Western Balkans urge EU to revise CBAM treatment of electricity exports amid demand slump

Governments across the Western Balkans are pressing for urgent changes to European Union rules after carbon-related charges attached to electricity exports triggered an immediate decline in demand from EU buyers, highlighting structural weaknesses in the region’s power trade.

Letter to Brussels targets CBAM’s extension to electricity

Montenegro’s energy minister Admir Šahmanović, acting on behalf of several regional countries including Serbia, Bosnia and Herzegovina, and North Macedonia, has formally written to members of the European Parliament. In the letter, he calls for amendments to Regulation (EU) 2023/956, which governs the Carbon Border Adjustment Mechanism (CBAM).

The central concern is that CBAM has been extended to electricity. Since 1 January 2026, the mechanism has added costs to power exported from the Western Balkans into the EU, regardless of how that electricity is generated.

Export volumes fall even when renewable output is strong

Regional officials say the change has altered trading economics almost immediately. Despite strong generation—particularly from hydropower—the letter describes a decline in export volumes as EU counterparties show reduced willingness to purchase once carbon-related costs are incorporated into pricing.

The distortion is described as especially pronounced during periods of high renewable output. Even when the region produces abundant, relatively clean electricity during hydrologically strong seasons, the blanket application of CBAM charges reduces competitiveness versus supply within the EU.

A decarbonisation tool that may be weakening integration incentives

The governments argue this creates a structural paradox. The EU’s carbon pricing framework is intended to accelerate decarbonisation and support renewable integration, but in the Western Balkans case it is currently penalising exports irrespective of actual carbon intensity. That dynamic, they say, weakens incentives for cross-border electricity trade and slows market integration.

Energy ministries also contend that the current design risks undermining an EU strategic objective: coupling neighbouring electricity markets. They note that countries in the Western Balkans have already carried out substantial regulatory alignment with EU energy acquis, including reforms covering renewables, market rules and climate policy frameworks.

Gaps in ETS and MRV limit “equivalent” treatment under CBAM

At the same time, regional ministries point to remaining structural gaps. Most countries still lack fully operational ETS (emissions trading systems) and MRV (monitoring, reporting and verification) frameworks aligned with EU standards. They argue this limits their ability to be treated as equivalent participants under CBAM rules.

Financial pressure flows back through export pricing

The financial implications are described as potentially significant. Estimates cited by regional authorities 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.

For utilities including EPCG and EPS, officials say CBAM functions as an external cost layer embedded into export pricing. While EU importers are formally responsible for paying the charge, officials argue it feeds back into lower demand and weaker price realisation for exporters—compressing margins and reducing cross-border flows.

CBAM principle accepted; uniform electricity treatment questioned

The regional position does not challenge CBAM’s underlying principle of carbon pricing. The letter explicitly acknowledges that carbon pricing matters for driving the transition toward low-emission energy systems.

What is being contested is instead the uniform application of CBAM to electricity without transitional arrangements that reflect each country’s integration status and reform trajectory as candidate states.

Tension between internal-market enforcement and cross-border power coupling

Overall, officials describe growing tension between two parallel EU objectives: enforcing carbon discipline across borders and accelerating electricity market integration with neighbouring systems. From their perspective, the current framework is shifting that balance toward protecting the internal market at the expense of integration dynamics.

The request is therefore narrowly focused but strategically important: adjust how electricity is treated within CBAM so that carbon policy does not suppress trade flows—particularly where those flows are already linked to decarbonisation goals pursued by both sides.