The new geopolitical reality has given equally new impetus for EU enlargement to the Western Balkans. However, it’s often forgotten that the most acute and imminent risk in that region is the complete meltdown of the power sector. None of the plants in the Western Balkans, most being more than 40 years old, run at full capacity. Technical failures are the norm, whilst retrofitting is uneconomic and often impossible.

Power plants there emit three times more CO₂ than the EU average. As of 2024, many lignite power plants in the region – about two thirds of the total capacity – will be non-compliant with the EU Large Combustion Plant Directive, applicable under the European Energy Community Treaty.

This can no longer be ignored. Money under the new Growth Plan for the Western Balkans is helpful but unfortunately insufficient. Chinese capital and technology and Russian gas would fill the void, as has been increasingly the case within the last decade.

A promising avenue to avoid the power sector’s collapse, ensure coal’s phase-out, bring new low-carbon technology to the region and avoid further ‘corrosive capital’ could be to build upon the EU Emissions Trading System (ETS), which has been instrumental in modernising the central and eastern European power sector.

This CEPS Policy Brief boldly proposes to integrate the Western Balkans fully into the ETS, allowing temporary free allocation. Revenues under this system could be used to initially cover the emissions from existing lignite plants whilst they are still operational and later as collateral for new investments in renewable solutions. The EU ETS price will ensure the rapid closure of the old lignite plants and the collateral funds could become the missing complement to existing funding sources, such as the Growth Plan for the Western Balkans and the Western Balkans Investment Framework. Of course, very strict conditionalities would need to apply.