Serbia is in the final stages of preparing to adopt two key climate-related laws: the Law on Greenhouse Gas Emission Tax and the Law on Carbon Border Adjustment Tax. The emission tax will primarily affect the Electric Power Industry of Serbia (EPS), the country’s largest emitter, which is expected to generate about 90% of total tax revenues. The law provides EPS with a tax credit of at least 20% of the funds invested in reducing CO2 emissions during the tax period, with the possibility of increasing this percentage due to the high decarbonization costs facing the utility.
The emission tax is set at four euros per ton of CO2 starting in 2026. Although significantly lower than the current EU ETS price of around 80 euros per ton, it still represents a substantial financial burden for EPS, estimated at around 100 million euros per year. This amount equals roughly a quarter of EPS’s total investments in recent years and may eventually be passed on to end consumers. The rate is expected to rise over time, aligning gradually with EU prices.
Revenue from the new tax will not go into a dedicated fund but into the state budget. The law outlines that these funds should support emission reduction, renewable energy development, energy efficiency, infrastructure, and protection for vulnerable consumers. However, these provisions are not mandatory, which may limit their effectiveness.
The second law mirrors, in simplified form, the EU Carbon Border Adjustment Mechanism (CBAM). It aims to protect domestic producers from competition with imports from countries without carbon pricing. Unlike the EU regulation, the Serbian version excludes electricity imports due to unresolved implementation issues within the EU CBAM system.
Both laws are expected to take effect in 2026, with the first payments due in 2027. Their implementation follows the establishment of Serbia’s Monitoring, Reporting, and Verification (MRV) system for emissions, already in operation.
The EU’s CBAM will enter its final phase in January 2026, covering imports of electricity, cement, aluminum, fertilizers, iron, steel, and hydrogen. Importers in the EU will bear these costs, which are expected to be passed on to exporters from non-EU countries, including Serbia. However, CBAM’s impact on EPS is expected to be limited, as the company exports little electricity to the EU and mainly trades within the regional market.
Discussions between Serbia, the European Commission, and the Energy Community Secretariat about carbon pricing have been ongoing since 2023. The EU initially proposed that the Western Balkans adopt a regional ETS with prices equivalent to those in the EU ETS to avoid CBAM costs. Serbia and other countries rejected this proposal as unrealistic and economically harmful. Instead, Serbia opted for a phased approach—starting with a carbon tax, later evolving into a fixed-price emission trading system.
Integrating into the EU ETS will eventually be necessary when Serbia joins the EU. However, the EU’s condition that non-member countries apply an “equivalent” carbon price by 2030 is seen as unattainable. If Serbia were required to match EU ETS prices, which are expected to rise to between 100 and 150 euros per ton by 2030, EPS’s annual carbon costs could reach between 2.2 and 3.3 billion euros. Such expenses would likely cause electricity prices to rise sharply—by 75 to 110 euros per MWh—and could severely affect consumers and the financial stability of EPS.
Experts warn that rapid decarbonization without reliable replacement sources would threaten energy security and system stability. They emphasize that Serbia’s transition must follow a realistic and gradual path.
There are also unresolved technical and legal issues surrounding CBAM’s application to electricity. The mechanism is incompatible with the ongoing integration of regional electricity markets into the EU’s single market. Additionally, CBAM charges for imported electricity are calculated using emission factors for fossil fuel generation, disregarding the actual national energy mix. This could unfairly penalize countries like Serbia, where such calculations would increase costs by up to 40%.
Energy industry associations, including ENTSO-E and EFET, have called for a one-year delay in applying CBAM to electricity, citing unresolved regulatory and operational problems. Serbia and other Energy Community members have echoed these concerns.
In conclusion, Serbia’s two new climate laws represent a cautious and balanced approach tailored to current national conditions. They are expected to support gradual progress toward decarbonization without jeopardizing energy supply security. Serbian officials hope that the EU will show greater understanding of the country’s economic realities and provide stronger financial support for a fair and sustainable energy transition.
