Serbia has introduced an investment tax credit allowing eligible electricity producers to offset part of their domestic carbon-tax liability through spending on projects that reduce greenhouse-gas emissions. Eligible companies can claim a tax credit equal to 20% of qualifying investment in emissions-reduction projects. The credit can cover up to 80% of the carbon tax otherwise payable and is classified as state aid.
Credit targets power-sector investment
The mechanism could be particularly relevant to Elektroprivreda Srbije (EPS), whose generation portfolio remains dominated by lignite and which faces significant investment requirements as Serbia seeks to reduce emissions while maintaining security of electricity supply. Serbia introduced a domestic carbon tax of €4 per tonne of CO₂ equivalent at the beginning of 2026 as part of its response to the European Union’s Carbon Border Adjustment Mechanism (CBAM).
The domestic carbon price remains substantially below EU carbon prices, limiting the immediate financial burden on Serbian generators compared with electricity producers operating within the EU. The new investment credit can reduce that burden further for companies able to demonstrate eligible decarbonisation expenditure. A qualifying producer investing €1 million in eligible projects could theoretically generate up to €200,000 in tax credit, subject to the limit of 80% of its carbon-tax liability.
Eligible expenditure will determine the impact
The economic effect of the mechanism will depend on the emissions of individual producers and on how eligible investment is ultimately defined. Secondary rules will establish which expenditures qualify. Potential areas include efficiency improvements, emissions-reduction equipment and investments associated with lower-carbon generation, although individual projects will have to meet the criteria established by the implementing framework. The provision changes the structure of Serbia’s carbon-tax regime by allowing part of the liability to be redirected towards investment rather than functioning solely as a charge on emissions.
For electricity producers, this creates an incentive to accelerate qualifying projects while maintaining a carbon-pricing signal within the power sector.
Lignite dependence shapes the policy
The measure comes as coal remains the main source of Serbia’s electricity generation, while replacement capacity requires years of development. Serbia is simultaneously expanding wind, solar and battery storage, developing the Bistrica pumped-storage project, and considering gas and nuclear options for longer-term electricity-system adequacy.
Increasing the domestic carbon price rapidly without sufficient replacement generation could raise electricity costs and add financial pressure on EPS. The investment credit provides a partial offset to that pressure for producers undertaking qualifying projects. The mechanism does not eliminate Serbia’s broader exposure to European carbon policy.
Domestic carbon price remains below EU levels
With CBAM entering its definitive phase in 2026, embedded emissions have become increasingly important for Serbian companies exporting covered goods to the EU. For electricity, requirements concerning actual emissions, contractual arrangements and supporting evidence are particularly demanding.
A Serbian carbon tax can reduce part of a CBAM adjustment where the relevant carbon price has effectively been paid. However, the domestic rate of €4/tCO₂e remains only a fraction of the carbon cost associated with the EU Emissions Trading System. Serbia therefore cannot rely on the domestic carbon tax alone to offset its exposure to EU carbon policy.
Investment credit supports broader power transition
The larger adjustment depends on reducing emissions through changes to the electricity system, including lower reliance on lignite, improved plant efficiency, increased renewable generation and sufficient storage and flexible capacity to maintain system stability. The new credit can improve the economics of qualifying projects, but its 20% rate is not sufficient to finance Serbia’s wider electricity transition on its own.
Its effectiveness will depend on whether companies direct the mechanism towards investments that deliver measurable emissions reductions rather than projects that would have proceeded without the incentive.
Implementing rules will define the mechanism
The next key step will be the implementing rulebook, which will determine the technologies and expenditures eligible for the credit, how emissions reductions must be demonstrated and how the measure interacts with other state-aid schemes. For EPS, these rules could affect how parts of its investment programme are structured and documented.
For Serbia, the broader policy challenge is to develop a carbon-pricing mechanism that combines industrial competitiveness with incentives for measurable decarbonisation. The new credit provides electricity producers with a mechanism to convert a substantial portion of their carbon-tax liability into support for qualifying lower-emission investment, subject to the 80% tax-liability ceiling and the requirements established by the implementing framework.
