The EU’s Carbon Border Adjustment Mechanism is changing how electricity is valued when it crosses into the European market, particularly for systems with high embedded emissions. For Serbia, where lignite remains central to generation, CBAM-linked carbon pricing is acting as a barrier to coal-based exports. This has pushed policymakers and market participants to define what “CBAM-compliant electricity” would look like in practice: power with sufficiently low carbon intensity to stay competitive on EU terms.
Carbon pricing reshapes the economics of cross-border electricity
Serbia’s grid is still anchored in coal resources, with Elektroprivreda Srbije operating around 4.4 GW of lignite-fired capacity. The fleet is concentrated in major thermal plants including Nikola Tesla A and B and Kostolac B, which provide much of the country’s baseload electricity. While lignite extraction supports relatively low domestic generation costs, the emissions profile of lignite combustion changes the export equation once EU carbon pricing is reflected.
Lignite-fired generation typically emits more than 1 tonne of CO2 per MWh of electricity produced. When such power is exported into the EU electricity market under CBAM, the embedded carbon intensity becomes a direct financial cost tied to the level of EU carbon allowances. With EU ETS allowances trading in a range around €70–90 per tonne of CO2, the implicit carbon cost for Serbian coal-based electricity can exceed €70–80 per MWh, undermining export competitiveness.
From coal dependence to a lower-carbon export portfolio
Reducing embedded emissions is therefore the operational requirement behind CBAM-compliant electricity development for Serbian exporters. The shift points toward low-carbon generation sources such as hydropower, wind and solar, alongside potential use of energy storage to manage variability. In this framing, compliance is not treated as a single measure but as a portfolio outcome that determines the carbon footprint associated with exported volumes.
Serbia already has a foundation for part of that transition through hydropower. The country operates roughly 3 GW of hydropower capacity, including major Danube assets such as Djerdap I and Djerdap II, which are among the largest hydropower installations in Southeast Europe. Hydropower generation has a negligible carbon footprint, meaning it would be positioned as CBAM-compliant power for EU export.
Hydrology limits volumes; renewables fill the gap
Hydropower alone cannot reliably cover export volumes tied to historical trading positions because output varies with hydrological conditions. A dry season can substantially reduce generation levels, forcing Serbia to lean more heavily on coal-fired production at times when exports would otherwise need low-carbon supply. That variability increases the importance of building additional low-carbon capacity beyond hydro.
Serbia’s next step involves expanding renewables through auction-based procurement designed to stimulate new wind and solar projects. Several renewable auctions have already been launched covering several hundred megawatts of capacity, and project pipelines indicate that wind and solar additions could accelerate over the next decade. Wind potential is described as especially strong in Vojvodina and eastern Serbia, while solar prospects are substantial in central and southern regions with higher irradiation levels.
Guarantees of origin and storage become part of compliance operations
Longer-term planning aims at creating renewable generation assets whose output can be earmarked for export into EU markets. One mechanism discussed for supporting this approach is bundling exports with guarantees of origin, which certify that electricity originates from renewable sources and carries minimal carbon emissions. For exporters, this matters because it links physical generation attributes to documentation used in trade compliance contexts.
Energy storage is also expected to play a complementary role as wind and solar increase and production becomes more variable. Battery storage or pumped hydro storage can smooth fluctuations so that exported power remains reliable and predictable from a system perspective. Serbia already plans the Bistrica pumped storage hydropower project, intended to provide large-scale storage capacity that can balance renewables and support cross-border trading.
Investment needs extend beyond generation assets
Scaling CBAM-aligned electricity supply requires substantial capital across multiple parts of the value chain. Renewable projects must be paired with transmission upgrades and storage facilities, forming a multi-billion-euro investment cycle. International financial institutions, European development banks and private investors are expected to play major roles in funding this infrastructure build-out.
If implemented successfully, lower-carbon electricity exports could help Serbia maintain its role as a regional supplier while aligning with EU climate policy objectives. Rather than exporting coal-based power driven by local fuel advantages, Serbia would increasingly export low-carbon electricity generated from renewables—an approach that also supports domestic decarbonisation needs for energy-intensive industries such as steel and aluminium producers seeking lower-carbon electricity to remain competitive in EU markets.
Broader compliance implications: While CBAM implementation phases are distinct from definitive obligations under the mechanism, the direction of travel is clear for sectors covered by CBAM reporting frameworks—including cement, steel, aluminium, fertilisers, electricity and hydrogen—because embedded emissions increasingly determine trade economics alongside EU ETS-linked carbon pricing. For importers and exporters operating across Southeast Europe and the EU market, documentation practices such as guarantees of origin and system planning choices such as storage deployment are becoming part of day-to-day compliance strategy.