Serbia’s electricity sector is facing a major competitiveness challenge as the European Union’s Carbon Border Adjustment Mechanism (CBAM) begins reshaping regional power markets. According to a new assessment cited by the Serbian Fiscal Council, electricity generated from Serbia’s domestic energy mix effectively becomes around 60% more expensive when exported to the EU, raising serious questions about the future profitability of power exports and the long-term financial sustainability of the country’s electricity sector.
The warning follows recent comments by the leadership of Elektroprivreda Srbije (EPS), which has estimated that CBAM-related costs could reach approximately €100 million annually. The Fiscal Council argues that the actual impact on the power sector may be considerably larger than official government estimates suggest, particularly because Serbia’s electricity production remains heavily dependent on lignite-fired generation.
Under CBAM, electricity imported into the European Union is subject to a carbon cost reflecting the emissions embedded in production. Serbia’s electricity system carries a carbon intensity estimated to be several times higher than the EU average, primarily due to its reliance on coal. As a result, electricity exported from Serbia faces a significant additional carbon burden, making it far less competitive in EU markets.
The consequences are already becoming visible. During the first months of 2026, Serbian electricity exports to EU markets reportedly declined sharply as CBAM-related costs reduced the attractiveness of Serbian power. The Fiscal Council notes that the country’s export performance has deteriorated precisely because lignite-based generation can no longer compete effectively against lower-carbon electricity produced within the EU.
The broader regional market is experiencing similar disruptions. Analysis by the Energy Community Secretariat shows that during the first quarter of 2026, commercially scheduled electricity exchanges between EU member states and Energy Community countries fell by approximately 25%, while electricity prices in several Western Balkan markets traded significantly below neighboring EU markets without triggering the normal export response. The result has been widening price spreads, lower cross-border liquidity and reduced market integration.
One of the most controversial aspects of the current framework is that renewable electricity exports from many Western Balkan countries can still face CBAM-related obstacles because of default emissions methodologies and tracing requirements. Industry participants, regulators and traders have argued that the mechanism is creating unintended barriers for renewable energy investments and cross-border green electricity trade.
For Serbia, the challenge extends far beyond export revenues. The Fiscal Council warns that if the country were eventually required to internalize carbon costs at levels comparable to the EU Emissions Trading System, the impact on EPS could be profound. With annual emissions estimated at roughly 30 million tonnes of CO₂, a carbon price approaching current EU levels would create a financial burden measured in billions of euros. Such costs would fundamentally alter the economics of the Serbian power sector and accelerate pressure for decarbonization investments.
The debate therefore increasingly centers on strategic adaptation rather than short-term compliance. Investors, lenders and electricity traders are focusing on the pace of renewable energy deployment, battery storage investments, grid modernization and potential reforms that could allow greater recognition of low-carbon electricity exports from the Western Balkans. At the same time, market participants are awaiting further clarification from Brussels regarding proposed CBAM amendments and their potential impact on regional electricity trading arrangements.
For Serbia, the message emerging from the Fiscal Council’s analysis is clear: CBAM is no longer a future regulatory risk. It has become an immediate commercial reality that is reshaping electricity trade flows, reducing the competitiveness of coal-based generation and increasing pressure for a faster transition toward lower-carbon sources of electricity.
