Analysis developed by Virtu.Energy
Banks financing manufacturers across Southeast Europe increasingly need to assess whether borrowers can preserve their EU export margins after electricity costs, embedded emissions and supplier-data requirements are taken into account. A factory may maintain production and improve energy efficiency, yet still lose competitiveness if its EU customer faces a higher carbon liability or cannot substantiate the emissions associated with imported goods.
For Serbia, Montenegro, Bosnia and Herzegovina, North Macedonia and Albania, the investment challenge now extends well beyond purchasing renewable electricity. Manufacturers need to understand their production routes, the treatment of relevant precursors and the evidence required for an EU importer to use their emissions data.
The economic exposure has several layers. Electricity determines part of a factory’s operating costs. Domestic carbon pricing may affect direct emissions and energy supply. CBAM applies to covered goods entering the EU, while buyers may impose broader environmental and carbon-data requirements through procurement contracts.
These layers do not create one universal surcharge. Their importance varies according to the product, technology and commercial structure. A steel producer using a blast furnace faces a very different investment challenge from an electric-arc-furnace mill, while an aluminium rolling company must assess purchased metal alongside its own conversion process.
CBAM exposure starts with the product
The current CBAM scope covers specified goods in iron and steel, aluminium, cement, fertilisers, electricity and hydrogen, including selected precursors. Coverage is determined by the goods and their classification rather than simply by the industry in which a company operates.
That is the starting point for a meaningful credit assessment. A bank should establish which products the borrower exports, their EU destinations, tariff classifications and the proportion of revenue dependent on customers importing covered goods.
A manufacturer producing several product families can have materially different exposures within the same factory. Applying one estimated carbon charge across total turnover can therefore distort both the risk assessment and the investment response.
The distinction is particularly important for electricity consumed during production. Current definitive-period rules generally exclude purchased-electricity indirect emissions from the calculation for steel and aluminium goods listed in Annex II. Cement, fertilisers and agglomerated iron ore have relevant indirect-emissions coverage, with detailed rules governing precursor contributions.
A renewable PPA can therefore deliver significant benefits without reducing every current CBAM liability. It may stabilise electricity costs, improve the product’s broader carbon footprint and satisfy customer requirements. Its direct effect on the CBAM calculation depends on which goods and emissions are actually covered by the rules.
This distinction should guide investment priorities. Manufacturers should calculate energy savings and carbon savings separately, then determine how each affects their EU selling position. Combining the two into an undefined “green premium” makes it more difficult to establish whether proposed capital expenditure can generate an adequate return.
Steel highlights the difference between production routes
Steel provides one of the clearest examples in the region. HBIS Serbia’s Smederevo production configuration includes blast furnaces and a converter shop, while Makstil in North Macedonia describes an electric-arc-furnace steel shop producing slabs for its plate mill. These different production routes create different priorities for energy procurement, raw materials and direct-emissions reduction.
The descriptions do not establish either company’s current verified emissions intensity.
For a blast-furnace operation, purchasing renewable electricity cannot eliminate emissions arising from coke-based ironmaking. The larger investment questions concern fuel and reductant use, process efficiency, input mix and the feasibility of changing the production route.
Efficiency upgrades can nevertheless create value. Lower fuel consumption reduces operating costs and may reduce relevant emissions. The financial benefit, however, needs to be compared with the plant’s expected operating life, maintenance requirements and future competitiveness.
For an electric-arc-furnace producer, electricity procurement plays a much larger role in operating economics. Scrap quality, metallic yield, electrode consumption, fuel use and purchased iron-bearing inputs remain important to the overall assessment.
A low direct-emissions profile does not protect an EAF business from a power-price shock. An EAF mill may have relatively modest exposure from its own process while still facing significant margin pressure when electricity prices increase or scrap becomes more expensive.
An illustrative calculation shows the scale of that exposure. Assume a plant uses 0.50 MWh of electricity per tonne of steel. A €30/MWh increase in delivered electricity prices adds €15 per tonne to production costs. At 300,000 tonnes of annual output, this represents €4.5 million, before accounting for changes in production, efficiency or selling prices.
These are assumed operating values rather than a forecast for a named producer. They demonstrate why banks need to examine electricity costs even where purchased-power emissions are excluded from the current CBAM calculation for the finished product.
Renewable power helps, but contract structure matters
Procurement can address part of the electricity risk, but the structure of the contract is critical. A fixed-price PPA should be evaluated together with profile charges, balancing costs, network charges and replacement electricity. A low headline energy price does not necessarily mean a low delivered cost.
Industrial demand is also fundamentally different from renewable generation. A continuous production process may require electricity when a solar plant is producing little or nothing. A wind PPA can improve diversification while still leaving significant hourly shortfalls.
The value of the arrangement depends on who covers those gaps and at what price.
This makes the contractual allocation of balancing and replacement-power risk an important part of the financing assessment. A bank should not value a PPA simply by comparing its headline price with a spot-market average.
Aluminium adds an upstream supply-chain dimension
Aluminium creates another distinction between the factory and its upstream supply chain. Impol Seval describes its Serbian production through casting, hot rolling and cold rolling. For this type of manufacturing, electricity and heat efficiency matter, but the purchased aluminium and relevant upstream production history also need to be assessed.
A processor purchasing primary metal has a different upstream emissions profile from a company using qualifying scrap inputs. A change in feedstock can improve competitiveness, but it must also satisfy product specifications and preserve yield.
The investment case therefore needs to include metallurgy and customer acceptance. A cheaper or lower-emission input may prove commercially unsuitable if it increases rejects, requires additional processing or fails to meet customer requirements.
For aluminium producers, renewable electricity can be particularly important to the wider product footprint and customer procurement requirements. Yet banks should not automatically count an assumed reduction in current CBAM certificates unless that reduction is supported by the applicable emissions rules.
Direct emissions and relevant precursor emissions remain separate issues. A rolling or remelting investment that improves electricity efficiency does not necessarily change emissions attributed to purchased unwrought aluminium. Conversely, a better-documented metal supply can improve the buyer’s assessment even where the processor’s electricity contract remains unchanged.
Cement and fertiliser require a different investment approach
Cement and fertilisers require a different allocation of capital. Their applicable electricity-related emissions mean renewable procurement can play a more direct role in reducing relevant embedded emissions, provided the accounting conditions are met.
But the largest operational emissions may arise elsewhere.
A cement investment needs to consider clinker content, kiln fuel, thermal efficiency and process emissions. A fertiliser investment needs to assess feedstock and production chemistry alongside electricity consumption.
Electrification can improve a production route, but its value depends on both electricity prices and emissions treatment. Replacing fuel with electricity may reduce direct emissions while increasing exposure to power prices.
The project therefore needs to be evaluated across both dimensions rather than simply promoted on the basis of the technology involved.
For banks, a practical approach is to calculate the cost of each measure per unit of output and per tonne of relevant emissions avoided. This allows comparisons between maintenance improvements, heat recovery, renewable procurement, process conversion and major production-route changes.
Precursor emissions can become a hidden export cost
The precursor chain introduces another source of commercial risk. A SEE manufacturer may purchase pig iron, DRI, slabs, billets or aluminium inputs from Türkiye or another third market and process them before exporting the finished goods to the EU.
Regional processing does not automatically remove the relevant embedded emissions of those inputs. Accounting needs to follow the prescribed production boundaries and precursor rules, while customs origin is assessed separately.
For steel, the Commission’s guidance states that actual data for externally produced precursors require an appropriate verification report covering the relevant production period and accredited scope. Otherwise, applicable default values are used. Relevant precursor indirect emissions can also enter the final calculation where the rules require them.
This makes procurement documentation part of the material’s commercial value.
Two suppliers may offer the same grade at similar prices while creating very different downstream risks because one provides usable emissions evidence and the other does not.
The cheaper invoice can therefore result in the more expensive EU delivery.
Manufacturers need to compare the purchase price with the effect on the importer’s carbon calculation, verification costs and confidence in the supply chain.
Long-term supply contracts should address these issues before production begins. Useful provisions should identify the producing installation, relevant production period, required evidence, update obligations and the treatment of missing or corrected information.
Emissions data are becoming a financing issue
The same discipline is required inside the factory. A reliable emissions calculation needs production quantities, fuel consumption, material inputs and allocation methods that reconcile with operational records.
A spreadsheet prepared at year-end cannot necessarily reconstruct missing measurements or distinguish between products manufactured on shared equipment. Manufacturers therefore need a monitoring system designed around actual production processes, with responsibility for data quality distributed across operations, procurement, finance and management.
The commercial objective is straightforward: enable the EU buyer to connect imported quantities with a defensible emissions figure.
A complete data file should make that connection understandable rather than forcing the importer to interpret disconnected energy bills, supplier declarations and production summaries.
Corporate carbon accounting can support the broader management system, but it should not automatically be treated as a substitute for the required product calculation. A company-wide emissions total does not show how emissions should be attributed to each covered good.
That distinction also limits the use of marketing claims. Terms such as “low-carbon” or “renewable-powered” can be commercially useful only when the buyer understands the relevant boundary and supporting evidence. A broad product-footprint claim and a CBAM embedded-emissions calculation may cover different sources.
The cost of poor data can become material
EU importers have a strong incentive to demand clarity because the declarant retains legal responsibility for its obligations, even when technical work is delegated to service providers. Contractual support from a manufacturer or consultant does not remove that responsibility.
The likely commercial consequence is more selective purchasing.
An importer may prefer a supplier with slightly higher material prices if its verified data reduce uncertainty and administrative costs. Another buyer may negotiate a larger discount where evidence is incomplete.
These should be treated as commercial possibilities rather than uniform market behaviour. Their scale will depend on competition, product availability, buyer capabilities and the difference between actual and applicable default emissions.
The certificate price is another important variable. At €82.32/tCO₂e, a difference of 0.50 tCO₂e per tonne of goods corresponds to €41.16 per tonne in gross carbon-price exposure before relevant adjustments.
For 100,000 tonnes, that represents €4.116 million.
This is a sensitivity measure rather than a final CBAM invoice. Industrial liability requires the appropriate free-allocation adjustment and any eligible carbon-price deduction. The Commission’s guidance sets out product- and precursor-related calculations for that adjustment, meaning that multiplying total emissions by a universal phase-in percentage can misstate actual exposure.
Nevertheless, the sensitivity is highly relevant to financing decisions. It shows how an emissions-data problem can become material to customer negotiations and cash flow, even when the manufacturer itself does not purchase the certificates.
Banks need to look beyond the formal liability
Banks should therefore assess borrowers’ EU sales agreements. Even if the customer bears the formal CBAM liability, it may seek compensation through lower prices, revised contract terms or reduced orders.
The manufacturer’s actual exposure depends on its bargaining power and the wording of the supply agreement.
Existing loans deserve particular attention. A facility approved before financial CBAM obligations may rely on export volumes and margins that are no longer secure. A review should examine customer concentration, contract renewal dates, emissions evidence and the capital required to preserve competitiveness.
The objective should be an actionable credit assessment.
One factory with a manageable compliance gap may simply require investment in meters and data systems. Another may need to change its precursor supplier. A third may face a production-route problem that cannot be solved through better documentation alone.
Those situations require different financing instruments.
A small equipment facility can support metering or efficiency improvements. Working capital can fund a better input mix or carbon-related contract settlement. A major process conversion requires longer-term finance, credible commissioning assumptions and sufficient equity.
Investment sequencing will matter
The order in which investment is made is becoming increasingly important.
Financing a large renewable installation before understanding the factory’s covered emissions may leave the central export risk unresolved. Conversely, delaying basic monitoring and verification systems can prevent a manufacturer from demonstrating improvements it has already achieved.
Wider EU policy changes increase the need for preparation without justifying assumptions that proposals are already law. The EU is considering additional steel- and aluminium-intensive downstream goods, anti-circumvention measures and changes to electricity attribution. The Commission has also published a study on indirect emissions and possible future developments in their coverage.
For manufacturers of components and fabricated products, the sensible response is to map material content, supplier installations and existing data gaps. Investment models should distinguish current obligations from scenarios in which product coverage expands.
The strongest industrial strategy combines competitive energy procurement, technically appropriate emissions reductions and a supply chain capable of supporting the EU buyer’s declaration.
Each element contributes differently, and none should be credited with benefits it cannot actually deliver.
Southeast Europe’s proximity to EU customers remains a major commercial advantage. But proximity alone cannot protect a manufacturer’s delivered margin.
The factories best positioned to compete will be those capable of explaining their production routes, substantiating their inputs, managing carbon data and financing the improvements needed to remain competitive.
For banks, that means the quality of a borrower’s CBAM strategy is increasingly becoming part of the credit story itself.
Analysis developed by Virtu.Energy
