Serbia is expected to face slower economic growth in 2026, and Electric Power Industry of Serbia (EPS) could lose market share and revenues due to the EU’s cross-border carbon tax, said Blagoje Paunović, president of the Fiscal Council, in an interview with Forbs Srbija.
Paunović emphasized that budget planning for next year must take into account commitments made this year, including salary increases for teachers, pension hikes, and an 8% wage increase, which have already affected the budget. Capital investment execution was somewhat lower this year, but Paunović expects an acceleration in capital spending next year. He noted that while expenditure patterns may change, revenue growth is likely to slow, all within the framework of a 3% fiscal deficit.
Regarding the EU Carbon Border Adjustment Mechanism (CBAM), effective January 1 for steel, cement, aluminum, fertilizers, and electricity, Paunović explained that importers in the EU pay the tax based on the carbon content of imported products. Although Serbian exporters do not pay the tax directly, their products may become less competitive on the European market.
He warned that EPS may have to reduce electricity exports significantly, potentially losing market share, or only export when European prices are extremely high—rare occurrences. This could reduce EPS revenues from exports by around 10%.
Paunović criticized Serbia for missing earlier opportunities to prepare for the carbon tax. While Serbia committed under the Paris Agreement to reduce greenhouse gas emissions by 33.3% by 2030 compared to 1990 levels, progress has been minimal. Between 2010 and 2023, emissions fell by just 3.4%, meaning that achieving the 2030 target would require a 10% reduction in the next five years, an extremely ambitious goal.
The Fiscal Council hopes for measures to mitigate the impact. The government has proposed two laws to introduce carbon taxes domestically, allowing the funds to remain in Serbia for decarbonization instead of going to the EU. However, Paunović noted that the estimated revenue, around 1.5 billion euros by 2030, is far below the 30 billion euros needed for the climate transition.
He proposed that Serbia negotiate with the EU for a more favorable treatment for EPS, potentially exempting it from obligations until 2030. After that, EPS could gradually adopt the EU Emissions Trading System (ETS) with 80–90% free emissions allowances, similar to arrangements in other countries. Paunović added that this could also provide better financing for modernization of EPS production.
