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Beyond EU enlargement: Western Balkans and the EU energy acquis

At the end of March, while the world was starting its fight against the coronavirus pandemic, the European Council decided to open accession negotiations with Albania and North Macedonia.

A long-awaited decision, as North Macedonia was declared a candidate country in 2005, while Albania received the candidate status in 2014.

“The European Union delivers on its promise,” commented the President of the European Commission, Ursula von der Leyen. “North Macedonia and Albania did what was asked of them and they have continued making progress in the reforms needed.”

What else?

But what about what’s missing? Any European country can apply for membership if it respects the democratic values of the European Union and meets the key criteria for accession, which include stable institutions and a functioning market economy. In the case of the countries of the Western Balkans, additional conditions were set out, relating to regional cooperation and good neighbourly relations.

“In the case of Albania, the Council has clearly stated that several issues still need to be addressed before the first Intergovernmental Conference. Those concern especially the electoral and judicial reforms and the fight against organised crime,” an EU source tells CEENERGYNEWS. “The new methodology also puts a stronger focus on the fundamental reforms, essential for success on the EU path. The fundamentals will become even more central in the accession negotiations.”

“Accession of Western Balkans countries to the EU is marred by many obstacles and seemingly never-ending carrot and stick game(s) towards achieving the EU standards (and backsliding in a democracy when those goals are not reached by Western Balkans candidate countries, or not acknowledged by EU member states),” Aleksandar Kržalovski, Executive Director of the Macedonian Centre for International Cooperation (MCIC), tells CEENERGYNEWS.

To inject further dynamism into the negotiating process, the Commission proposed to group the negotiating chapters in six thematic clusters with green agenda and sustainable connectivity being among them.

“Indeed, over a month or so, the COVID-19 crisis shifted the focus from finding ways for speed up the growth and development to helping the long-term recovery of the Balkan economies,” says Zoran Sretić, an external associate at the European Policy Centre.

It appears that the European Commission sees the Green transition and infrastructure investment projects under the connectivity agenda as the means to salvage some of the dire effects of fighting the pandemic to Western Balkans’ economy.

As also confirmed by the EU source, the Green transition will play a central role in the recovery to relaunch and modernise the economies of the Western Balkans.

At the beginning of May, the EU-Western Balkans summit took virtually place, in which all leaders asked the Commission to come up with an economic and investment plan for the region.

“The idea with clustering chapters is to provide more problem-solving approach at the beginning of the negotiating process to shorten the time needed,” Mr Sretić tells CEENERGYNEWS. “The methodology will apply to North Macedonia and Albania, only. For Serbia and Montenegro will be a rather optional tool. However, putting chapters in the cluster, in the beginning, will not provide the possibility of temporarily closing chapters in bulk in the end.”

That said, Mr Sretić believes that the methodologies and digital handshakes will not operate in a political and economic vacuum.

“The EU will compete not only with COVID-19,” he continues. “Equally it will compete in the region with investment strategies of a pragmatic global player like China, a competitor arguably less sensitive to sound procedures and not bothered with sophisticated jargon that one has a hard time to fathom.”

The EU environmental acquis

The latest wave of enlargement has demonstrated that in the process of aligning with the EU energy acquis, many challenges arise, especially related to the environment protection.

When it comes to legislation in the energy sector, the EU says that “considerable efforts are needed”. Specifically, when it comes to the environment, the situation in North Macedonia and Serbia is considered as “totally incompatible with EU acquis” while “further efforts are needed” in Albania and Montenegro.

“I believe that the phrase situation applies more to the lack of implementation and enforcement than to the degree of legal alignment,” explains Mr Sretić.

To put it differently, the reality of real-life does not comply with the normative reality. Even in areas where legislation reached a good level of alignment, the quality of the environment remains poor, like in the air sector in Serbia for example.

According to him, several factors can be the reasons why the enforcement of the law is, in reality, poor and often delayed. These include a lack of political awareness on the importance of decoupling economic growth from environmental inefficiencies, a lack of a long-term sustainable system of financing of environmental policies, weak administrative capacities, a poor state of the communal waste management and urban wastewater treatment infrastructure.

“These problems reflect on the overall capacity of the state to align the legislation, enforce it and to keeping itself abreast with the pace of changes of the rules at the EU level,” Mr Sretić continues. “So major difficulties should be expected, but that does not mean that they should not be put in the perspective. For one thing, one cannot expect enforcement of unrealistically ambitious legislation if the overall environmental infrastructure and administrative capacities for project financial planning of environmental investments are weak and prone to a high degree of turnover.”

The EU source specifies that Albania, Montenegro, North Macedonia and Serbia are all contracting parties to the Energy Community Treaty. In this context, they are committed to adopting EU principles and strategic priorities and obliged to gradually adapt their legislation to the EU’s energy, environment and climate acquis.

“Whereas the Third Energy Package in both the electricity and gas sectors has been transposed, the state of implementation is seriously lagging behind in Serbia and North Macedonia,” the EU source highlights. “Besides, Albania and Montenegro have not yet developed organised wholesale markets, which are still determined by bilateral transactions.”

The challenge remains to step up efforts to reach the 2020 energy targets and the preparation of the National Energy and Climate Plans. The focus should be on the implementation of the respective regulations, notably on energy efficiency.

Specifically, when it comes to North Macedonia, Mr Kržalovski reminds that the country brought its Strategy for Energy Development last year (with a view up to 2040) but the law on Energy it is not enacted yet.

What if

Decision to open negotiations with Albania and North Macedonia is finally enabling at least the perspective to speed up the accession process, but again, it is not a guarantee that the negotiations will even start or that they will be concluded successfully in foreseeable time-span of five-ten years, Mr Kržalovski says.

Let’s say these countries become EU Members. North Macedonia relies predominantly on fossil fuels, especially low-grade lignite and gas. Plus, the country had a target for the share of renewable energy sources in gross final energy consumption of 28 per cent which was then adjusted to 23 per cent.

The same applies to other candidate countries. Although Albania can count a lot on hydropower, it is one of the few Balkan countries producing oil. Also, electricity production in Serbia still relies around 70 per cent on coal.

Unveiling the European Green Deal, EU members are focusing on a set of goals to reach by 2030 or 2050. Thi situation reminds of what has been said by the Polish minister of Climate, Michał Kurtyka, according to which climate neutrality is a path that each country has to choose for itself, taking into account the tools available at their disposal.

“The European Green Deal is still an initial roadmap of the key policies and measures needed to achieve resource-efficient and competitive economy where there are no net emissions of greenhouse gases in 2050 and where economic growth is decoupled from resource use,” Mr Sretić highlights. “The paper has yet to be translated into concrete policies and policies into binding rules. But let’s be frank, the European Green Deal is a collective aspiration. The EU is made of developed and some de facto developing countries. Hence, the burden is expected to be shared between the Member States proportionally so they can each contribute to the overall goal on its own pace. Indeed, one should expect that the more ambitious efforts will be supported by more generous funding from the EU funds as well.”

Another aspect that Mr Sretić underlines is if it can be reasonably expected that carbon removal technologies, such as carbon capture and storage and carbon capture and utilisation, become more cost-effective and ready for deployment in the meantime.

“In the same time, we are in the middle of the global economic crises the magnitude of which we cannot even begin to grasp,” he adds. “Therefore, it is hard to comment on how North Macedonia, Serbia or Albania would comply with something that has yet to be fleshed out into binding rules and with so many known unknowns.”

EU expectations

Article 194 of the Treaty on the Functioning of the European Union (TFEU) explicitly recognises EU Members’ right to determine the conditions for exploiting their energy resources, their choice between different energy sources and the general structure of their energy supply.

“A key objective of the EU energy policy in the Western Balkans region is to maximise possibilities for decarbonisation of energy systems in the region and to provide cost-effective measures to accelerate investments into clean energy technologies,” explains the EU source. “In this respect, a deep comprehensive analysis should be made, for the region as a whole and these individual countries separately, to design the best way towards cost-effective decarbonisation. It shall include a strategy for tapping into green technologies with a potential role of clean gases and decentralised renewable generation with the active participation of consumers and deployment of energy efficiency measures.”

“Perhaps, cutting the subsidies that induce carbon-intensive consumption and practices and avoiding FDIs in the energy sector that go below the EU standards hence risking stranded costs due to the substantial change of the legal regime would be one thing to ask,” comments Mr Sretić. “In return, the more ambitious Investment Plan for Western Balkans should be expected.”

Aleksandar Kržalovski underlines that North Macedonia produces around 70 per cent of its energy needs within the country and the other 30 per cent are imported.

“In perspective, one of the thermo-power plants (Oslomej) is in closing phase, while another (Negotino) is planned to be switched to natural gas,” he says. “This Government fostered gasification of the whole country and the first (of three) stage should be completed this year. All this should lead to the fulfilment of the goals for replacement of fossil fuel energy sources and increase of the production from renewables. It goes slower than it should, but also quite some efforts were done in the past ten years.”

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