Serbia could avoid paying the EU’s Carbon Border Adjustment Mechanism (CBAM) on electricity if the ongoing process of market integration with Hungary and Bulgaria is completed by the end of 2026. The CBAM, a financial mechanism aimed at aligning carbon costs across borders, would otherwise significantly impact Elektroprivreda Srbije (EPS) starting next year, while other sectors would have more time to adapt between 2026 and 2034, with full CBAM pricing applied only in 2034.
The main challenge is that Serbia’s electricity production relies heavily on lignite, giving it a carbon footprint three to four times higher than the EU average. No other covered sector shows such a large disparity in CO2 emissions compared to the EU. Translating this into costs, exporting one megawatt-hour of Serbian electricity to the EU would incur an additional €60 due to high carbon emissions. Since the current average export price for EPS electricity is slightly above €100 per megawatt-hour, this levy would severely reduce EPS’s competitiveness and complicate its operations.
Over the past two decades, EU countries have implemented measures that significantly reduced greenhouse gas emissions, while Serbia has lagged, despite commitments under the Paris Agreement. As a result, it is unlikely that Serbia will meet its 2030 emissions reduction target.
The EU has set conditions under which Serbia could avoid CBAM payments for electricity, but these come with additional challenges. Completing the market integration with Hungary and Bulgaria by 2026 is essential. Even if technically feasible, the cost for EPS after 2030 would be enormous. If EPS were subject to EU carbon pricing rules, the cost could reach approximately €3 billion annually, potentially doubling electricity prices for households and reducing EPS’s domestic competitiveness. In comparison, CBAM would cost Serbia only €200–300 million per year, making it a relatively better option.
Serbia’s disadvantaged position stems from years of neglecting energy and climate policies. Although CBAM applies equally to all EU market participants, Serbian products will face higher relative burdens due to consistently higher carbon intensity in production. From 2010 to 2023, central and eastern European countries reduced emissions by about 20%, whereas Serbia achieved only a 3–4% reduction.
Fiscal policy must play a key role in the transition. Introducing domestic CO2 charges would incentivize investment in cleaner technologies and more efficient energy use while retaining funds within Serbia’s budget instead of paying the EU.
Starting in 2026, roughly two-thirds of Serbian exports will face additional costs in the EU due to new climate regulations, with this share rising to nearly 80% if connected Balkan markets under free trade agreements are included. CBAM could inadvertently discourage domestic investment in renewables because its calculation is based on the national average emissions in electricity production, not actual emissions from individual producers. As a result, even low-carbon producers would face high charges, counteracting EU climate policy goals.
CBAM charges for electricity will be calculated based on Serbia’s average emissions over a five-year period (2019–2023), applied with a two-year lag. Unlike EU member states, Serbia has received limited financial support for modernizing electricity production. EU countries with GDP per capita below 75% of the EU average have access to the Modernisation Fund, which has allocated nearly €20 billion by mid-2025 to improve energy systems and reduce CO2 emissions. Countries like Poland, Romania, Hungary, Croatia, and Lithuania have used these funds to cut electricity-related CO2 emissions in recent years, while Serbia has fallen behind.
