Governments in the Western Balkans are advocating for immediate modifications to European Union regulations following the implementation of carbon-related charges on electricity exports, which have led to a significant decline in demand from EU markets. This situation has highlighted existing vulnerabilities within the region’s electricity trade.
Montenegro’s energy minister, Admir Šahmanović, representing several neighboring countries including Serbia, Bosnia and Herzegovina, and North Macedonia, has formally reached out to members of the European Parliament. The communication calls for changes to Regulation (EU) 2023/956, which oversees the Carbon Border Adjustment Mechanism (CBAM).
The primary concern revolves around the inclusion of electricity under CBAM. Starting from 1 January 2026, this mechanism will impose additional costs on power exports from the Western Balkans to the EU, irrespective of the source of generation. This change has had an immediate impact on trading conditions.
A letter sent to Brussels indicates that there has been a decrease in export volumes despite strong generation, particularly from hydropower sources. EU buyers have become less inclined to procure electricity from the region when carbon-related costs are included in pricing models.
This issue is particularly pronounced during times of high renewable energy output. Even when the region generates abundant and relatively clean electricity, especially during seasons with strong hydrological flows, the uniform application of CBAM charges diminishes competitiveness against supplies sourced within the EU.
This creates a structural contradiction. While the EU’s carbon pricing framework aims to promote decarbonization and facilitate renewable integration, its current application in the Western Balkans is penalizing exports regardless of actual carbon intensity. This undermines incentives for cross-border electricity trading and hampers market integration.
Energy ministries across the region argue that the existing framework could jeopardize one of the EU’s strategic goals: integrating neighboring electricity markets. The Western Balkans have made significant progress in aligning their regulations with EU energy standards, including reforms related to renewables, market rules, and climate policies.
Nonetheless, substantial structural challenges persist. Many countries in the region still lack fully operational ETS (emissions trading systems) and MRV (monitoring, reporting, and verification) frameworks that meet EU standards, limiting their ability to be recognized as equivalent participants under CBAM regulations.
The financial stakes are considerable. Estimates indicate that carbon-related charges on electricity exports could amount to tens to hundreds of millions of euros annually for smaller systems like Montenegro, depending on carbon pricing and export volumes.
For utilities such as EPCG and EPS, this mechanism effectively introduces an external cost layer into export pricing. Although EU importers officially bear this charge, it ultimately leads to reduced demand and lower price realizations for exporters—compressing profit margins and diminishing cross-border electricity flows.
The regional stance does not oppose the principle of CBAM; instead, it recognizes the significance of carbon pricing in advancing low-emission energy systems. The contention lies in the uniform application of this mechanism to electricity, without transitional provisions that consider the integration status and reform progress of candidate nations.
This situation reveals a growing tension between two concurrent objectives of the EU: enforcing carbon discipline across borders while facilitating electricity market integration with neighboring systems. From the perspective of the Western Balkans, the current framework appears to prioritize internal market protection over integration efforts.
The request from these countries is specifically defined yet strategically important: amend the regulatory approach to electricity within CBAM to prevent suppression of trade flows that align with EU decarbonization objectives.
