The integration of the EU Carbon Border Adjustment Mechanism (CBAM) into the electricity sector of South-East Europe presents significant financial and structural challenges, particularly for Serbia. As the country seeks to enhance its power generation capabilities while transitioning towards decarbonisation, the mispricing of carbon emissions in exported electricity could lead to increased costs and investment risks. With Serbia’s electricity market serving as a crucial component for regional balancing and liquidity, any adverse effects on pricing could have far-reaching implications.
Currently, Serbia boasts an installed electricity capacity of approximately 9.0 GW, generating around 34–35 TWh annually under normal hydrological conditions. The energy mix is heavily reliant on lignite-fired thermal power plants, which contribute about 60–65 percent of total output, while hydropower accounts for roughly 24–26 percent. In favorable export years, Serbia exports between 2.0–4.0 TWh of net electricity primarily to Hungary, Romania, and Croatia, translating into gross revenues estimated between €170–360 million per year.
The imposition of CBAM means that Serbian electricity exports will incur a carbon price aligned with the EU Emissions Trading System (ETS). This creates a potential cost burden; for instance, if default emissions factors are applied, Serbia’s average emissions intensity of about 0.55 tCO₂/MWh could result in CBAM charges ranging from €44–55 per MWh. Consequently, this could lead to an annual exposure of approximately €130–165 million, representing up to 55 percent of gross export value under average market conditions.
A critical concern arises from the fact that electricity dispatch is based on marginal costs rather than annual averages. During periods when hydropower or wind generation dominates—often accounting for 40–60 percent of export volumes—applying an average emissions factor may unfairly penalize low-carbon sources. This misalignment threatens to distort market dynamics and undermine the very renewable assets that EU policies aim to promote.
The capital markets are already feeling the impact as new wind and solar projects in Serbia face CAPEX estimates ranging from €1.1–1.4 million per MW for wind to €0.55–0.75 million per MW for solar. The introduction of CBAM-related uncertainties could compress internal rates of return (IRRs) by up to 250 basis points, potentially driving many projects below bankability thresholds unless offset by enhanced support mechanisms.
The operational landscape is also shifting due to new costs associated with monitoring and verification under CBAM regulations. For example, a mid-sized private wind portfolio producing around 900 GWh annually may incur verification costs between €0.25–0.45 million per year, which could strain profitability when combined with existing operational expenses.
The pathway for verifying green electricity exports is becoming increasingly complex as producers must demonstrate actual emissions rather than relying on default values. This necessitates detailed data collection aligned with market dispatch intervals and comprehensive documentation of emissions profiles at the installation level—a challenge particularly pronounced in the absence of domestic accredited verifiers.
The future trajectory for Serbia’s energy landscape hinges on timely investments aimed at increasing renewable generation capacity toward a target share of 40 percent by 2030. Achieving this goal will require an estimated investment ranging from €6–8 billion. Delaying CBAM implementation until at least 2028, while simultaneously enhancing emissions attribution processes and aligning domestic carbon pricing with EU standards, could mitigate risks associated with carbon leakage while preserving investment incentives.
If not managed correctly, premature application of CBAM could disrupt Serbia’s export capabilities during peak demand periods and exacerbate price volatility within neighboring EU markets, ultimately countering broader decarbonisation objectives across the region.
The strategic response must focus not on exemptions but rather on careful sequencing of policy measures that foster investment in verifiable green electricity portfolios capable of entering EU markets with minimal CBAM liabilities.
