Serbia’s electricity sector is facing a competitiveness challenge as the European Union’s Carbon Border Adjustment Mechanism (CBAM) begins reshaping regional power markets. A new assessment cited by the Serbian Fiscal Council says electricity produced from Serbia’s domestic energy mix becomes around 60% more expensive when exported to the EU. The council links the change to concerns over export profitability and the long-term financial sustainability of the sector.
The warning follows comments from the leadership of Elektroprivreda Srbije (EPS). EPS estimated that CBAM-related costs could reach approximately €100 million annually. The Fiscal Council argues that the overall effect on the power sector may be larger than official government estimates, citing Serbia’s reliance on lignite-fired generation.
How CBAM applies to cross-border electricity
Under CBAM, electricity imported into the EU is subject to a carbon cost reflecting emissions embedded in production. The Serbian Fiscal Council assessment says Serbia’s electricity system has a carbon intensity estimated to be several times higher than the EU average. The difference is attributed primarily to coal-based generation in Serbia’s power mix.
As a result, electricity exported from Serbia faces an additional carbon burden when entering EU markets. The mechanism affects competitiveness by increasing costs tied to the emissions profile of exported power.
Export declines reported in early 2026
The consequences are described as already visible in market activity. During the first months of 2026, Serbian electricity exports to EU markets reportedly declined sharply as CBAM-related costs reduced the attractiveness of Serbian power. The Fiscal Council notes that export performance deteriorated at a time when lignite-based generation could no longer compete effectively against lower-carbon electricity produced within the EU.
The council’s assessment also points to how production structure interacts with CBAM pricing. It highlights that lignite-based output faces cost pressure relative to electricity generated with lower embedded emissions in EU markets.
Regional market effects beyond Serbia
The disruption is not limited to Serbia, according to analysis cited from the Energy Community Secretariat. During the first quarter of 2026, commercially scheduled electricity exchanges between EU member states and Energy Community countries fell by approximately 25%. In parallel, electricity prices in several Western Balkan markets traded significantly below neighboring EU markets without triggering the normal export response.
The reported outcome includes widening price spreads, lower cross-border liquidity and reduced market integration across the region. The Secretariat’s analysis connects these changes with altered trading conditions affecting flows between EU and Energy Community markets.
Renewable power and tracing requirements
A contested element of the current framework involves renewable electricity exports from Western Balkan countries. Industry participants, regulators and traders argue that renewable exports can still face CBAM-related obstacles due to default emissions methodologies and tracing requirements. They say this creates unintended barriers for renewable energy investments and cross-border green electricity trade.
The issue is raised in connection with how emissions data and tracking obligations are handled for cross-border transactions involving renewable generation. Participants continue to cite these requirements as a factor affecting cross-border trade outcomes for green electricity.
Potential carbon cost exposure for EPS
For Serbia, the challenge extends beyond export revenues, according to the Fiscal Council. It warns that if Serbia were eventually required to internalize carbon costs at levels comparable to those under the EU Emissions Trading System, EPS could face a significant impact. The assessment cites annual emissions of roughly 30 million tonnes of CO₂.
The council says a carbon price approaching current EU levels would create a financial burden measured in billions of euros. It also links such costs to changes in the economics of Serbia’s power sector and increased pressure for decarbonization investments.
Investment focus and Brussels clarification
The debate described in the assessment centers on adaptation measures rather than short-term compliance steps. Investors, lenders and electricity traders are focusing on renewable energy deployment timelines, battery storage investments, grid modernization and potential reforms aimed at improving recognition of low-carbon electricity exports from the Western Balkans.
At the same time, market participants are awaiting further clarification from Brussels regarding proposed CBAM amendments and their potential impact on regional electricity trading arrangements. The assessment frames this as relevant for how trading conditions may evolve for cross-border power flows involving Serbia and neighboring markets.
