Serbia’s role in this evolving landscape may vary based on the carbon intensity of its energy sources. The country could transition into both an importer and exporter of electricity, contingent upon its generation methods. Notably, coal-based electricity produced in Serbia is likely to remain within the Western Balkan region, where carbon border costs are not yet enforced. Conversely, Serbia has the potential to export low-carbon electricity—primarily sourced from hydropower and renewable generation—to EU markets that prioritize carbon intensity for market access.
This emerging trade structure indicates a significant reconfiguration of electricity flows. Rather than directly exporting coal-generated electricity to the EU, Serbia might import power from neighboring countries with heavy coal reliance during peak demand periods while reserving its low-carbon output for export to EU markets.
Key players in this scenario include Bosnia and Herzegovina and Bulgaria. Bosnia and Herzegovina operates several lignite-fired power plants and has historically been an exporter of electricity in the region. Bulgaria also possesses substantial coal-fired generation capacity alongside nuclear and renewable energy assets.
During times when domestic low-carbon generation in Serbia falls short of demand, importing electricity from these neighboring countries could become a viable strategy while simultaneously exporting renewable energy to the EU. This trading pattern resembles a form of carbon arbitrage, where traders import lower-cost coal-based electricity from neighboring markets while exporting higher-value renewable energy to EU markets that favor lower carbon emissions.
The feasibility of this system hinges on several operational factors, including adequate transmission capacity between Serbia and its neighbors to facilitate significant electricity flows. Effective cross-border market integration and coordination among transmission system operators will be essential for managing these trading patterns.
The interconnected nature of the Western Balkans’ electricity network, which includes major transmission corridors linking Serbia with Bosnia and Herzegovina, Bulgaria, Romania, Hungary, and North Macedonia, enables flexible electricity flow across the region based on price signals and demand needs.
However, as carbon border costs come into play, a new economic rationale for these flows emerges. Electricity transactions will increasingly factor in carbon intensity alongside traditional considerations like generation costs and demand conditions. This shift may accelerate investments in renewable energy projects throughout Southeast Europe; nations that enhance their low-carbon generation capabilities stand to gain entry into premium EU electricity markets.
In contrast, countries heavily reliant on coal may find themselves increasingly limited to regional markets where carbon costs are either lower or non-existent. Over time, this dynamic could lead to a bifurcated electricity trading system within Southeast Europe: one characterized by low-carbon integration with the EU and another focused on coal-based generation for local consumption.
For Serbia to navigate this transition successfully, it will require a careful alignment of energy policy with market reforms and industrial strategies. By developing CBAM-compliant exports, Serbia can maintain its position within European electricity markets while gradually transitioning its domestic energy framework toward reduced carbon intensity.
