Governments across the Western Balkans are seeking urgent changes to European Union rules after the introduction of carbon-related charges on electricity exports triggered a sharp drop in demand from EU buyers, exposing structural vulnerabilities in the region’s power trade.
Montenegro’s energy minister Admir Šahmanović, acting on behalf of several regional countries including Serbia, Bosnia and Herzegovina, North Macedonia, has formally addressed members of the European Parliament, calling for amendments to Regulation (EU) 2023/956, which governs the Carbon Border Adjustment Mechanism (CBAM).
The core issue is the extension of CBAM to electricity. Since 1 January 2026, the mechanism has effectively introduced additional costs on power exports from the Western Balkans into the EU, regardless of the generation source. This has altered trading economics almost immediately.
According to the letter sent to Brussels, the result has been a decline in export volumes despite strong generation, particularly from hydropower. EU counterparties have shown reduced willingness to purchase electricity from the region once carbon-related costs are factored into pricing.
The distortion is particularly visible in periods of high renewable output. Even when the region produces abundant and relatively clean electricity, especially during hydrologically strong seasons, the blanket application of CBAM charges reduces competitiveness against intra-EU supply.
This creates a structural paradox. The EU’s carbon pricing framework is designed to accelerate decarbonisation and support renewable integration, yet in the Western Balkans context it is currently penalising exports regardless of actual carbon intensity, weakening incentives for cross-border electricity trade and slowing market integration.
Energy ministries in the region argue that the current design risks undermining one of the EU’s own strategic objectives: the coupling of neighbouring electricity markets. Countries in the Western Balkans have already undertaken substantial regulatory alignment with EU energy acquis, including reforms in renewables, market rules and climate policy frameworks.
However, key structural gaps remain. Most countries still lack fully operational ETS (emissions trading systems) and MRV (monitoring, reporting and verification)frameworks aligned with EU standards, which limits their ability to be treated as equivalent participants under CBAM rules.
The financial implications are material. Estimates suggest that 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 such as EPCG and EPS, the mechanism effectively acts as an external cost layer embedded into export pricing. While the charge is formally borne by EU importers, in practice it feeds back into lower demand and weaker price realisation for exporters—compressing margins and reducing cross-border flows.
The regional position does not challenge the principle of CBAM. The letter explicitly acknowledges the importance of carbon pricing in driving the transition toward low-emission energy systems. What is being contested is the uniform application of the mechanism to electricity, without transitional arrangements that reflect the integration status and reform trajectory of candidate countries.
What emerges is a growing tension between two parallel EU objectives: enforcing carbon discipline across borders and accelerating electricity market integration with neighbouring systems. The current framework, as seen from the Western Balkans, is shifting the balance toward protection of the internal market at the expense of integration dynamics.
The request from the region is therefore narrowly defined but strategically significant: adjust the regulatory treatment of electricity within CBAM to avoid suppressing trade flows that are, in many cases, already aligned with EU decarbonisation goals.