Currently, the EU Emissions Trading System (EU ETS) imposes a carbon price on industrial operations within EU member states. Projections indicate that carbon allowances will trade between €60 and €80 per tonne of CO₂ during 2025-2026. Consequently, European producers are facing escalating compliance costs tied to their emissions intensity. CBAM extends this framework to imports, mandating that companies exporting carbon-intensive products into the EU disclose their embedded emissions and acquire CBAM certificates aligned with EU ETS prices.
For industrial producers outside the EU ETS—particularly in Serbia, Bosnia and Herzegovina, Montenegro, North Macedonia, and parts of Turkey—the reliance on lignite-dominated electricity systems has historically provided low-cost energy but at a high carbon intensity. In Serbia alone, coal-fired power plants operated by Elektroprivreda Srbije (EPS) account for approximately 65% to 70% of national electricity output. These facilities generate about 1 tonne of CO₂ per MWh, marking them as some of Europe’s most carbon-intensive assets.
The implications of CBAM are profound. Exporters selling electricity-intensive products may incur substantial additional carbon costs if their production processes rely on coal-based electricity. For instance, with a projected carbon price of €70 per tonne, electricity generated from lignite could carry an implicit cost of €70/MWh—leading to significant financial exposure for industries consuming large volumes of energy.
In response to these challenges, there is a discernible shift towards renewable electricity sourcing among large industrial consumers. Long-term renewable power purchase agreements (PPAs) are gaining traction as companies seek to mitigate their carbon exposure. These contracts typically span 10 to 20 years and enable firms to secure power from low-carbon sources such as wind or solar energy.
The benefits of PPAs in the context of CBAM are multifaceted. They not only provide access to cleaner energy but also contribute to price stability amid volatile electricity markets—a situation exacerbated by the energy crisis experienced in 2021-2022. Furthermore, procuring renewable energy enhances companies’ environmental, social, and governance (ESG) profiles and regulatory compliance—factors increasingly influencing capital access and supply chain partnerships.
The aluminum sector exemplifies these dynamics due to its high energy demands; producing one tonne of aluminum can require upwards of 14-15 MWh of electricity. At current prices ranging from €70 to €100/MWh, energy expenses constitute a significant portion of overall production costs. If this power is sourced from coal-fired plants, it can substantially elevate embedded emissions associated with exports under CBAM regulations.
Steel production is similarly impacted as electric arc furnace (EAF) technology relies heavily on electricity rather than traditional coal-based methods. As such, securing renewable energy supplies becomes increasingly essential for steel producers aiming to maintain competitiveness in the EU market.
In CSEE, expanding renewable generation capacity presents new opportunities for industrial procurement strategies. Serbia has made strides in this area with over 500 MW of installed wind capacity from projects like Čibuk 1 and Kovačica. Furthermore, several gigawatts of photovoltaic capacity are under development across South-East Europe due to declining technology costs that enhance competitiveness even without extensive subsidies.
In addition to bilateral PPAs, companies are exploring Guarantees of Origin (GO) mechanisms that certify the renewable nature of consumed electricity. While GOs do not physically deliver renewable power directly to facilities, they allow companies to attribute renewable generation toward compliance and reporting requirements.
As exporters prepare for CBAM’s implementation, demonstrating the carbon intensity of their electricity consumption will be crucial in meeting EU standards. This necessitates robust measurement and verification frameworks capable of accurately documenting emissions characteristics associated with their energy supply.
Energy traders and aggregators are increasingly vital in facilitating this transition by structuring renewable portfolios and managing risks associated with price volatility while enabling cross-border contracts between producers and industrial consumers.
The broader implications for Central and South-East Europe extend beyond individual enterprises; regional industrial competitiveness hinges on access to substantial volumes of low-carbon electricity. Countries that successfully expand their renewable generation capacity while maintaining competitive pricing will likely attract energy-intensive sectors more effectively than those reliant on traditional carbon-heavy generation methods.
Ultimately, integrating renewable electricity into production processes not only addresses environmental objectives but is becoming an essential component of industrial strategy within the evolving landscape shaped by CBAM’s introduction. The decisions made regarding electricity sourcing are poised to become pivotal determinants of competitiveness across CSEE industries moving forward.
