Montenegro is recognized for its significant renewable energy resources, especially in hydropower, positioning it as a key player in Southeast Europe’s energy landscape. However, the implementation of the EU Carbon Border Adjustment Mechanism (CBAM) has highlighted that the country’s renewable electricity does not automatically qualify as low-carbon when entering the EU market.
The introduction of CBAM has established a critical distinction within Montenegro’s electricity market. It differentiates between electricity that is physically renewable and that which meets the stringent EU requirements for low emissions verification. This distinction is crucial for two primary markets: electricity exported to the EU through the Montenegro–Italy interconnector and electricity sold domestically to local industries exporting to the EU.
Electricity exported via the interconnector is classified as a CBAM good, meaning that EU importers or authorized declarants must adhere to CBAM obligations. Conversely, electricity sold domestically does not cross into the EU as a CBAM good, but its emissions could still impact the carbon footprint of exported products, depending on their classification under CBAM regulations.
As Montenegro continues to expand its renewable energy capacity—67.19% of its electricity consumption was sourced from renewables in 2024—the government aims for at least 50% renewables in total final energy consumption by 2030. Projections indicate that by 2026, Montenegro expects to produce around 3,798 GWh of electricity with an anticipated surplus of approximately 398 GWh, bolstered by increased solar generation and the return of the Pljevlja thermal plant.
However, under CBAM, Montenegrin electricity is assessed through a national default emission factor rather than by individual generating technologies unless specific emissions data can be provided. This has resulted in significant economic implications for Montenegrin electricity exports. For instance, during the first quarter of 2026, average day-ahead prices showed a €43/MWh difference favoring exports from Montenegro, yet actual export volumes declined sharply.
The Energy Community Secretariat reported an applicable default emission factor of 0.979 tCO₂/MWh for Montenegro. With an average EU ETS price of €75.36/tCO₂ during this period, this resulted in an indicative CBAM exposure of approximately €73.78/MWh—substantially overshadowing any favorable wholesale price spread.
Consequently, scheduled exports from Montenegro to Italy decreased by over 2,100 MWh per day compared to early 2025 figures. This decline illustrates how Montenegrin renewable energy can be economically disadvantaged despite its physical generation capabilities due to the overarching carbon intensity associated with its national grid, including emissions from coal-fired plants.
For Montenegrin renewable generators, this evolving landscape necessitates a reassessment of their commercial strategies. Previously focused on competitive pricing and access to infrastructure, they must now consider whether they can substantiate claims of actual embedded emissions rather than relying on default values when exporting to the EU.
The responsibility for compliance with CBAM rests primarily with EU importers; however, much of the necessary evidence must originate from Montenegrin producers. The complexity of this evidence chain involves multiple stakeholders—from producers to traders and importers—each playing a role in ensuring compliance with stringent verification requirements.
The first phase of the Montenegro–Italy interconnector has provided substantial capacity for electricity trade; however, CBAM introduces additional layers of complexity for traders assessing export viability. Traders must now factor in not only price differentials but also potential CBAM exposures when evaluating export opportunities.
Montenegro’s unique generation structure complicates matters further. While it boasts a robust renewable portfolio dominated by hydropower alongside emerging solar and wind projects, it also retains significant lignite-fired generation capacity at the Pljevlja plant. This duality means that without appropriate evidence demonstrating actual emissions reductions, Montenegrin renewables may inherit unfavorable default factors influenced by fossil fuel generation.
This scenario underscores the necessity for Montenegrin energy producers to develop robust systems for evidencing low emissions associated with their generated electricity. As they seek to align with EU standards and maximize their market potential, addressing these challenges will be pivotal in maintaining competitiveness in both regional and European markets.
Moreover, Montenegrin industries can benefit from local renewable energy sources when producing goods for export to the EU. However, similar complexities arise regarding how indirect emissions from electricity consumption are accounted for under current CBAM regulations. Notably, not all industrial products currently incorporate indirect emissions in their CBAM calculations.
As Montenegro progresses towards greater integration with European markets—having notified full transposition of relevant legislation—the urgency to adapt its regulatory frameworks becomes increasingly clear. The country’s ability to navigate these challenges effectively will significantly influence its future role within both regional and European energy landscapes.
