Western Balkan efforts to integrate electricity markets with the European Union are encountering a regulatory issue over how carbon border adjustment charges apply to power traded through an interconnected regional system. Energy Community Director Artur Lorkowski raised the concern at the Berlin Process summit in Montenegro on 22 October. He said the interaction between CBAM, electricity-market integration and EU accession needs careful handling.
Lorkowski warned that misalignment could discourage renewable investment and contribute to divisions between electricity markets on either side of the EU border. The concern affects Serbia, Montenegro, Bosnia and Herzegovina, North Macedonia, Albania and Kosovo. Their systems differ in generation mix, cross-border connectivity and market reform progress, while remaining linked through regional trading.
In practice, electricity imported by an EU buyer in a given hour can be linked to generation, transit and commercial transactions spanning multiple countries. Even where the grid structure complicates a simple bilateral physical delivery description, CBAM requires imported electricity to receive a defined emissions treatment. The presence of renewable generation somewhere within the trading chain does not automatically remove potential carbon-border liability.
CBAM rules for electricity and embedded-emissions calculations
The EU’s definitive CBAM regime covers electricity from 1 January 2026. Electricity is treated under separate provisions rather than under the general 50-tonne mass-based threshold used for certain physical goods. Financial exposure depends on the embedded-emissions approach applied for each consignment.
That exposure can vary depending on whether default values or eligible actual emissions are used. It also depends on the official CBAM certificate price and any relevant adjustments. The Energy Community’s warning highlights that carbon-border requirements can apply even when electricity flows are shaped by regional interconnection.
EU legislative changes under discussion
The Energy Community’s intervention comes as the European Commission pursues amendments to CBAM’s electricity provisions. A proposal presented in December 2025 would change emissions calculations and alter conditions for recognising actual emissions. The Council set out its position in June 2026, followed by European Parliament adoption of amendments in September.
A final binding framework has not yet been agreed. As a result, electricity producers, developers and traders are expected to distinguish between requirements currently applicable and potential changes arising from negotiations among EU institutions. The uncertainty is relevant for contracts that depend on how embedded emissions will be calculated.
Energy security versus carbon accounting
A key challenge involves separating energy security needs from carbon accounting requirements. Regional systems exchange electricity to manage outages, variations in hydropower output and unexpected demand changes. Such exchanges can support stability and protect consumers even when assigned default emissions values are relatively high.
Policy discussions therefore face the risk that carbon-border rules could discourage legitimate short-term balancing or imports required for supply security. The issue is tied to how transactions are attributed for CBAM purposes when operational realities involve multi-country flows rather than straightforward deliveries.
Implications for projects, PPAs and cross-border trading
Potential regulatory changes could affect project economics for renewable developers and other market participants. The Commission’s proposal aims to revise default calculation methodology and relax certain restrictions related to using actual emissions. If adopted, these changes could influence the commercial value of physical power purchase agreements and specific cross-border trading routes.
The final outcome remains subject to agreement among EU institutions. Renewable developers were advised not to delay all investment decisions while waiting for regulatory certainty. They were also cautioned against basing financing assumptions on expectations that proposed reforms will be adopted without modification.
Operational data, transmission system roles and verification records
Regional transmission system operators play a role in supporting reliable cross-border trading under these conditions. Accurate schedules, metered exchanges and transparent capacity allocation are described as necessary for reconciling cross-border transactions. Improved information exchange can also reduce settlement disputes independently of CBAM.
For exporters, commercial arrangements need to provide access to operational data relevant to compliance. Information systems must retain timing and origin records needed for independent verification. The ability to use actual emissions depends on whether required physical and commercial evidence can be produced consistently across the transaction chain.
Renewable strategies, grid constraints and cost pass-through
National renewable-energy strategies are expected to account for links between domestic decarbonisation goals and export opportunities into European markets. Governments may expand wind and solar generation both to displace fossil-fuel production domestically and to attract investment through access to EU-linked electricity trade. CBAM can affect which export destinations appear financially attractive relative to domestic options.
The availability of renewable generation does not ensure delivery at the time production occurs. Network congestion, curtailment and balancing requirements can reduce revenues assumed in a renewable PPA. Some existing CBAM conditions for using actual emissions are also sensitive to cross-border circumstances.
The distribution of carbon-border costs across the region is another factor raised in the discussion. While the EU importer carries formal obligations to declare emissions and surrender CBAM certificates, resulting economic costs may be reflected in prices offered by Balkan suppliers and renewable generators. Focusing only on which party purchases certificates does not show who ultimately bears financial burden.
Greater transparency over contractual cost pass-through is therefore needed to assess whether CBAM supports clean investment or reduces competitiveness of cross-border electricity sales. This includes how contractual arrangements translate carbon costs into market pricing outcomes across multiple counterparties.
Electricity market coupling without an automatic CBAM exemption
Electricity market coupling is presented as improving cross-border capacity allocation, price formation and absorption of renewable generation, but it does not automatically exempt imports from CBAM. The existing framework allows specific treatment for certain third-country electricity markets only if defined legal, climate and market conditions are met through a formal EU decision process.
Technical connection to an EU electricity trading platform alone does not demonstrate compliance with exemption requirements. These conditions contribute to uncertainty for renewable investment models that rely on access to European buyers willing to pay higher prices for exported electricity.
Compliance across the full commercial chain
The compliance assessment requires attention across the full chain from generation sales through intermediaries to EU import declarations. Electricity may be sold by a generator under a power purchase agreement to a regional supplier before being traded through additional intermediaries prior to import by an EU buyer. In this context, identification of the CBAM declarant, metering arrangements, hourly schedules and attribution of generation must be established throughout the process.
Eligibility to use actual emissions cannot be inferred solely from market price signals, contractual claims or certificates of origin. Instead, physical delivery arrangements and contractual evidence must align with the same transaction described in compliance documentation. Project developers were also directed to clarify which operating and commercial risks are borne by generators, traders and importers under their contractual structures.
Financial planning under regulatory uncertainty
Banks and project developers were advised to incorporate regulatory uncertainty into financial assessments for renewable export projects. Base-case calculations should reflect rules currently in force alongside sensitivity scenarios covering exposure linked to default emissions values. Alternative cases should also consider possible adoption of proposed reforms affecting embedded-emissions calculations.
PPA revenues should be assessed after accounting for potential allocation of CBAM-related costs rather than assuming those costs will not affect contract economics. Long-term financing should not rely on an assumption that future EU legislation will automatically recognise a particular physical or contractual electricity route for compliance purposes.