Renewable electricity producers in Serbia and Montenegro are evaluating two routes to participate in Europe’s industrial decarbonisation market: exporting electricity directly to the EU under the Carbon Border Adjustment Mechanism (CBAM), or supplying domestic manufacturers whose products are sold to EU customers. The two approaches can create commercial opportunities, but they operate under different regulatory requirements. In particular, the CBAM relevance of cross-border electricity depends on the rules applied by the importing side, while the impact of domestic renewable purchases depends on the emissions methodology used for specific manufactured products.
CBAM obligations for physical electricity exports
When electricity is physically exported to the EU, the relevant EU importing declarant carries the CBAM obligation. If the importer cannot show that requirements for actual-emissions treatment have been met, a default methodology for electricity generally applies. This means that eligibility for actual-emissions treatment is tied to what the importing declarant can demonstrate under CBAM.
A domestic power purchase agreement (PPA), by contrast, does not constitute an electricity import into the EU. The renewable electricity may still influence a manufacturer’s energy costs, emissions accounting and decarbonisation claims. However, its effect on CBAM liability depends on the legal methodology applicable to the products being exported.
This distinction prevents domestic renewable electricity procurement from being treated as automatically equivalent to qualifying low-carbon electricity imported into the EU. It also means that buyers and sellers cannot assume that a domestic PPA alone will translate into CBAM benefits for exported goods.
Indirect emissions treatment varies by CBAM product
The regulatory separation is particularly significant because covered products do not all receive the same treatment of indirect emissions during CBAM’s definitive phase. Indirect emissions from electricity consumption are included in embedded-emissions calculations for covered cement and fertiliser products. For covered iron, steel and aluminium goods identified in Annex II, CBAM currently accounts only for direct emissions.
Even though the EU has examined possible future extensions, steel and aluminium manufacturers cannot assume that signing a domestic renewable PPA immediately reduces the CBAM certificates required for their exports. Their immediate CBAM exposure remains linked largely to direct process emissions and, where relevant, emissions associated with precursor inputs.
For cement and fertiliser producers, electricity sourcing can have a more direct bearing on embedded-emissions calculations for products sold to EU customers. Recognition depends on applicable actual-value criteria, allocation rules, verification requirements and prescribed methodology.
A Guarantee of Origin (GoO) or a commercial claim that electricity is green does not automatically establish eligible actual indirect emissions. Plant-level process records, metering data and contractual documentation remain relevant to what can be recognised under the applicable approach.
Domestic PPAs and cross-border contract considerations
Domestic industrial PPAs can provide renewable generators with long-term local revenue while reducing exposure to cross-border transmission capacity constraints. They can also limit administrative steps and carbon-cost complications associated with importing electricity into the EU. For manufacturers, these contracts may improve electricity-cost predictability and support corporate decarbonisation objectives.
A steel mill may value renewable electricity for energy security and emissions targets even when its immediate CBAM liability is primarily driven by direct production emissions and relevant precursor inputs. The commercial rationale for domestic renewable procurement therefore does not rely entirely on whether a PPA produces an immediate reduction in CBAM obligations.
Export-oriented independent power producers may benefit from higher EU price benchmarks and, where requirements are met, potential value from actual-emissions treatment. At the same time, they must account for balancing needs, cross-border delivery arrangements, verification processes and contractual protection against carbon-related risks.
Domestic industrial offtakers may present an alternative with fewer border-related costs, but their creditworthiness, electricity demand profiles and contract indexation arrangements can differ from those of export-oriented buyers. Developers are therefore expected to compare net risk-adjusted revenues rather than basing decisions only on headline electricity prices.
Segmented PPA markets involving EPS and EPCG
State-owned utilities including EPS in Serbia and EPCG in Montenegro, along with independent suppliers and trading companies, can structure domestic industrial offers around physical electricity delivery. These offers may also involve separate renewable certificates, contract duration choices and documentation supporting buyers’ reporting obligations.
However, these elements should not be treated as a single product that is automatically “CBAM-compliant”. The regulatory significance of a renewable PPA depends on the transaction structure and on which categories of products are manufactured by the buyer.
If an industrial customer produces multiple categories of CBAM-covered goods, the same electricity contract may have different implications across product lines because emissions rules are not uniform across sectors. As a result, corporate PPA markets are likely to become more segmented as eligibility evidence differs between direct exports to the EU and domestic supply arrangements tied to indirect emissions documentation.
Producers able to serve both markets may strengthen commercial resilience if their contracts and financial models preserve distinctions between cross-border exports under CBAM and domestic procurement linked to product-specific emissions methodologies.