For industries such as aluminum, steel, chemicals, fertilizers, and cement, the carbon footprint of production processes is becoming increasingly critical. The EU Emissions Trading System (EU ETS) has already established a carbon pricing mechanism for industrial installations within member states. With carbon allowances projected to trade between €60 and €80 per tonne of CO₂ in 2025-2026, compliance costs are set to escalate for European producers based on their emissions intensity.
CBAM extends this carbon pricing structure to imports, requiring exporters of carbon-intensive products to disclose embedded emissions and purchase CBAM certificates aligned with EU ETS prices. This shift fundamentally alters economic incentives surrounding electricity sourcing for industries outside the EU ETS, including those in Serbia, Bosnia and Herzegovina, Montenegro, North Macedonia, and parts of Turkey. Historically reliant on lignite-based electricity generation without explicit carbon pricing, these countries face challenges as they must now contend with higher costs associated with carbon-intensive energy sources.
In Serbia, for instance, coal-fired power plants operated by Elektroprivreda Srbije (EPS) account for approximately 65% to 70% of national electricity output. The predominant reliance on lignite combustion—producing around 1 tonne of CO₂ per MWh—positions these facilities among Europe’s most carbon-intensive generation assets. Consequently, industries relying on this electricity may see substantial embedded emissions in their production processes.
Under CBAM, exporters of electricity-intensive products could incur additional carbon costs reflective of their production emissions. For example, at a carbon price of €70 per tonne, the implicit carbon cost for electricity generated from lignite could reach €70/MWh. Given that many industrial operations consume hundreds of gigawatt-hours annually, this represents a significant financial exposure.
In response to these challenges, there is a marked shift towards renewable electricity sourcing among large industrial consumers. Long-term Power Purchase Agreements (PPAs) are becoming increasingly popular as companies seek to mitigate their carbon exposure. These agreements typically involve renewable energy producers supplying electricity under fixed or indexed price terms over durations of 10 to 20 years.
Renewable PPAs offer several advantages in the context of CBAM. First, they enable access to low-carbon generation sources such as wind and solar power, which substantially reduce the embedded carbon intensity associated with electricity consumption. Second, these long-term contracts provide price stability amid increasing market volatility. Since the energy crisis of 2021-2022, wholesale electricity prices across Europe have shown significant fluctuations; thus, renewable PPAs serve as a hedge against such volatility.
The aluminum sector exemplifies these dynamics well; primary aluminum production demands substantial electricity consumption—often exceeding 14–15 MWh per tonne produced. At current electricity prices ranging from €70 to €100/MWh, energy costs can constitute a considerable portion of total production expenses. If sourced from coal-based generation, the increased carbon intensity can elevate the embedded emissions linked to aluminum exports under CBAM regulations.
Steel production also mirrors these trends. Electric arc furnace (EAF) steelmaking relies heavily on electricity rather than traditional coal-based methods. While EAF technology reduces direct emissions, the carbon intensity of the electricity used remains a key factor influencing overall emissions profiles. As such, steel producers targeting EU markets are increasingly incentivized to secure renewable electricity supplies.
The expansion of renewable generation capacity in CSEE presents new opportunities for industrial electricity procurement. In Serbia alone, over 500 MW of installed wind capacity exists, with notable projects like Čibuk 1 and Kovačica contributing significantly to this growth. Furthermore, several gigawatts of photovoltaic capacity are currently under development across South-East Europe as declining technology costs enhance competitiveness without extensive subsidies.
To navigate the complexities introduced by CBAM and ensure compliance with EU regulations regarding renewable sourcing, companies are exploring mechanisms such as Guarantees of Origin (GOs). These certifications allow firms to attribute renewable generation to their electricity consumption for reporting purposes without physically delivering renewable energy directly.
The implications extend beyond individual enterprises; regional competitiveness increasingly hinges on access to substantial volumes of low-carbon electricity. Nations that can expand renewable generation while maintaining competitive pricing will be better positioned to attract energy-intensive industries. Conversely, those remaining reliant on carbon-heavy generation may struggle under CBAM’s stringent requirements.
As CSEE transitions toward renewable procurement strategies amidst evolving regulatory landscapes like CBAM and EU ETS frameworks, industrial companies integrating low-carbon solutions into their operations stand to enhance their positioning within European supply chains while mitigating exposure to future carbon pricing mechanisms.
