Carbon pricing under the EU’s climate architecture is increasingly showing up in trade outcomes, not just emissions accounts. In Serbia, early 2026 signals point to CBAM-linked cost pressures that are changing both industrial sales into the EU and the direction of cross-border electricity flows across Southeast Europe. The shift is especially relevant for sectors whose production depends on carbon-intensive inputs and electricity generated from lignite.
CBAM cost signal meets energy-intensive exports
CBAM is designed to align carbon costs between EU producers covered by the EU Emissions Trading System and goods imported from jurisdictions with weaker climate regulation. For exporters, the compliance logic matters because the embedded emissions in products can translate into higher effective prices in EU markets. Industry reporting indicates that Serbia’s energy-intensive exports to the EU have fallen by nearly 30 percent since the beginning of 2026.
The decline is tied to carbon border costs affecting goods including steel, aluminium, cement and other carbon-intensive materials. While CBAM requires EU importers to purchase carbon certificates reflecting embedded emissions, industry representatives argue that the additional cost becomes embedded in product pricing. When prices rise relative to competing suppliers, buyers can switch sourcing, turning a compliance requirement into a market-share issue for exporters.
Electricity trading changes after 1 January 2026
Electricity markets are also reflecting CBAM’s economic impact through altered cross-border behavior. Serbia’s state-owned utility Elektroprivreda Srbije confirmed it has not exported any electricity to the European Union since 1 January 2026, marking a break from earlier years when cross-border exports played a modest but visible role in regional power trading.
For electricity desks across Southeast Europe, this is an early example of how climate policy can reprice physical flows. Serbia’s system remains heavily reliant on coal, with approximately 4.4 GW of lignite-fired generation capacity, most operated by EPS, alongside a smaller renewable portfolio. Lignite plants can offer low domestic production costs, but their carbon intensity makes EU-bound exports increasingly difficult under carbon border rules.
Carbon price linkage raises the effective power cost
Under CBAM, importers must purchase certificates linked to the EU carbon price for covered goods. Industry estimates suggest that the effective CBAM cost applied to Serbian electricity exports would be approximately €78 per megawatt-hour. At that level, coal-fired power becomes uncompetitive against electricity generated in EU markets where renewable capacity and gas-fired generation increasingly set marginal prices.
The result is a structural change in regional trading patterns: rather than supplying EU markets, Serbia may increasingly focus on neighboring Western Balkan countries where CBAM measures do not yet apply. This shift intersects with a broader regional transition in which wind and solar capacity has been expanding through auction schemes and support from international financial institutions, though deployment pace remains uneven.
Industry transition dilemma for steel and aluminium
The same compliance mechanics affecting electricity also reverberate through manufacturing supply chains for covered sectors such as cement and metals. According to the Association of Serbia’s energy-intensive industries, exports from member companies fell by 27 percent between 1 January and 1 March 2026 compared with the same period a year earlier. The affected export base includes steel and aluminium producers whose competitiveness depends heavily on electricity prices and stable power supply.
For policymakers weighing EU accession alignment, CBAM adds urgency to domestic climate policy choices while raising short-term economic risk. Aligning with EU climate regulations would likely require introducing carbon pricing in Serbia’s electricity sector and expanding renewable energy capacity more rapidly. However, moving away from lignite-based generation entails major investment needs across renewables build-out, grid infrastructure and flexible generation capacity.
EU objectives: preventing leakage and prompting wider carbon pricing
From the EU perspective, CBAM serves two policy objectives: preventing so-called carbon leakage and encouraging trading partners to introduce their own carbon pricing mechanisms or decarbonisation policies. The mechanism therefore functions as both a safeguard against emissions displacement and an external pressure point for climate policy convergence. For candidate countries such as Serbia, that external pressure can accelerate reforms even when industrial competitiveness concerns remain acute.
The broader implication for Southeast European electricity trade is that CBAM penalises carbon-intensive exports from coal-heavy systems toward higher-price markets. Over time, flows may increasingly favor renewable-rich systems capable of producing low-carbon power; hydropower-dominated countries such as Albania and Montenegro could benefit from this shift due to lower generation footprints. Until decarbonisation accelerates across the region and carbon pricing spreads more widely, coal-dependent systems may face increasing isolation from EU electricity markets.
Across covered sectors—cement, steel, aluminium, fertilisers where applicable under CBAM coverage rules, plus electricity—the early evidence from 2026 underscores how compliance-linked costs are already reshaping market behavior. For importers and exporters alike, the practical challenge is translating embedded-emissions accounting into competitive pricing while managing transition investments under the EU Green Deal framework and ETS-aligned carbon signals.