The EU Carbon Border Adjustment Mechanism is starting to influence how electricity is priced and routed across Southeast Europe, not only by penalising carbon-intensive generation but also by rewarding low-emissions supply. In practice, the mechanism links EU-bound imports to the embedded carbon cost implied by the EU carbon market, changing the competitiveness of different generation mixes. For electricity exporters in the region, this is turning carbon intensity into a trade variable rather than a purely domestic policy concern.
Embedded carbon costs turn lignite exports into a pricing problem
CBAM assigns an embedded carbon cost to electricity imported into the EU, tied to the EU carbon price. For lignite-based power, which remains dominant in Serbia’s system and is largely operated by Elektroprivreda Srbije (EPS), typical emissions are close to 1 tonne of CO₂ per MWh. With EU ETS allowances trading around €70–90 per tonne, that translates into an embedded carbon cost for coal-based electricity exported from Serbia of roughly €70–80 per MWh. The result is a structural disadvantage in EU wholesale markets where Central European day-ahead prices often fluctuate between €70 and €120 per MWh.
This embedded cost barrier has already altered trading behaviour. Coal-fired electricity from Serbia becomes economically uncompetitive in EU markets once the carbon component is added, effectively narrowing access for coal-based exports under normal market conditions. The shift is particularly significant for exporters whose generation portfolios are still anchored in high-emitting fuels.
“CBAM-compliant electricity” emerges as a new export category
While CBAM discourages carbon-intensive flows, it simultaneously creates an opportunity for electricity with sufficiently low production carbon intensity. Electricity with minimal embedded emissions—especially hydropower, wind and solar—can enter the EU without facing a meaningful CBAM carbon cost penalty. This emerging category is being described as “CBAM-compliant electricity,” reflecting the point at which embedded emissions costs become negligible relative to market pricing.
Hydropower already provides Serbia with a base for such exports. The country operates approximately 3 GW of hydropower capacity, including Djerdap I and Djerdap II on the Danube, which together represent a significant share of low-carbon generation. Because these facilities have minimal carbon intensity, their electricity faces no meaningful CBAM penalty when exported to the EU.
Renewables build momentum through auctions and export-oriented contracting
However, hydropower output varies with rainfall and reservoir levels, limiting its ability to provide steady export volumes. To support a more reliable platform for low-carbon exports, Serbia needs additional renewable capacity, with wind and solar becoming central to its emerging strategy. Recent renewable energy auctions have helped unlock new project pipelines, including wind farms in northern Serbia and eastern regions supported by favourable conditions and access to transmission infrastructure. Solar expansion is also accelerating, particularly in central and southern Serbia where irradiation levels are stronger.
The economics of these projects improve under CBAM because renewable electricity carries negligible carbon emissions compared with coal-based generation. In effect, CBAM creates a carbon price premium for renewable exports by widening the cost gap between low-carbon supply and imports that must internalise ETS-linked carbon costs. That dynamic can make Serbian renewables more competitive than coal-based electricity exported from the same system.
Compliance-driven demand shifts revenue models for private producers
Beyond wholesale price effects, CBAM-linked competitiveness is interacting with demand signals from European utilities and industrial buyers seeking certified low-carbon electricity. Corporate decarbonisation targets are increasingly shaping procurement preferences alongside climate policy considerations. As a result, independent renewable producers in Serbia may find new revenue pathways beyond domestic arrangements historically dominated by EPS’s control of generation capacity and transmission coordination.
Export opportunities could be monetised through physical cross-border sales via regional exchanges or bilateral trading arrangements across interconnected markets such as Hungary, Romania or Croatia. Long-term cross-border power purchase agreements are another route, especially for European companies with decarbonisation commitments looking for renewable supply from nearby regions with abundant resources. A third model involves guarantees of origin that verify renewable provenance and allow buyers to claim low-carbon consumption even when physical flows occur through integrated grids.
Market arithmetic highlights why storage and portfolio design matter
Project profitability depends on multiple variables including Central European wholesale price volatility driven by gas prices, renewable output levels and weather conditions. Still, CBAM removes coal-based competition by attaching an effective carbon penalty to lignite exports, raising the relative value of low-carbon generation. One illustrative scenario cited in regional analysis places an EU wholesale average at €90 per MWh while coal-based electricity faces an effective CBAM penalty of €75 per MWh, making renewable output markedly more competitive.
This competitiveness also strengthens incentives for export-oriented wind and solar development connected to Serbia’s transmission system while targeting markets where both power prices and carbon-related premiums support returns. Energy storage is expected to play an enabling role because renewable generation fluctuates with wind and sunlight while demand varies throughout the day; battery storage or pumped hydro can stabilise export flows and support sales during high-price periods.
Regional implications: power flows may reorganise around carbon intensity
Serbia’s planned Bistrica pumped storage hydropower project is positioned as infrastructure that could provide large-scale balancing capacity for renewables while supporting cross-border trading reliability. More broadly, as coal-heavy generation becomes less competitive in EU markets under CBAM-linked economics, trading patterns across Southeast Europe may shift according to carbon intensity rather than fuel mix alone. Coal-dominant systems may increasingly trade among themselves, while renewable-rich systems connect more closely with EU demand.
For policy makers and market participants in Serbia, the immediate challenge is balancing legacy lignite generation needed for domestic supply stability during transition with expanding renewables that can gradually reposition the country as a supplier of CBAM-compliant electricity to European buyers. The transition requires investment in renewable capacity, transmission infrastructure and energy storage alongside regulatory adjustments that enable independent producers to access export markets more easily.
Analytically, CBAM’s impact on electricity trade is already visible through embedded ETS-linked costs that disadvantage lignite-based exports at typical Central European day-ahead price levels between €70 and €120 per MWh. At the same time, low-carbon generation—hydropower plus wind and solar supported by auctions—can benefit from reduced or negligible embedded emissions costs under the mechanism’s logic, creating a premium environment for renewables procurement structures such as physical exports, long-term contracts and guarantees of origin.