By Grzegorz Peszko, Richard Document, Sanja Madzarevic-Sujster, Simon David Ellis

COVID-19 hit the international locations of the Western Balkans laborious. All six economies—Albania, Bosnia and Herzegovina, Kosovo, Montenegro, North Macedonia, and Serbia—have been in deep recessions in 2020. However the area is bouncing again in 2021 and expects a return to pre-crisis development, though fragilities stay.

With a return to development, consideration is shifting in direction of longer-term points. On the entrance of thoughts is how the Western Balkans can generate inexperienced development, which is especially troublesome given the historic construction of Western Balkan economies. Proper now, brown industries (i.e., these which are emissions-intensive) dominate the area, supported by “sticky” brown expertise and jobs. Power depth is thrice increased than the EU common. Most Western Balkan economies have considerably increased carbon dioxide emissions per greenback of GDP than EU international locations (Determine 1). Some three-quarters of the area’s energy is generated by coal, and the 18 coal energy vegetation throughout the area emit 2.5 instances as a lot sulfur dioxide as all 221 of the EU’s coal energy stations mixed. Coal, particularly residential heating, contributes to the poor air high quality in cities. Nevertheless, air pollution from coal energy vegetation spreads throughout neighboring states as properly.

Determine 1. Larger carbon dioxide emissions within the Western Balkans than within the EU

Supply: OECD.

It’s turning into more and more clear that enterprise as traditional is not an possibility, as confirmed at COP26 in Glasgow. The human prices of inaction—elevated continual well being circumstances and shorter life expectancy as a result of air air pollution and extreme climate disasters—have gotten untenable, and financial forces are shifting profoundly. Shopper preferences are evolving, with elevated emphasis on reducing emissions within the provide chains of products and providers produced within the Western Balkans. Equally, investor preferences are altering, and brown industries discover it tougher and extra pricey to acquire entry to finance. And at last, the appearance of carbon pricing on the border (most notably through the EU’s Carbon Border Adjustment Mechanism) threatens to uninteresting the export competitiveness of the Western Balkans, simply on the time when the area is making an attempt to combine extra intently into European worth chains. That is the main focus of our new Common Financial Report on the Western Balkans.

The current rise of world vitality consumption and the corresponding rise in vitality costs through the COVID-19 restoration exhibits simply how laborious the transition to inexperienced development might be. But, there are additionally grounds for optimism. Western Balkan international locations are usually not depending on fossil gas commodities for exports and authorities revenues as many massive oil and fuel exporting international locations are. Proximity to the markets, capital, and concepts in Europe’s superior economies affords a bonus. Regardless of the dominance of brown industries, we discover that the Western Balkan economies have already got capabilities in numerous items and providers with inexperienced potential; for instance, manufacturing components for renewable electrical energy era. Increasing this potential affords a pathway to inexperienced competitiveness. Lastly, important assets from improvement companions—most notably through the European Inexperienced Deal—supply a pathway to assist finance the transition from brown to inexperienced development. With all these tailwinds, the Western Balkans have the chance to leapfrog legacy applied sciences into manufacturing components for renewable electrical energy era, gear for environmental monitoring and air pollution controls, and mechanical home equipment and biodegradable supplies for waste and wastewater administration.

The place to begin for this transition is getting incentives proper—for investments, for consumption, and for manufacturing. This contains aligning costs to draw buyers into fashionable inexperienced property and to stop additional accumulation of brown property. Equally, scarce fiscal area in lots of Western Balkan international locations is wasted by subsidizing renewables and coal-based electrical energy on the similar time (Determine 2). Authorities motion is vital: Whereas some Western Balkan international locations use taxes and charges to handle native pollution of air and water and to encourage circularity of merchandise and supplies reminiscent of plastics which are dangerous as waste, these don’t go far sufficient. As of now, no nation within the area has a worth set on carbon.

Determine 2. Western Balkans economies nonetheless subsidize coal-based electrical energy era

Figure 2. Western Balkans economies still subsidize coal-based electricity generation

Supply: World Financial institution employees based mostly on Miljević (2020).

At present, the Western Balkan economies produce disproportionately increased emissions for his or her outputs. But, even after COP26, Serbia, Kosovo, and Bosnia and Herzegovina, along with Turkey, are the one international locations in Southeastern Europe with none deadline to exit coal. As small international locations, they won’t have a huge impact on international local weather change. Nevertheless, the direct native well being affect is extreme: Publicity to ambient PM2.5 air air pollution is the main reason behind loss of life and incapacity within the Western Balkans. The vitality transition is thus paramount.

Aligning the expansion technique of the Western Balkan international locations with the inexperienced transition is an funding in igniting a totally new development technique that’s extra productive, sustainable, inclusive, and resilient to exterior shocks. Now’s the time to prioritize reforms to stimulate development and funding. Now’s the time to make the structural change away from an unsustainable, brown improvement path towards a greener future.

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