Governments across the Western Balkans are pressing for urgent adjustments to European Union rules after carbon-related charges applied to electricity exports coincided with a sharp fall in demand from EU buyers. The development has raised compliance and market-design questions for regional exporters, while also testing how the EU’s carbon pricing architecture interacts with cross-border power trading.
Montenegro’s energy minister Admir Šahmanović has taken the issue to European Parliament members, acting on behalf of several regional countries including Serbia, Bosnia and Herzegovina, and North Macedonia. In a formal communication to Brussels, he called for amendments to Regulation (EU) 2023/956, the legal basis for the Carbon Border Adjustment Mechanism (CBAM). The intervention frames electricity as a special case within CBAM implementation, rather than a straightforward extension of carbon discipline.
CBAM extended to electricity from 1 January 2026
The central regulatory change under scrutiny is the extension of CBAM coverage to electricity. Since 1 January 2026, the mechanism has introduced additional costs on power exports into the EU, applying regardless of the generation source. Regional officials say the impact on trading economics was immediate, altering buyer behaviour and pricing assumptions across cross-border contracts.
In the letter submitted to Brussels, authorities link the policy shift to a decline in export volumes despite strong generation levels. The drop is described as particularly pronounced for hydropower output, where EU counterparties have shown reduced willingness to purchase once carbon-related costs are incorporated into electricity pricing. For exporters, this effectively changes how market signals translate into demand during periods when supply conditions are favourable.
Competitiveness concerns during high renewable output
Officials argue that distortions become most visible when renewable output is high. Even when Western Balkan systems produce abundant and relatively clean electricity—especially during hydrologically strong seasons—the blanket application of CBAM charges is said to reduce competitiveness against intra-EU supply. This creates a recurring mismatch between generation characteristics and trade outcomes.
The argument presented by energy ministries is that the current design penalises exports without reflecting actual carbon intensity in individual cases. They describe this as weakening incentives for cross-border electricity trade and slowing market integration with neighbouring systems. In policy terms, it places pressure on the EU’s broader decarbonisation logic by making export activity more costly even when underlying generation is comparatively low-emission.
Regulatory alignment vs remaining ETS and MRV gaps
Regional energy ministries do not dispute the principle of carbon pricing as a tool for driving the transition toward low-emission energy systems. Instead, they contest uniform application of CBAM to electricity without transitional arrangements that reflect integration status and reform trajectories for candidate countries. The request is therefore positioned as targeted regulatory calibration rather than a challenge to CBAM’s overarching objective.
At the same time, structural capacity gaps remain part of the compliance picture. Most Western Balkan countries are described as lacking fully operational emissions trading systems and monitoring, reporting and verification frameworks aligned with EU standards. Officials say this limits their ability to be treated as equivalent participants under CBAM rules, complicating how carbon-related obligations map onto existing national systems.
Financial exposure for smaller systems and utilities
The financial implications highlighted in the regional position are described as material. Estimates suggest carbon-related charges on electricity exports could reach tens to hundreds of millions of euros annually for smaller systems such as Montenegro, depending on carbon prices and export volumes. The scale of exposure is presented as sensitive to both market conditions and how frequently cross-border flows occur.
For utilities including EPCG and EPS, the mechanism is characterised as an external cost layer embedded into export pricing. While CBAM costs are formally borne by EU importers, regional officials argue that they feed back into lower demand and weaker price realisation for exporters. The result is said to compress margins and reduce cross-border flows even when generation remains strong.
Tension between border carbon enforcement and market coupling
The dispute is framed against two parallel EU objectives: enforcing carbon discipline across borders and accelerating electricity market integration with neighbouring systems. Regional authorities argue that current implementation shifts the balance toward protection of the internal market at the expense of integration dynamics. They also point to prior regulatory alignment efforts in renewables, market rules, and climate policy frameworks across Western Balkan countries.
In analytical terms based on the facts provided by regional governments, CBAM’s electricity coverage appears to be changing buyer behaviour in ways that reduce export volumes despite high generation—particularly hydropower—while also raising questions about how carbon intensity is reflected in trade economics. The requested adjustment is narrowly defined but strategically significant: modify CBAM’s regulatory treatment of electricity so that it does not suppress trade flows that are already aligned with EU decarbonisation goals.