Governments in the Western Balkans are advocating for significant modifications to European Union regulations following the implementation of carbon-related charges on electricity exports. This new policy has led to a notable decrease in demand from EU buyers, revealing vulnerabilities in the region’s power trading framework.
Montenegro’s energy minister, Admir Šahmanović, representing a coalition of regional nations including Serbia, Bosnia and Herzegovina, and North Macedonia, has formally reached out to members of the European Parliament. The appeal seeks amendments to Regulation (EU) 2023/956, which governs the Carbon Border Adjustment Mechanism (CBAM).
The primary concern revolves around the extension of CBAM to electricity exports effective from January 1, 2026. This regulation imposes additional costs on power exported from the Western Balkans to the EU, irrespective of the energy source. The immediate effect has been a shift in trading economics.
A letter sent to Brussels highlights that this policy has resulted in a decline in export volumes despite strong generation, particularly from hydropower sources. EU buyers have become less inclined to purchase electricity from the region once carbon-related costs are integrated into pricing structures.
This issue is particularly pronounced during periods of high renewable energy output. Even when the Western Balkans generate abundant and relatively clean electricity, especially during seasons of strong hydrological activity, the blanket application of CBAM charges diminishes competitiveness against electricity supplied within the EU.
This situation creates a structural paradox. While the EU’s carbon pricing framework aims to promote decarbonization and facilitate renewable energy integration, it currently penalizes exports regardless of actual carbon intensity. This undermines incentives for cross-border electricity trade and hampers market integration.
Energy ministries across the region contend that the current framework jeopardizes one of the EU’s strategic objectives: integrating neighboring electricity markets. The Western Balkans have made substantial progress in aligning their regulations with EU energy standards, including reforms in renewables and climate policies.
However, significant structural gaps persist. Many countries still lack fully operational emissions trading systems (ETS) and monitoring, reporting and verification (MRV) frameworks that comply with EU standards. This limitation affects their ability to be recognized as equivalent participants under CBAM regulations.
The financial ramifications are considerable. Estimates indicate that carbon-related charges on electricity exports could amount to tens to hundreds of millions of euros annually for smaller economies like Montenegro, depending on carbon pricing and export volumes.
For utilities such as EPCG and EPS, this mechanism introduces an external cost layer into export pricing. Although formally these charges are incurred by EU importers, they ultimately lead to reduced demand and lower price realizations for exporters—compressing profit margins and diminishing cross-border trade flows.
The regional stance does not dispute the principle behind CBAM; rather, it emphasizes the need for transitional arrangements that consider the integration status and reform progress of candidate countries. The letter acknowledges the importance of carbon pricing in advancing low-emission energy systems but contests the uniform application of this mechanism to electricity.
This situation underscores a growing tension between two concurrent EU objectives: enforcing carbon discipline across borders while promoting electricity market integration with neighboring systems. The existing framework appears to favor internal market protection at the cost of integration dynamics.
The request from Western Balkan nations is clear yet strategically vital: amend the regulatory treatment of electricity within CBAM to prevent trade flow suppression that aligns with EU decarbonization goals.
