Montenegro’s energy minister, Admir Šahmanović, has taken the lead in addressing these concerns by formally communicating with members of the European Parliament. The crux of the issue lies in the application of CBAM to electricity exports since January 1, 2026. This regulation imposes additional costs on power exported from the Western Balkans to the EU, irrespective of the energy source used for generation. Consequently, this has significantly altered the economic landscape for trade in electricity.
The ramifications of these changes are evident. Reports indicate a decline in export volumes from the region, even as hydropower generation remains robust. EU buyers have increasingly hesitated to purchase electricity from these countries once carbon-related expenses are factored into pricing structures. The impact is particularly pronounced during periods when renewable output is high; despite producing relatively clean electricity, exporters are finding it challenging to compete with intra-EU supplies due to the uniform application of CBAM charges.
This situation presents a paradox within the EU’s carbon pricing framework. While designed to promote decarbonization and facilitate renewable energy integration, the current implementation appears to penalize exports from the Western Balkans without considering their actual carbon intensity. This undermines incentives for cross-border electricity trade and hampers market integration efforts.
Energy ministries across the region argue that this regulatory design threatens one of the EU’s key strategic goals: integrating neighboring electricity markets. Despite substantial alignment with EU energy regulations—encompassing reforms in renewable energy policies and climate frameworks—significant structural gaps persist. Many countries still lack fully operational emissions trading systems (ETS) and monitoring, reporting, and verification (MRV) frameworks that meet EU standards. This limitation hampers their classification as equivalent participants under CBAM rules.
The financial stakes are considerable; estimates suggest that carbon-related charges could impose costs ranging from tens to hundreds of millions of euros annually on smaller systems like Montenegro’s, depending on fluctuating carbon prices and export volumes. For utilities such as EPCG and EPS, this mechanism effectively introduces an external cost layer into their pricing models. Although formally borne by EU importers, these charges ultimately depress demand and diminish price realization for exporters—thereby compressing profit margins and reducing cross-border trade flows.
While regional stakeholders do not contest the principle of CBAM itself—recognizing its role in facilitating a transition toward low-emission energy systems—they challenge its indiscriminate application to electricity without transitional provisions that account for candidate countries’ reform trajectories and integration statuses.
The ongoing dialogue reveals a growing tension between two critical EU objectives: enforcing stringent carbon discipline across borders while simultaneously fostering electricity market integration with neighboring regions. Observers note that the current regulatory framework appears to prioritize internal market protection over necessary integration dynamics.
In light of these developments, Western Balkan governments are advocating for targeted adjustments within CBAM’s regulatory treatment of electricity exports. Such changes aim to preserve trade flows that align with broader EU decarbonization objectives without imposing undue burdens on regional exporters.
