Serbia and the wider South-East Europe electricity system are at the intersection of accelerating regional electricity market integration and the European Union’s rollout of its Carbon Border Adjustment Mechanism. The CBAM — designed to equalise the cost of carbon between EU domestic production under the EU Emissions Trading System (EU ETS) and imported goods — now formally encompasses electricity imports from third countries starting 1 January 2026, invoking administrative and financial obligations for importers to monitor, declare, and settle the greenhouse gas emissions embedded in electricity they bring into the Union. This represents a fundamental shift for SEE countries such as Serbia, Bosnia and Herzegovina, Montenegro, and North Macedonia, whose electricity exports are tightly integrated with EU neighbours through physical interconnectors, day-ahead markets, and balancing arrangements.
Serbia’s electricity sector exemplifies the sort of system that will be directly affected. As of the latest available data, Serbia’s total installed capacity sits at roughly 8,981 MW, with gross generation of about 34,706 GWh annually. Coal and lignite-fired plants contribute the bulk of this output — around 60–65% of total generation, with hydropower providing approximately 24%, and gas and wind making up smaller proportions.This carbon-intensive mix results in a carbon intensity of roughly 556 gCO2e per kWh on average, significantly higher than the EU average, and underpins a potential CBAM exposure that could materially erode export competitiveness if charged at full EU ETS-linked rates.
In recent years, Serbia has regained net export status in average hydrological conditions, often exporting 2–4 TWh annually above domestic consumption, while day-ahead traded volumes on the SEEPEX exchange — the regional trading platform — regularly exceeded 420–450 GWh per month in early 2026, illustrating a materially liquid cross-border market. This trade has been essential for balancing seasonal hydro variability and turning surplus generation into revenue. But CBAM imposes a new carbon accounting layer that could impose costs roughly equivalent to the EU carbon price per tonne of CO2 embedded in the exported electricity, potentially as high as €60 per MWh of coal-based power in some cases, according to regional market analyses.
For SEE and Serbian market participants, two practical questions arise with particular urgency: how carbon emissions are measured and verified for electricity imports, and how green electricity can be certified so as to minimise CBAM charges.
Under current CBAM procedures, importers must measure and declare the carbon dioxide equivalent emissionsassociated with the electricity they import and then surrender CBAM certificates reflecting those emissions. The price of these certificates is tied to the average price of EU ETS allowances, effectively creating a carbon cost on a par with EU producers. For most industrial products like steel or cement, this measurement is based on fairly well-established direct emissions factors per tonne of output. Electricity, however, introduces complexity: power flows are not tied to specific generation units, and the marginal carbon content of a single MWh can vary hour-by-hour depending on grid conditions, relative supply of renewables, hydropower output, and cross-border imports and exports.
To address this, the EU has proposed a verification methodology that allows importers — including those from SEE — to declare actual emissions values rather than relying solely on default grid averages, a development motivated by stakeholder feedback that rigid default rules disadvantage non-EU producers making genuine progress in decarbonisation.This procedure will require installation-level reporting of generation and emissions, audited by accredited verifiers. For solar and wind plants, this means producing verified hourly or daily generation records tied to commissioning documentation, remote monitoring telemetry, and emissions declarations certified under recognised standards. The intent is to create a “tracked carbon intensity” for each unit — a process that, to be bankable for CBAM purposes, must be verified by independent third-party auditors with credentials under EU accreditation frameworks.
For hydropower, which dominates much of SEE’s renewables mix, verification typically revolves around generation metering and reservoir inflow/outflow records, with emissions assumptions close to zero but needing certification to ensure that lifecycle emissions and ancillary impacts are accounted for correctly. For private producers bidding into Serbian system balancing markets or participating in dayahead auctions, this means their green attributes must be bundled with the generation metadata — time stamps, GPS verification of asset location, turbine performance parameters, and certificate serial numbers — so that when their electrons cross into the EU market, the associated carbon intensity can be demonstrated with precision rather than estimated. This level of granularity mirrors evolving best practices in corporate renewable energy procurement where carbon attribute tracking systems, such as granular certificates or registries with hourly data, are becoming normative.
The implications for investment in SEE are substantive. Renewable energy developers in Serbia are delivering wind and solar projects at an accelerating pace — wind generation alone rose by more than 17% annually through recent years— and national strategies envisage expanding capacity well into the next decade to align with EU decarbonisation targets. But until CBAM-compatible verification and carbon pricing structures are fully operational, investors face a “policy risk premium” on CAPEX for renewable projects and storage, as well as on OPEX associated with carbon reporting and certificate acquisition. If CBAM charges are calculated on conservative default emission factors that do not reflect actual low-carbon generation, revenues from exports can be offset by carbon levies even for genuinely green power.
This dislocation is acute because SEE’s decarbonisation pathways are still nascent. National climate plans show that Serbia’s share of renewable energy in gross final energy consumption is targeted to reach 40.7% by 2030, requiring significant scaling of solar, wind, and possibly energy storage technologies if this is to be delivered without undermining supply reliability. Scenario modelling undertaken for the Serbian electricity sector suggests that under sustainable pathways, CO2 emissions from power generation could be cut by 35–59% by 2030 relative to earlier baselines, and by as much as 66–100% by 2050 under more aggressive decarbonisation assumptions, but these scenarios depend on swift deployment of renewables and grid modernisation.
Critically, CBAM already allows for exemptions or postponements if third countries — including energy community contracting parties like Serbia — meet rigorous conditions such as coupling their markets with the EU’s day-ahead market and implementing domestic carbon pricing commensurate with EU ETS levels by specific deadlines. Serbia aims to couple its electricity market with the EU by the fourth quarter of 2026, a step that could qualify it for temporary exemptions up to 2030 if other criteria are met. This highlights that the procedural and quantitative dimension of CBAM’s rollout is not rigid; rather, it intersects with regional market integration and national climate policy implementation timetables.
From an economic perspective, the stakes are high. Independent studies estimate that, without adjustments, annual CBAM revenues collected by the EU from Western Balkan electricity exports could run into the hundreds of millions of euros annually — with a rough breakdown suggesting Serbia alone could contribute over €300 million per year at conservative carbon price forecasts. If electricity exports are subject to CBAM without accurate carbon accounting reflecting their true low-carbon content, SEE utilities stand to lose export revenues and face depressed investment signals for regional grid projects and renewables.
In this context, the case for delaying the full application of CBAM to electricity imports — to allow time for granular carbon verification systems, harmonised market coupling, and domestic carbon pricing frameworks — is not only an argument about fairness, but also about market efficiency, investment predictability, and decarbonisation alignment. For Serbia and the wider SEE region, postponement would provide the breathing room needed to build verification infrastructure, scale low-carbon generation, and match EU regulatory expectations without compromising the economic viability of interoperability with an integrated European electricity market.
Elevated by cbam.engineer
