From 1 January 2026, the European Union’s Carbon Border Adjustment Mechanism (CBAM) entered its charging phase. This means that imports of certain products into the EU-including steel, iron, aluminum, hydrogen, fertilizers, and electricity-now carry a concrete cost depending on the greenhouse gas (GHG) emissions generated during their production. In the electricity sector, CBAM effectively equalizes the cost of GHG emissions for producers outside the EU with the cost already borne by producers within the Union through the EU Emissions Trading System (EU ETS), with the aim of preventing “carbon leakage” and encouraging decarbonization (the phase-out of fossil fuels).

In the case of the Western Balkans, CBAM has raised the question of whether this mechanism slows down the integration of the regional electricity market with the EU market or, on the contrary, represents a necessary incentive to ensure that such integration is finally based on compliance with common environmental standards and the Union’s climate objectives. For Serbia, this issue is particularly important, as the domestic electricity sector is highly carbon-intensive. In 2024, coal accounted for around 60% of electricity generation, while renewable energy sources-excluding hydropower-had a relatively modest share.

Exemption from Application

The CBAM Regulation provides for the possibility of exemption from purchasing CBAM certificates if a carbon price has already been effectively paid in the country of origin at a level equivalent to that applied in the EU. This ensures that companies are not charged twice for the same GHG emissions, or that the value of CBAM certificates is reduced by the amount already paid domestically. A specific provision also defines the possibility of exemption for electricity, provided that a country has an integrated electricity market with the EU. Additionally, the country must implement key elements of EU energy and climate policy within its national legislation, with a particular focus on introducing an operational carbon pricing system equivalent to the EU ETS by 1 January 2030.

What Is Serbia Choosing: An Ad Hoc Decision or a Clear Plan?

Instead of establishing an emissions trading system aligned with the EU ETS, Serbia adopted a Law on Greenhouse Gas Emissions Tax at the end of 2025, with the public being informed of the proposal only two months before its adoption process began.

Under this law, the GHG emissions tax is set at just €4 per ton, which is significantly lower than the price level in the EU. At the beginning of 2026, the carbon price in the EU ETS ranges between €70 and €90 per ton. Although this legislative solution can be interpreted as an attempt to retain part of the revenues that would otherwise be paid through CBAM within the domestic budget, the gap between Serbia’s carbon price and that of the EU is substantial. As a result, only a fraction of the total amount remains in the national budget. An additional weakness of the law is the absence of an obligation to direct the collected revenues toward decarbonization and the protection of energy-vulnerable consumers. This creates a real risk that the instrument will remain primarily a fiscal measure rather than a lever for a just energy transition.

Besides that, the Law provides for exemptions and tax credits, particularly for large emitters such as Elektroprivreda Srbije (EPS), the state-owned electricity utility, and Naftna industrija Srbije (NIS), the national oil and gas company, which leave room for significantly reducing the amount that would otherwise need to be charged for GHG emissions. For this reason, it is difficult to argue that the new law establishes an “effectively paid” carbon price in line with CBAM requirements; rather, it appears to be an attempt to temporarily mitigate the effects of CBAM through a domestic emissions tax. The core issue-high dependence on coal and the absence of a clear decarbonization plan for the electricity sector-remains unresolved.

Although the decision to introduce CBAM has been known since the adoption of the Regulation in 2023, most Western Balkan governments entered the charging phase unprepared. No economy in the region met the conditions for exemption in the electricity sector by 1 January 2026, and many responses focused on seeking delays or easing of the rules rather than timely alignment with regulatory requirements.

For Serbia, as well as for the entire region, it is therefore crucial not to view CBAM merely as an external burden, but as a signal that the current model of electricity sector development is no longer sustainable.

If Serbia aims to maintain the competitiveness of its electricity exports and move closer to the European market, it must shift from partial measures to a clear plan: a gradual phase-out of coal, stronger investment in renewable energy sources, an effective carbon pricing system, and earmarked use of revenues for a just transition. Otherwise, CBAM will not only represent an additional cost but also a sign of a missed opportunity to base energy integration with the EU on sustainable foundations.

The findings and recommendations of the analysis “Electricity market integration requires compliance with environmental protection standards” emphasize the importance of a strategic approach by Western Balkan governments in aligning with CBAM, as well as the importance of environmental protection in adapting the energy sector to new electricity trading rules.

The recommendations of this research have been supported by 63 civil society organizations from across the Western Balkans. This analysis was conducted as part of the project “Green Agenda Navigator”, co-financed by the European Union. The project is implemented by the Belgrade Open School in cooperation with six regional partners: Aarhus Center Association, Eko-Tim, Eco-Z, the Center for Environmental Research and Information Eko-svest, an organization for nature protection and conservation in Albania, and the CEE Bankwatch Network.