Carbon-related costs are starting to affect where energy-intensive products from the Western Balkans are sold. Exporters are weighing access to European markets against sales to destinations outside the EU. The Carbon Border Adjustment Mechanism (CBAM) can alter the profitability of individual shipments without requiring changes in emissions at the production facilities.
For carbon-intensive manufacturers and electricity exporters, redirecting sales can help protect commercial margins when non-EU buyers offer higher prices. Changing a shipment’s destination, however, does not by itself reduce emissions generated during production. The resulting trade pattern shift can therefore occur without immediate changes in plant-level output.
Exposure in Bosnia and Herzegovina across multiple export sectors
The International Monetary Fund (IMF) identified about 11% of Bosnia and Herzegovina’s exports as being affected by CBAM concerns in its 2026 country work. The exposed categories include electricity, aluminium, cement, iron and steel. These sectors face carbon-related trade costs that can influence where goods are marketed.
The IMF also reported early indications that electricity exports were being redirected toward destinations outside the EU. This reflects how carbon-related trade costs can influence commercial decisions before any corresponding changes occur in industrial emissions. The sustainability of this approach is uncertain as neighbouring markets may expand generation capacity and develop domestic carbon-pricing arrangements.
If those developments progress, the commercial advantages for redirected electricity exports could narrow. Diversion may therefore provide temporary relief while not establishing a durable competitive position for exporters. The potential for shifting incentives depends on how carbon pricing and generation capacity evolve in receiving markets.
Electricity sales: comparing EU net returns with alternative destinations
Power trading illustrates how CBAM affects cross-border commercial choices for electricity exporters. When evaluating a sale into the EU, an exporter needs to compare the wholesale electricity price with transmission costs while accounting for exposure and the applicable carbon adjustment under CBAM.
A premium in the European market can narrow or disappear once CBAM costs are included. This outcome can be influenced by calculations that use a relatively high national electricity default emissions factor. As a result, exporters may find that expected advantages vary depending on how the carbon adjustment is determined.
Hourly trading conditions can also change the economics of cross-border sales. Hourly price spreads, physical transmission routes and the availability of compliance evidence all affect final outcomes. Annual average electricity prices may therefore mask periods when EU exports remain profitable and other periods when alternative destinations deliver better returns.
Industrial producers: different timing and destination constraints
Steel and cement producers face a different adjustment timetable compared with electricity exporters. Benchmark-linked adjustments moderate the immediate CBAM obligation for these sectors, which can increase flexibility over destination choices as the EU free-allocation phase-out progresses.
Companies still need to assess whether differences in carbon costs between markets justify changing customers, product specifications and logistics. Some commodity shipments may be redirected relatively easily, while other producers depend on specialised purchasers, certification requirements and long-term supply relationships with European customers.
The ability to change destination is not uniform across industrial sectors. Existing commercial arrangements and buyer technical requirements can limit how quickly exporters respond to differences in carbon-adjusted prices. This can affect how rapidly firms adjust sales geography when CBAM-related costs change relative margins.
Netbacks, competition effects and investment implications
A broader commercial assessment compares net returns after carbon and transport costs across multiple potential destinations. For electricity traders, this involves calculating an EU sale price after transmission expenses and including relevant CBAM liability. Steel exporters need to compare European margins after border adjustment with returns available in regional and overseas markets, including freight and customer specifications.
The calculations also need to account for competition in alternative destinations. Redirecting shipments may protect margins in the short term, but if multiple exporters target the same buyers, additional supply could weaken market economics there. In that scenario, companies could face underutilised production capacity even if alternative customers exist.
Investment decisions increasingly depend on whether lower emissions improve an asset’s commercial position across markets. Exporters need to consider the value of emissions reductions alongside the cost of maintaining customer access and meeting destination-specific requirements. These factors affect how investors evaluate electricity generation and industrial production assets under changing trade routes.
Measuring climate impact beyond EU import volumes
A decline in carbon-intensive imports recorded by the EU does not necessarily indicate that global production emissions have fallen. If covered goods continue being manufactured but are sold to buyers outside the Union, emissions at the exporting plant may remain unchanged despite reduced EU import volumes.
The effect could be larger if redirected demand leads producers to increase output. In that case, global emissions could rise above levels associated with a trade pattern that provides stronger incentives for lower-carbon production within covered sectors.
Assessing CBAM’s climate impact therefore requires more than monitoring volumes entering the EU. Indicators include emissions per tonne of production and the destinations receiving goods displaced from European trade routes. Effectiveness also depends on whether CBAM encourages genuine industrial emissions reductions outside the EU rather than only shifting where high-carbon production is located and sold.
Domestic carbon pricing, verification systems and investment costs
Governments can respond through domestic emissions pricing, support for industrial investment and more credible emissions-monitoring systems. Each option involves implementation and financing requirements that affect how quickly firms can adapt to new carbon-related obligations.
A domestic carbon tax can support eligibility for certain CBAM deductions when payments meet applicable conditions, but it also increases production costs for local industry. Industrial upgrades require capital and may depend on additional electricity infrastructure, while emissions verification requires data some facilities have not historically collected.
The policy challenge is to maintain market access while improving production emissions performance. Rerouting exports can address an immediate commercial issue but does not replace investment in lower-carbon manufacturing processes or generation capacity required for longer-term changes.
Valuation considerations for assets facing carbon-adjusted market access
For investors assessing electricity generation and industrial production assets, changing trade-route economics introduce additional considerations beyond existing capacity levels. Output reaching profitable customers cannot be assumed based solely on current production capability under shifting CBAM-related market access conditions.
Valuations need to reflect combined effects of carbon costs, transport expenses and financing requirements alongside availability of alternative markets. Early trade responses observed in the Western Balkans show how CBAM can influence where electricity and industrial goods are sold before underlying production technology changes.