy sector in the Energy Community Contracting Parties. The virtual workshop, which took place on 28 October, provided insights into the latest research on carbon pricing in order to stimulate more informed policy-making and provided a platform for discussion between experts and representatives of governments, authorities, companies, NGOs and civil society in the Energy Community Contracting Parties and the EU. The workshop was addressed by Yvon Slingenberg, Director in the European Commission’s DG CLIMA.

The workshop kicked off with a presentation of the main findings of the Secretariat’s study on carbon pricing options for the Energy Community, which will be finalized next month. Out of the five scenarios considered, the consultant, E3 Modelling, found the introduction of national emission trading schemes where the carbon price would be gradually aligned with the price based on the EU ETS, coupled with full market integration, to be the most cost-effective and socially acceptable option. Electricity and gas market integration was considered especially critical in terms of alleviating adverse effects of carbon pricing, accelerating investment into renewables, avoiding stranded costs, maintaining system reliability and mitigating price shocks for consumers.

The analysis also showed that carbon pricing in the Contracting Parties would be a more cost-effective option compared to a potential cross-border carbon tax in case it would be applied depending on the carbon-intensiveness of electricity imports into the EU. This message was echoed by the research conducted under the Regulatory Assistance Project (RAP) in cooperation with the Regional Centre for Energy Policy Research (REKK), which stressed that a national carbon price would be a more effective decarbonisation tool than a carbon border adjustment mechanism, and it would also enhance market integration and create additional public revenue.

Opening the event, Director Janez Kopač, said: “The Energy Community is all about integration. There can be no single energy market without a single carbon price in the long run. The alignment of the Energy Community carbon pricing policies with those of the EU would ensure a level playing field in the context of regional and Pan-European market integration in the spirit of the Energy Community Treaty. This alignment cannot happen in one step but must start now. This is extremely important to avoid a more expensive energy transition and an increasing gap between EU and the Contracting Parties.”

The carbon pricing study will be published in the second half of November 2020 and will feed into discussions on the Green Deal for the Energy Community at the upcoming Energy Community Ministerial Council 2020.

The workshop also provided insights into the main outcomes of the Secretariat’s new study on fossil fuel subsidies, to be officially released in November 2020. The main findings indicate that fossil fuel subsidies, like in the EU, continue to pose a significant problem by distorting market signals. Many Contracting Parties continue to channel direct subsidies into the coal sector and in the case of Bosnia and Herzegovina, Kosovo*and Ukraine these subsidies have even increased from 2018 to 2019.

* This designation is without prejudice to positions on status, and is in line with UNSCR 1244 and the ICJ Opinion on the Kosovo declaration of independence.