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Region: Western Balkans faces carbon border tax challenges ahead of 2026 implementation

Artur Lorkowski, Director of the Energy Community Secretariat, has stated that none of the Energy Community contracting parties, including those in the Western Balkans, will be able to secure an exemption from the upcoming cross-border CO2 tax (CBAM) for electricity exports when it is implemented on January 1, 2026. Without an exemption, countries such as Montenegro, Bosnia and Herzegovina, North Macedonia and Serbia will face additional costs on their electricity exports to the European Union. This is due to the European Union’s introduction of the Carbon Border Adjustment Mechanism (CBAM), which has been long anticipated.

The CBAM is a tax the EU will impose on certain goods—such as electricity, aluminum, cement, fertilizers, hydrogen, iron, and steel—imported from countries that do not have CO2 taxation systems. While the Western Balkans also include Albania and Kosovo, they do not currently export electricity with CO2 emissions to the EU.

The key issue is the potential financial impact on countries that export electricity to the EU starting in 2026. When asked about the possibility of estimating the additional tax costs, Lorkowski explained that it would depend on various factors, including the CO2 intensity of the exported electricity, CBAM rates and export volumes.

To help gauge the potential impact, the Energy Community Secretariat’s CBAM Readiness Tracker has provided estimates for 2023, calculating CBAM costs for electricity imports from Energy Community members to the EU, including transit. These calculations use the average monthly price of emission allowances from the EU Emissions Trading System (EU ETS) auctions. For 2023, CBAM costs for Serbian electricity exports were estimated at €1.07 billion, while the total for Montenegro, Bosnia and Herzegovina and North Macedonia was €797 million.

Lorkowski noted that the conditions for securing an exemption from the CBAM are stringent. They include integrating the electricity markets of Energy Community member states with those of the EU and committing to introduce CO2 taxation. Market integration alone takes at least 18 months once all preparations are complete. To date, only the market integration between Montenegro and Italy has made significant progress, with plans for it to be operational by mid-2026.

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