From 2026, Serbia will fall under the EU’s Carbon Border Adjustment Mechanism (CBAM), which imposes additional costs on carbon-intensive exports to the Union. According to the Fiscal Council, the state-owned power utility EPS, which supplies most of the country’s electricity, will be the first to face these pressures. The added costs are expected to ripple through the economy, potentially affecting Serbian industry and the state budget significantly.
The EU is Serbia’s main export market, accounting for nearly two-thirds of all exports. Including linked markets such as Balkan candidate countries and the EFTA free-trade area, this share rises to nearly 80%. Energy-intensive sectors—such as aluminum, steel, cement, fertilizers, hydrogen, and electricity—will be required to provide documentation of carbon emissions during production and pay a levy aligned with EU carbon pricing.
For EPS, the impact will be particularly severe. Exporting one megawatt-hour (MWh) of Serbian electricity to the EU could incur an additional cost of roughly 60 euros due to the high carbon footprint of lignite-based generation. With current average export prices just above 100 euros/MWh, this surcharge could undermine EPS’s competitiveness and make sales to EU markets much more difficult.
The underlying challenge is Serbia’s higher carbon intensity relative to the EU. Between 2010 and 2023, Central and Eastern European countries reduced emissions by around 20%, while Serbia achieved only 3-4%. EPS remains heavily reliant on lignite, producing not only large volumes of CO2 but also other pollutants. This affects both EPS directly and the manufacturers that depend on its electricity, raising the overall carbon cost of production. The Fiscal Council notes that it had warned about this risk as early as 2019, urging investments in modernization and transition. Instead, EPS’s position worsened, culminating in a production crisis at the end of 2021.
Two scenarios for CBAM implementation have been outlined. In a strict scenario without exemptions, EPS could face annual costs up to 3 billion euros. If the mechanism is implemented according to current plans, the impact would still be significant, at 200–300 million euros per year.
Serbia also faces systemic obstacles in executing major energy projects. A review of ten priority projects worth over 7.5 billion euros revealed recurring issues such as delays in technical and spatial planning, unresolved property matters, weak preparatory work, and rising costs. For example, the estimated cost of the Djerdap 3 pump-storage hydropower plant rose from 1.4 to 2.6 billion euros, the price of self-balancing solar power plants increased from 1.4 to 1.7 billion euros, and the Bistrica pump-storage project climbed from 835 to 962 million euros. Most of these overruns were linked to incomplete documentation and subsequent technical changes.
The Fiscal Council concludes that even if financing is secured, Serbia’s limited institutional and human resources will remain a bottleneck, slowing the energy transition. The decisive factor will be whether the government treats these projects as national priorities, giving them precedence over other costly programs such as military procurement or sports infrastructure. Without such a shift, Serbia risks lagging further in its decarbonization goals while facing mounting costs under the EU’s carbon border tax.
