Governments in the Western Balkans are advocating for urgent modifications to European Union regulations following the implementation of carbon-related charges on electricity exports. The introduction of these charges has led to a significant decrease in demand from EU buyers, revealing inherent weaknesses in the region’s power trading framework.
Montenegro’s energy minister, Admir Šahmanović, representing a coalition of countries including Serbia, Bosnia and Herzegovina, and North Macedonia, has formally reached out to members of the European Parliament. The communication calls for amendments to Regulation (EU) 2023/956, which oversees the Carbon Border Adjustment Mechanism (CBAM).
The central concern revolves around the inclusion of electricity under CBAM. Effective from 1 January 2026, this mechanism imposes additional costs on power exports from the Western Balkans to the EU, irrespective of their generation sources. This shift has rapidly transformed the economic landscape of electricity trading.
According to correspondence sent to Brussels, there has been a notable decline in export volumes despite robust generation, particularly from hydropower sources. EU buyers have exhibited a diminished willingness to procure electricity from the region once carbon-related expenses are integrated into pricing models.
This issue is especially pronounced during periods of high renewable energy output. Even when the region generates abundant and relatively clean electricity, particularly in hydrologically favorable seasons, the universal application of CBAM charges undermines competitiveness against intra-EU supplies.
This situation presents a structural contradiction. While the EU’s carbon pricing framework aims to promote decarbonization and facilitate renewable energy integration, it currently penalizes exports irrespective of actual carbon intensity. This undermines incentives for cross-border electricity trade and impedes market integration efforts.
The energy ministries within the region contend that the existing design threatens one of the EU’s strategic goals: connecting neighboring electricity markets. Countries in the Western Balkans have made significant strides toward aligning with EU energy regulations, encompassing reforms in renewables, market rules, and climate policy frameworks.
Nevertheless, substantial structural deficiencies persist. A majority of these countries still lack fully operational ETS (emissions trading systems) and MRV (monitoring, reporting and verification) frameworks that conform to EU standards, limiting their capacity to be recognized as equivalent participants under CBAM rules.
The financial ramifications are considerable. Projections indicate that carbon-related charges on electricity exports could amount to tens to hundreds of millions of euros annually for smaller systems like Montenegro, contingent on carbon pricing and export volumes.
For utilities such as EPCG and EPS, this mechanism acts as an external cost layer embedded within export pricing. Although these charges are officially borne by EU importers, they ultimately translate into reduced demand and diminished price realization for exporters—compressing profit margins and curtailing cross-border transactions.
The regional stance does not dispute the fundamental principle of CBAM. The letter explicitly recognizes the significance of carbon pricing in facilitating a transition towards low-emission energy systems. The contention lies in the uniform application of this mechanism to electricity, without transitional provisions that consider the integration status and reform trajectory of candidate countries.
This scenario highlights an escalating tension between two concurrent EU objectives: enforcing carbon discipline across borders while promoting electricity market integration with neighboring systems. From the perspective of the Western Balkans, the current framework appears to favor protectionist measures over integration dynamics.
The request from these nations is specific yet strategically vital: amend the regulatory treatment of electricity within CBAM to prevent hindering trade flows that align with EU decarbonization objectives.
