Navigating the polycrisis: A responsible roadmap for Serbia's green energy transition
Authors: Đuričin Dragan , Kovačević Aleksandar 
Published: February 2025

The global economy is in an age of astonishing change driven by a polycrisis, full of conflicting signals and contradictions. The post-COVID recovery in Serbia in the period 2022-2024 was characterized by slow-tomoderate growth. However, the country's future growth faces significant challenges from deeply rooted external and internal disruptors. One of them certainly is the 30% energy output gap. The structure of energy output is the related challenge. Defining a solution for energy security, in terms of the volume and structure of energy production, as a key limitation to sustainable growth, has been influenced by the green energy transition. Persistent issues, such as a widening energy output gap, a high carbon footprint, the dominance of energy-intensive and hard-toabate industries in economic structure (mining, steel, copper, cement, construction, transportation, ICT, etc.), as well as the low efficiency of end-use sectors, pose serious macroeconomic risks. The policy mix implemented in 2024 successfully curbed inflation, bringing it within the target tolerance band of 3% ± 1.5%, and reduced simultaneously the share of the fiscal deficit and public debt relative to GDP. Consequently, Standard & Poor's has classified Serbia as an economy with an investmentgrade credit rating (BBB-). In parallel, the dangerous nexus of key disruptors continues to fuel inflationary pressures and challenge the country's macroeconomic fundamentals. To make matters worse, (geo) political malaise erupted in Q4 2024. The escalating costs of concerted mediation efforts to counteract these negative consequences have further squeezed the fiscal space available for investment. In this deteriorating context, the current energy output gap could soar to an uncontrollable level, exacerbating the energy security issue. In the meantime, a new external asymmetric shock has emerged, the US sanctions to NIS (Naftna industrija Srbije), a Russian-Serbian joint venture and a leader from the energy sector. The sanctions on NIS could exacerbate an already severe energy output crunch. An additional factor of concern is the structure of Serbia's energy production, which is heavily reliant on lignite, accounting for 68% of electricity generation. There is a growing urgency to address this issue, not only to ensure energy security in Serbia but also to align with global climate change mitigation goals. To achieve and sustain energy security in Serbia, three critical goals provide the solution: energy output expansion, supply diversification, and the shift from fossil fuels to renewable energy sources. The Green Energy Transition Action Plan serves as the framework for achieving these goals. In the energy sector, the EU tends to be more explicit, elevated, and sophisticated in its requirements regarding compatibility with candidate countries. By meeting a net-zero future, Serbia will increase its chances of joining the EU. We want Serbia to be integrated into the EU as sustainably and inclusively as possible. A responsible roadmap should be not only feasible and effective but also based on local renewable energy sources, fiscal space, and the credit potential of relevant stakeholders, making it affordable for the capital blending needed for green finance. Our view is that biomass will be a key renewable energy source in the medium term. Other elements of the plan include the regulatory framework for the carbon marks, the issuance of thematic securities (green bonds, green credits, etc.), and green fiscal subsidies, along with measures to prevent non-complying behavior. Following the previous line of reasoning, the paper is organized around four fundamental issues. Part 1 is dedicated to explaining the polycrisis as the context that demands a polytransition, colloquially referred to as the green transition. In Part 2, we focus on a strategic audit of Serbia's macroeconomic fundamentals as a zero step in defining feasible solutions. Part 3 discusses two growth scenarios: the "as-is" scenario and the "to-be" scenario. Part 4, the most important section, provides the key explanatory details regarding the deployment of biomass technology as the center of Serbia's green energy transition in the medium term, along with aggregate financial projections. The paper concludes with a Nota Bene.