The European Union’s carbon emissions tax, known as CBAM, will begin to apply in full as of January XNUMXst next year. The transitional phase — in place since XNUMX — allowed countries to at least partially adjust and align with the new measures that will affect their energy and industrial sectors.
CBAM charges could lead to rising costs for exporters from Serbia, reduced competitiveness of Serbian products, and ultimately the risk of lower exports to the EU.
When it shifts from a reporting to a fiscal regime at the start of the New Year, CBAM will, in addition to electricity, for now cover several other industrial products, including the ones that are very important for Serbia.
The Serbian government has prepared a package of measures, but it remains to be seen what their advantages and drawbacks are in responding to CBAM.
A measure that is rarely discussed
The Carbon Border Adjustment Mechanism (CBAM) is an EU instrument that introduces charges on imports of certain products into the EU in order to equalize the cost of carbon emissions with those borne by companies within the EU.
Beyond the decarbonization of global industry, the aim of this mechanism is to prevent “carbon leakage” — the relocation of production to countries with less strict climate regulations.
In other words, the EU wants to shield its industry and electricity producers, who already bear high decarbonization costs, from being undercut by cheaper imports from countries that do not face such costs.
The idea is to ensure the same conditions for all market participants.
Photo: Milovan MilenkovićThermal power plant "Nikola Tesla"
Old story, new name
Signs that something like CBAM would eventually come into force have existed for years. Those who wanted to notice them could have.
The European Union has had its own carbon emissions trading system since XNUMX, called the EU ETS. Within it, there are sectors such as electricity generation, which since XNUMX have had no right to any free allowances, and others such as the steel or iron industry, which, due to competition concerns, were granted a transitional period, i.e. free allowances.
In addition, the Paris Agreement was signed in 2015, under which 196 participant countries committed to reducing emissions by 2030. Serbia set a target of a 30% reduction, which now appears difficult to reach since there are only five years left, and only one third of that reduction has been achieved.
Finally, the 2019 European Green Deal announced that CBAM would be established and that it would replace free allowances.
This mechanism is by no means a punitive measure devised by the EU, as it was primarily designed to protect the European market from an influx of emissions-intensive products from the East. Still, the Western Balkans, as a trading partner of the EU, will be directly affected.
How is CBAM calculated?
Although some finer details remain unknown, the formula for calculating CBAM already exists.
The mechanism is calculated by subtracting reference emissions — those deemed necessary given existing technology — from actual carbon emissions. That difference is then multiplied by a correction factor that decreases over the years, and finally multiplied by the price of EU ETS emission allowances.
As the EU reduces free allowances for participants in the EU market, CBAM costs for importers into the European market will increase at the same pace.
For now, CBAM will apply only to certain products. In addition to electricity, it will cover imports of steel, cement, fertilizers, aluminum, and hydrogen.
It is important to note that Serbian exporters will not pay these charges directly; rather, EU companies that import their products will. However, Serbian exporters’ goods will as a result become more expensive on the EU market.
Slobodan Minić, a member of the Fiscal Council, explains for “Vreme” that CBAM currently covers only direct emissions, but that there is a chance it will be expanded in the future. He adds that extending CBAM to cover “indirect” emissions – those arising from the production of the electricity a company uses – is under consideration, and potentially even to “downstream” emissions. In the latter case, CBAM would be significantly broadened because it would apply to all products containing a product that is already subject to CBAM.
As he notes, apart from electricity the impact is still relatively modest, but it will increase if CBAM is extended. According to Minić, electricity is a special case because our region sells a considerable share of its power to the EU, so CBAM directly affects the competitiveness of those exports.
The affected industry
Germany is Serbia’s largest export partner, and among the top five are Italy and Hungary, three EU member states. This means CBAM will apply to all previously listed products exported to these three countries, as well as to all other members of the EU ETS area.
Although the definitive CBAM regime begins in less than a month, obligations for importers of the affected industrial products will increase gradually. The reason lies in reference values, i.e., existing technology used in production.
The biggest blow will be felt by iron and steel producers. According to a recent Fiscal Council report on CBAM’s impact on Serbia, this mechanism will generate costs of €4.7 million (for iron and steel) in 2026. By 2030, as obligations grow, costs will rise to €13.6 million.
The price of Serbian cement on the European market will rise by €18 million in 2026, and by €40.7 million in 2030. Although the costs in this case are even higher than for iron and steel, cement is exported to the EU far less than those two products. In addition, the cost of cement production within the EU will rise as free allowances are phased out, so the overall blow on this sector will be weaker.
During the production of these products in Serbia, 15–20% more carbon emissions are generated than in EU countries.
The Fiscal Council states that the risk for the affected industry in Serbia can be assessed as “moderate” in 2026 (€45 million in costs), but that by 2030 it will increase to €150–200 million.
Photo: Tanjug/Miloš MilivojevićThermal power plant "Kostolac B"
The biggest loser
On the other hand, for exports of electricity to the European market, CBAM does not provide for a gradual increase in costs: the full CBAM charge will apply as of January XNUMXst. Unlike the affected industrial sectors, whose production costs (in the case of exports) will rise gradually over the next five years, Elektroprivreda Srbije (EPS) will not have that advantage.
Although EPS primarily uses electricity generation to meet domestic needs, part of the produced electricity is sold (exported) to the EU market, which provides this energy giant with a solid source of revenue and more balanced business operations.
CBAM is designed to cover products whose production entails a risk of excessive carbon emissions. Electricity is on the list because there is a high risk of emissions-intensive generation, for which Serbia’s EPS is a prime example.
In Serbia, around 70% of electricity currently comes from coal-fired thermal power plants. At the end of last year, the Block B3 unit of the coal-fired “Kostolac” power plant, a major Chinese project, entered trial operation. While Europe is implementing decarbonization that, through CBAM, now directly begins to affect specific sectors, EPS is increasing “dirty” energy capacity.
As a result, the carbon footprint of electricity generation in Serbia is three to four times higher than in EU countries.
Accepting CBAM for EPS would mean an additional cost of €60 per MWh when exporting electricity, which would make Serbian power completely uncompetitive on the EU market. In other words, importing electricity from EPS would make sense only when European electricity prices are exceptionally high.
The Fiscal Council estimates that, between 2026 and 2030, exports to the EU could lose €200–300 million in revenue per year. It is an amount that, the report notes, is roughly equal to the profit achieved in 2024.
An exception that solves little
The European Union has provided an option to exempt electricity from CBAM until 2030. However, Serbia must first meet several conditions.
First, it must fully align with EU regulation in this sector and with the objective of climate neutrality by 2050. Then it must complete coupling with the EU’s single electricity market. Finally, by 2030 it must establish an emissions- pricing system in this sector with a price equal to that in the EU ETS.
However, Vreme’s source believes that these requirements are problematic in several ways.
The biggest lies in the third requirement: charging high European carbon prices on domestic production could lead to economically and socially unsustainable increases in electricity prices, the Fiscal Council concludes in its report. Price hikes of over 100% are considered possible.
On the other hand, while less painful, the second requirement is also difficult to achieve. Coupling the domestic market with the EU is already underway, but it is not realistic for the process to be completed by the end of next year.
This leaves EPS in a far from enviable position.
Photo: Marija JankovićTENT: The largest thermal power plant in Serbia
What options were on the table?
Since this exemption is not an optimal option, Serbia has several possibilities regarding electricity exports.
One is simply to accept this mechanism. From a financial perspective, this is a better option than joining the EU ETS, and it would protect the domestic market from a sudden surge in electricity prices. However, EPS would in practice forgo exports to the EU, and CBAM revenues would flow into EU budgets instead of remaining in Serbia and being used for decarbonization. As a consequence, EPS would likely reduce investment in renewable energy sources.
The second option is to introduce a domestic tax on excessive carbon emissions. From the perspective of decarbonizing Serbia’s energy sector, this measure would provide a stable source of revenue for investment in renewables and place pressure on EPS to reduce emissions. In addition, part of the money would remain in Serbia’s budget, unlike the first option where it would go to the EU budget.
However, EPS would bear a huge cost. According to the Fiscal Council report, it could reach €1.2 billion by 2030. On the other hand, that cost would have to be compensated through major increases in electricity prices, which would represent a severe economic and social blow on citizens. Slobodan Minić says the Fiscal Council did not propose this option and that their conclusion was that the third option is best.
The third option suggests negotiations with the EU, i.e. a gradual entry into the EU ETS. In its report, the Fiscal Council sees this as the best option, provided that good conditions are secured for EPS.
By ensuring a long period for full integration and a gradual reduction of free allowances, Serbia would substantially reduce the financial burden on EPS. Serbia would also gain additional access to EU funds and secure stable resources for decarbonization.
A national carbon tax
While the Serbian government was negotiating with the European Union, while it is not publicly known what exactly those negotiations contained, a national carbon tax was introduced in parallel.
This means that costs of excessive carbon emissions will end up in the domestic budget instead of the EU budget. The national tax will apply to both industrial products and electricity.
According to the mentioned body’s report, revenues from the domestic carbon tax for industrial products are expected to rise from €22 million in 2027 to around €220 million in 2030.
On the other hand, the Fiscal Council believes that this is not the best solution for electricity. While it can generate high revenue for the country, a high tax rate could lead to significant increases in electricity prices for households.
EPS will have access to a so-called tax credit, but in return it will have to invest in emissions reduction.
Slobodan Minić explains that in addition to the national emissions tax, Serbia is also introducing a tax on imported emissions, adding that it resembles a “domestic version of CBAM.” In theory, that makes sense, but he believes the decision has been rushed, because the same industries are not exposed in Serbia as in the EU.
He illustrates this with the example of aluminum. In this case, the largest emissions occur during primary production, which is not done in Serbia; instead, raw material is imported and then processed. As he says, in this way Serbia supposedly protects the competitiveness of domestic firms, even though there are no primary producers, only aluminium processors.
Minić concludes that if we start with decarbonization now, “we can reduce CBAM costs to an acceptable level,” but, he adds, if we let everything slide and do not react, we will be in trouble.
