The implementation of the European Union’s Carbon Border Adjustment Mechanism (CBAM) is poised to significantly impact Serbia’s industrial sector, which is closely tied to EU manufacturing supply chains. Starting in 2026, EU importers of carbon-intensive products will be required to account for embedded emissions in goods imported from outside the EU, necessitating the purchase of CBAM certificates based on the EU Emissions Trading System (EU ETS). This policy initially targets sectors such as iron and steel, aluminium, cement, fertilizers, electricity, and hydrogen—industries that are critical to Serbia’s export economy.
Serbia’s industrial base is notably large for a Western Balkan nation, with substantial exports of intermediate materials to European markets. Estimates indicate that between €9 billion and €10.5 billion of Serbia’s exports to the EU are linked to sectors affected by CBAM. This reliance on carbon-intensive industries means that a significant portion of the Serbian economy could be impacted by the new carbon pricing mechanisms.
The challenge extends beyond export composition to the carbon intensity of Serbia’s energy system. The country’s electricity generation is predominantly reliant on lignite-fired power plants operated by the state utility EPS, resulting in high emissions. Approximately 60% to 65% of Serbia’s electricity comes from coal, while hydropower contributes about 25%. This reliance creates a conflict as Serbian exporters face increasing carbon pricing pressures while depending on an electricity system with one of Europe’s highest emissions profiles.
Specific companies within key industries are particularly vulnerable to CBAM exposure. The HBIS Group steel plant in Smederevo stands out as Serbia’s largest industrial exporter and one of Southeast Europe’s major steel facilities. Its production processes are heavily coal-dependent, which raises its CO₂ emissions compared to more modern electric arc furnace technologies. As CBAM intensifies carbon costs for imported steel, the competitiveness of Smederevo’s exports may be adversely affected by both production emissions and the carbon intensity of its energy supply.
To adapt, HBIS Serbia faces pressure to expedite decarbonization efforts and explore “green steel” production methods. This may involve increasing scrap steel recycling through electric arc furnaces, utilizing renewable energy sources, and potentially transitioning to hydrogen-based technologies if they become economically viable. However, these changes will require substantial capital investment and depend on access to low-carbon electricity.
The cement sector is another area facing direct exposure under CBAM due to its high carbon footprint from both fuel combustion and chemical processes involved in clinker production. Major players include Holcim Serbia and the Moravacem plant operated by CRH Group, which collectively produce millions of tons of cement annually for domestic and regional markets. These companies are already undertaking sustainability initiatives aimed at reducing emissions intensity in response to evolving market conditions.
Additionally, sectors such as fertilizer and chemical production also intersect with CBAM implications. Fertilizer manufacturing is particularly emission-intensive due to natural gas usage in ammonia synthesis processes. Companies like Elixir Group that operate in this space may face indirect exposure based on their integration with EU agricultural supply chains.
Mining operations in eastern Serbia further complicate this landscape. The Bor mining basin produces copper for European markets; while copper is not included in CBAM’s initial scope, emissions from smelting could become relevant if the mechanism expands its coverage.
Recognizing these challenges, the Serbian government has initiated a renewable energy expansion program aimed at diversifying its electricity generation mix away from coal dependency. A significant component of this strategy includes competitive renewable energy auctions supported by international financial institutions like the European Bank for Reconstruction and Development.
The upcoming second round of auctions will allocate capacity for wind and solar projects, aiming to support approximately 1,300 megawatts of new renewable capacity over three years. Strong investor interest has been noted, with numerous proposals exceeding available quotas during recent rounds.
Wind energy currently leads Serbia’s renewable efforts, with existing farms in regions like Vojvodina. Solar energy is gaining traction as well due to decreasing costs and improved regulatory frameworks that encourage new investments.
For industrial exporters focusing on securing low-carbon electricity through long-term power purchase agreements (PPAs), these developments are crucial. Such agreements enable firms to source electricity directly from renewable producers, potentially mitigating their carbon footprint under CBAM regulations.
Despite promising advancements in renewable capacity, concerns remain about whether Serbia can meet the energy demands of its heavy industry in the short term. High electricity consumption rates among sectors like steel and cement raise questions about the sufficiency of low-carbon power availability during the early phases of CBAM implementation.
Grid infrastructure also poses a significant challenge; integrating large amounts of intermittent renewable energy into Serbia’s transmission network requires substantial investment in modernization efforts. Without these upgrades, even completed renewable projects may face operational constraints.
Moreover, as green electricity becomes increasingly valuable within regional markets, there is a risk that domestic producers might prioritize exporting low-carbon power over supplying local industrial consumers. This potential dynamic could drive up costs for Serbian exporters seeking sustainable energy sources.
Nonetheless, Serbia holds several advantages that could facilitate a transition towards green metals production over time. The country is rich in mineral resources like copper—critical for global electrification—and existing mining operations already contribute materials essential for electrical infrastructure and renewable technologies.
European manufacturers are actively seeking low-carbon sources for industrial inputs such as green steel and aluminum to adhere to climate targets. Given its geographic proximity to EU markets and established industrial base, Serbia could emerge as a competitive supplier if it successfully decarbonizes its energy system.
Achieving this transformation will require coordinated efforts including significant expansion of renewable capacity, investments in cleaner production technologies, and supportive regulatory frameworks that enable Serbian exporters to substantiate lower emissions profiles.
If these conditions materialize effectively, Serbia could transition from being a high-emission exporter of traditional industrial materials towards supplying lower-carbon alternatives critical for Europe’s energy transition by 2030. The introduction of CBAM thus represents a pivotal juncture for Serbia’s industrial future, presenting both immediate compliance challenges and long-term incentives for sustainable investment and modernization within its manufacturing sectors.
