National Consultant – Climate Change Expert for impact assessment and proposition of key steps and measures for introduction of CBAM and EU ETS in Bosnia and Herzegovina

Background

NOTE: Signed Offeror’s Letter to UNDP Confirming Interest and availability - https://www.ba.undp.org/content/dam/bosnia_and_herzegovina/docs/Operations/Jobs/Offerors%20Letter%20to%20UNDP%20Confirming%20Interest%20and%20Availability.docx - Letter to UNDP Confirming Interest and Availability.docx - to be sent to e-mail ba.shared.hr@undp.org with Subject: Job ID 101462.

Due to a long period of neglect and under-investment, urban infrastructure in BiH, public and residential buildings, energy systems and utilities, waste management, and transport, are now in need of expansion and modernization. From a global environmental standpoint, this situation contributes to a steady increase in greenhouse gases (GHG) emissions, primarily associated with energy use in public facilities. Public facilities are also the largest energy users and GHG emission sources in municipalities in BiH. Modernization, upgrade and expansion of municipal buildings, infrastructure, and services in BiH will improve the quality of urban life and achieve a range of important local and global environmental and sustainable development benefits.

To achieve abovementioned, the “Catalyzing environmental finance for low-carbon urban development” Project (UrbanLED) strives to leverage investment for transformational shift towards low-carbon urban development (LCUD) in Bosnia and Herzegovina thereby promoting safer, cleaner, and healthier cities and reducing urban GHG emissions. To enable this transformational shift, the Project provides technical support towards the implementation of technically and economically feasible low-carbon solutions in key urban sectors and promotes their wider uptake by municipalities and private sector via dedicated financial mechanisms. The Project has been financed by Global Environment Facility (GEF) and is directly implemented by UNDP Bosnia and Herzegovina Country Office

Under Component

1. Project will work on development of necessary regulations for instituting polluters pay principle (PPP) and improving the system for collecting PPP fees. The PPP principle is one of the most commonly used tools for environment protection. It is based on principle that those who produce pollution should bear the costs of managing it to prevent damage to human health or environment. European Union (EU) Carbon Border Adjustment Mechanism (CBAM) is frequently described as a border tariff on imports based on their carbon content and the PPP principle. Thus, the project aims to assess CBAM impact on Bosnia and Herzegovina and lay the foundation for its implementation.

As announced in the European Green Deal[1], the European Commission has proposed a new EU target for 2030 of reducing greenhouse gas (GHG) emissions by at least 55 per cent compared to levels in 1990. To deliver on these GHG emissions reductions, the EU revised all relevant policy instruments in a ‘Fit for 55 Package’[2], that covers in particular the review of sectoral legislation in the fields of climate, energy, transport, and taxation.

As part of these efforts, the CBAM is a climate measure that should prevent the risk of carbon leakage and support the EU's increased ambition on climate mitigation, while ensuring World Trade Organization (WTO) compatibility. In the context of the ‘Fit for 55 Package’ the CBAM is not a self-standing measure. The role of the CBAM is to address the risk of carbon leakage and reinforce the EU's Emissions Trading System (EU ETS). Thus, there is a strong relation between the EU ETS and the CBAM.

The EU's ETS is the world's first international emissions trading scheme. It sets a cap on the amount of GHG emissions that can be released from industrial installations in certain targeted sectors. Allowances are to be bought on the ETS trading market, though a certain number of free allowances is distributed to prevent carbon leakage. That system has been effective in addressing the risk of leakage, but it also dampens the incentive to invest in greener production at home and abroad. The CBAM is aimed to progressively become an alternative to this.

Under the ‘Fit for 55 Package’ revised ETS, the number of free allowances for all sectors will decline over time so that the ETS can have maximum impact in fulfilling our ambitious climate goals. Furthermore, for the CBAM sectors (iron and steel, cement, fertiliser, aluminium and electricity generation), the free allowances will gradually be phased out as from 2026. To complement the ETS, the CBAM will be based on a system of certificates to cover the embedded emissions in products being subsequently imported into the EU. To ensure a level playing field between EU and non-EU businesses, and once the full CBAM regime becomes operational in 2026, the system will adjust to reflect the revised EU ETS, in particular when it comes to the reduction of available free allowances in the sectors covered by the CBAM. This means that the CBAM will only begin to apply to the products covered gradually and in direct proportion to the reduction of free allowances allocated under the ETS for those sectors.

Bosnia and Herzegovina (BiH) is a highly fossil fuel dependent country, with carbon intensity about three times higher than the European average. This limits the country’s progress towards clean energy transition and EU integration. In 2020, BiH generated electricity in the amount of 15,390.67 GWh, out of which 67.85% came from coal. The most fossil fuel dependent industries such as electricity generation, iron and steel, cement and aluminium industry, are the country’s main economic pillars and exporters of goods. At the same time, these sectors present the main sectors to be affected by CBAM. Given that the BiH’s main export partners are EU countries[3] such as Germany, Italy, Croatia, Austria and Slovenia, CBAM is expected to have a high impact on the country’s economy, as it will make it more expensive to import carbon-intensive products into EU, which at the same time can spur changes towards more sustainable products in BiH. Thus, the effects of the CBAM and ETS (as its complementary measure) on the BiH market has to be analysed.

To support the adjustment and for ease of CBAM and ETS introduction in Bosnia and Herzegovina, the National Consultant will provide advisory and technical services for impact assessment of CBAM and ETS on key sectors of Bosnia and Herzegovina and propose key legal, policy, operational, institutional and market measures/steps to be taken to introduce the CBAM and ETS in Bosnia and Herzegovina.

The National Consultant will render technical support to the Climate Change Mitigation Program Manager, project team and government counterparts. The National Consultant will work under the overall guidance of and direct supervision from Climate Change Mitigation Programme Manager. However, on a daily basis the Consultant will work closely with the UrbanLED project team, Economist, Ministry of Foreign Trade and Economic Relations of BiH (MOFTER) and other government counterparts.

[1] https://eur-lex.europa.eu/legal-content/EN/TXT/?qid=1588580774040&uri=CELEX:52019DC0640

[2] https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A52021DC0550

[3] https://oec.world/en/visualize/tree_map/hs92/export/bih/show/all/2019/

Duties and Responsibilities

The task of the Consultant is to assess the environmental, economic, social, administrative, revenue generation and other impacts of CBAM and EU ETS measures on Bosnia and Herzegovina industries and country as a whole, and propose the key steps and measures to be taken for easier introduction of CBAM and ETS in BiH and reducing potential negative impacts that they may have on BiH industries and country as a whole.

National Consultant – Climate Change Expert for impact assessment and proposition of key steps and measures for introduction of CBAM and EU ETS in Bosnia and Herzegovina will provide the following services:

Task 1: CBAM and EU ETS impact assessment on BiH, which includes the following sub-tasks:

1. Analyse CBAM and EU ETS related policy documents, including (but not limited to):
2. EU Green Deal[1]
3. Western Balkans Green Agenda[2]
4. ‘Fit for 55 Package’[3]
5. CBAM measure[4]
6. EU ETS directive[5]
7. Revision of EU ETS directive[6]
8. CBAM Impact Assessment Report[7]

Conduct a brief BiH export, market and industrial analysis with goal of identifying the export values, main export industries, growth indicators, production patterns, their carbon intensity and at least five key sectors/industries to be impacted by CBAM and EU ETS

Assess the positive and negative environmental, economic, social, administrative, revenue generation and other impacts of CBAM and EU ETS measures on at least five Bosnia and Herzegovina key industries and country as a whole. The assessment of industries needs to give answers to questions related to direct and indirect economic and market impacts of CBAM and EU ETS measures on each industry, such as (but not limited to):

How does CBAM and EU ETS impact industrial prices, production, value add and import/export displacement?

What is the distribution of these impacts across market segments?

How does CBAM perform alongside wider ETS reform (including removal of free allocations & carbon price increases)?

How is the policy impacted by inclusion of scope 3 emissions?

Develop a draft CBAM and EU ETS impact assessment report and present it to UNDP Project Team, MOFTER and other relevant government counterparts. The CBAM and EU ETS impact assessment report structure will be defined in cooperation with UNDP Project team, but initially is intended to consist of:

Introduction: Political and legal context for assessment

CBAM and EU ETS measures (background, objectives, achieved impacts, policy options, practical usage and expected results)

CBAM and EU ETS in context of BiH (how does it translate to BiH – legal basis, BiH market overview and readiness for CBAM and EU ETS)

Impacts of the CBAM and EU ETS on BiH as a country (environmental, economic, social, administrative, revenue eeneration and other impacts)

Impacts of the CBAM and EU ETS on BiH key industries (environmental, economic, social, administrative, revenue generation and other impacts)

Conclusions

Collect comments and suggestions, and finalize the CBAM and EU ETS impact assessment report. The report should not exceed 15 pages.

Task 2: Proposal of key steps and measures for CBAM and EU ETS introduction in BiH, which includes the following sub-tasks:

1. Conduct an on-desk research of current legal, policy, institutional and market framework in BiH, relevant for introduction of CBAM and EU ETS measures
2. Conduct an on-tesk analysis of already developed roadmaps, white papers, policy documents and initiatives that are connected to the introduction of CBAM and EU ETS measures in BiH, such as (but not limited to):
3. Roadmap - Introduction of carbon pricing and emission trading scheme in Bosnia and Herzegovina – developed by the Energy Community Secretariat
4. Energy Community Decarbonization Roadmap
5. Initiative for coal regions in transition in the Western Balkans and Ukraine
6. Nationally Determined Contribution (NDC) of Bosnia and Herzegovina
7. National Energy and Climate Plan (NECP)
8. The EBRD just transition initiative
9. Conduct consultations with 10 key stakeholders (international organizations, institutions on national and entity level) to get a deeper understanding on current state of framework for introduction of CBAM and EU ETS measures
10. Analyze legal, policy, institutional and market framework in BiH, and identify gaps and areas for improvement, relevant to introduction of CBAM and EU ETS measures
11. Develop draft proposal for key steps and measures to ease the introduction of CBAM and EU ETS in Bosnia and Herzegovina. The steps and measures should be split into preliminary and adoption and transposition phase, and presented in narrative and table overview of following types of steps and measures:

Legal and policy steps and measures

Market measures

Institutional and capacity building measures

Present draft proposal of key steps and measures to UNDP, MOFTER and other government counterparts, and collect comments and suggestions in table form

Develop a final report on introduction of CBAM and EU ETS in BiH, including (but not limited to):

Introduction: Political and legal context

Brief overview CBAM and EU ETS measures (background, objectives, achieved impacts, policy options, practical usage and expected results)

Summarized impacts of CBAM and EU ETS on BiH’s key industries and country as a whole (environmental, economic, social, administrative, revenue generation and other impacts)

Final proposal for key steps and measures for easing the introduction of CBAM and EU ETS, split into preliminary and adoption and transposition phase, and presented in narrative and table overview of Legal and policy steps and measures, market measures, and institutional and capacity building measures.

Conclusions

The structure of final report will be developed in consultations with UNDP and MOFTER.

The National Consultant will cooperate closely with Economist engaged by the UrbanLED project.

It is envisaged that the level of effort for these tasks will not exceed 25 expert days. Due to the uncertain situation regarding the COVID-19 pandemic, final decision on modality of meetings with stakeholders and project team will be made in line with official recommendations. If not possible to organize face-to-face meetings, the meetings with project staff and governmental counterparts will be organized on remote basis

Outputs will be written reports with regards to the Task 1 and 2 listed above. Written work will be supplemented by other requested consultation by phone, Teams, and in person.

Deliverables/outputs