Bosnia and Herzegovina is facing growing pressure to address the carbon intensity of its electricity exports as the European Union’s Carbon Border Adjustment Mechanism (CBAM) changes cross-border power trading and investment decisions. An International Monetary Fund assessment for 2026 estimates that goods currently covered by CBAM account for approximately 11% of the country’s exports. Without offsetting domestic policy measures, the IMF projects that real GDP could be 0.4%–0.7% lower by 2035.
The exposure extends beyond individual electricity transactions. Carbon-related costs can affect export margins, the competitiveness of energy-intensive industries, and the financial case for new generation and grid infrastructure. With industrial production closely connected to European customers, maintaining access to EU markets is described as part of Bosnia and Herzegovina’s economic outlook.
Electricity under CBAM differs from industrial products
EU imports of electricity face an adjustment framework that differs from industrial products such as steel and aluminium. Industrial CBAM obligations are linked to the gradual withdrawal of EU ETS free allowances, while imported electricity does not receive an equivalent general industrial free-allocation adjustment.
In this context, emissions intensity of generation and the price differential between EU and regional electricity markets are central to export economics. The IMF identified early evidence that traders have redirected some electricity toward non-EU destinations to avoid carbon-related costs tied to EU sales.
The redirection is described as offering limited flexibility. Serbia and other neighbouring markets may absorb additional electricity when demand and prices are favourable, but their ability to replace EU demand is not unlimited. If multiple exporters redirect coal-intensive generation at the same time, regional supply could rise, weakening local prices and increasing pressure on available transmission capacity.
Traceability requirements for low-carbon power
Low-carbon generators face a different commercial obstacle under EU requirements. Their physical emissions performance may be favourable, but electricity sold through intermediary traders can lose contractual and physical traceability needed to demonstrate that advantage.
This traceability issue links emissions performance to how electricity is traded rather than only how it is generated. The IMF’s assessment highlights that the ability to show qualifying characteristics can depend on the structure of sales involving intermediaries.
Default emissions factors and renewable generation
Bosnia and Herzegovina’s generation mix combines coal-fired power with substantial hydropower capacity. The electricity default emissions factor may reflect a national methodology rather than the specific emissions profile of an individual generating station tied to an export transaction.
The IMF highlighted potential distortion when a comparatively high default factor is applied to renewable electricity. It pointed to monitoring, emissions measurement, and independent verification as elements that could help distinguish lower-carbon generation from the national average.
Proposed EU amendments to electricity emissions calculations could also change how imported power is assessed. These changes are described as proposals rather than legislation already in force.
For hydropower operators, commercial opportunity depends on more than asset-level emissions performance. Investment in metering, contractual arrangements, and verification systems may be required to substantiate the characteristics of electricity in transactions with EU buyers.
Generation, networks, and targeted investment needs
Coal-fired units face decisions distinct from those affecting low-carbon assets. Improvements in operational reliability and efficiency may preserve domestic supply value, but they do not remove the longer-term challenge of carbon-intensive generation competing in export markets.
Policymakers are also expected to consider replacement capacity and implications of transition for mining employment and affected communities. Transmission infrastructure is another element of competitiveness because network upgrades can improve access to higher-priced electricity markets.
The economic value of network upgrades can be reduced when carbon-adjusted export margins are insufficient for profitable sales. Generation investment, grid development, and emissions verification are therefore described as connected elements within a single electricity strategy.
The IMF’s assessment points toward targeted investment rather than a uniform approach across technologies. Hydropower, coal, wind, and solar projects have different operating characteristics, commercial risks, and requirements for demonstrating their emissions performance.
Project finance depends on asset-specific risks
Banks and other lenders need to distinguish risks attached to individual assets. A coal-fired plant may remain important for domestic electricity security even as its ability to compete in EU export markets deteriorates.
Hydropower facilities can offer low operating emissions but remain exposed to hydrological conditions and permitting constraints. Wind and solar projects may achieve competitive generation costs, but securing recognised carbon treatment in EU electricity sales can depend on power purchase agreements, cross-border scheduling, and evidence linking generation to delivered electricity.
A single national emissions figure cannot capture these differences according to the IMF assessment. Financing implications also extend to contractual design and project preparation for producers seeking to supply EU buyers with required physical delivery and emissions evidence.
Domestic reform for cross-border delivery arrangements
The policy response extends beyond introducing a national carbon tax. Bosnia and Herzegovina faces a broader requirement to develop credible investment plans covering more efficient generation, renewable capacity, network upgrades, and reliable emissions data.
The country also needs a legal and commercial framework enabling electricity producers to establish qualifying delivery arrangements with EU buyers where feasible. Progress must account for domestic electricity prices, coal mine economics, employment considerations, and regional regulatory divisions that make power-sector reform politically sensitive.
The IMF’s projected 0.4%–0.7% GDP reduction by 2035 is presented as a scenario tied to limited policy adjustment rather than a predetermined outcome. Reducing emissions, improving recognition of verifiable low-carbon electricity, and preserving access to European industrial markets are described as factors that could change the trajectory.
The immediate competitiveness challenge is not limited to carbon costs attributed to electricity exports. It also involves financing generation and transmission assets, establishing commercially viable cross-border supply arrangements, and providing emissions evidence that EU buyers and importers can substantiate.