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Western Balkans: the coal keg of Europe as a trigger of change?

The Western Balkans emerge as one of the planet’s warming hot spots as findings of a concluding paper collaborated by the Hungarian government and the Global Green Growth Institute illustrates. The impacts of climate change in the region manifest in the increase of average temperature, wildfires and fluctuating water availability including floods and droughts. Around 60 per cent of energy production in the region relies on fossil fuel and 16 Western Balkan coal-fired power plants emit as much carbon dioxide as 250 coal power plants across the European Union.

This means that emission levels per GDP are above the world average, with the energy sector being the main emitter in the region. Despite the strong commitment of the WB6 (Albania, Bosnia and Herzegovina, Kosovo, North Macedonia, Montenegro and Serbia) to increase their renewable energy quota by 2020, fossil-fired plants, including coal, continue to play a key role in electricity generation. While the region’s electricity network is relatively well connected, the energy sector is in a transitional stage. The infrastructure is often obsolete, inefficient and highly dependent on fossil fuels. The energy market remains fragmented and cross-border trading is limited. The main barriers for deploying renewables and energy efficiency programs include municipalities’ lack of access to finances, overly complex tender procedures, the cost advantage of fossil fuel over renewable alternatives and the ongoing large-scale investments in fossil fuel technologies.

All WB6 countries are contracting parties to the Energy Community in order to align their energy policies with those of the EU and most of them made a commitment to the Paris Agreement, with Kosovo as an exception that is nevertheless aligning its climate strategies with the agreement’s goals. While they have identified promising targets, achieving them requires serious efforts and significant investments. Thankfully, significant amounts of climate-related financing have been committed to the WB6 with the energy sector receiving the largest shares. Among the most significant donors are European institutions such as the European Union, the European Investment Bank and the European Bank for Reconstruction and Development, which by itself expects to provide up to 700 million euros of annual green financing in the region.

Recognising the above-mentioned development needs and potential of the Western Balkans region, Hungary proposed two major correlated initiatives, such as a dedicated institution and an investment fund focusing on the green transformation of the region. In June 2019, the initiatives were formalised when the Western Balkans Green Centre Nonprofit under the governance and supervision of the Ministry for Innovation and Technology was established. The main goal of the Green Centre is to develop a solid, bankable project pipeline to serve as a basis of implementation projects to be funded by a dedicated Green Investment Fund.

This project pipeline is prepared by Hungary-based SMEs in the green sector, that collaborate with either local stakeholders or other development partners and use grants provided by the Green Centre (4.5 million euros is to be disbursed over two years). The objective of project generation is to help local climate protection efforts in line with nationally determined contributions (NDCs) set forth in the Paris Agreement. The current call for applications by the Green Centre is available in English here.

To turn projects from the preparatory stage into implementation, the regional Green Investment Fund will strive to have adequate resources and a diverse set of financial instruments for project financing incorporating public and private resources. This fund will catalyse private sector investments in the Western Balkans through the development of projects that generate a return on investments while strengthening climate cooperation among donors in the region and address some of the main challenges associated with climate finance and economic development in the WB6.

But the work does not stop here. Under Chapter 27 on Environment, enlargement countries have to comply with EU regulatory provisions in addressing climate change. As regulatory convergence and alignment of legislation with the EU acquis are crucial parts of all dimensions of EU integration, the Green Centre supports efforts to create a Centre of Excellence in Green Transition to help these countries speed up their EU convergence processes while strengthening their capacities to fight climate change.

We are working on this concept to emerge as a dedicated focal point mobilising and converging European knowledge and expertise in the fields of environment and climate change-related legislation and administration via technical assistance and twinning projects as well as other thematic actions. The Centre of Excellence will connect government and private sector experts with countries of the region. Additionally, it will help local banks and financial institutions develop their sustainability frameworks and regulations in the context of EU taxonomy for sustainable activities.

So, despite the threat of climate change, the pollution from outdated technologies and the negative economic effects of the COVID-19 pandemic, I am confident about the green transition and sustainable future of the WB6. In this context, the European Commission’s recently published Economic and Investment Plan for the Western Balkans, complemented by its Green Agenda for the Western Balkans brings a high level of assurance. The proposal sets out 9 billion euros funding for development of the region’s economic convergence coupled with additional guarantee facilities aiming to raise investments of up to 20 billion euros. It emphasises the importance of a clean economic transition and identifies priorities interlinked with green technologies and sustainable development.

Expectations are that the plan will significantly boost the volume of green investments in the region in the coming years. In the recent Sofia Declaration on the Green Agenda for the Western Balkans, countries of the region also committed themselves to those paramount objectives. Our goal is to complement these efforts with our tools and expertise as much as possible in the context of reinforced regional cooperation and connectivity for the sustainable development of the Western Balkans that is in the strategic interest of Hungary as well as the European Union.

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