Carbon-related costs are starting to affect where energy-intensive goods from the Western Balkans are sold, as exporters compare EU market access with potential destinations outside the Union. The Carbon Border Adjustment Mechanism (CBAM) can alter the profitability of individual shipments without requiring changes in emissions at the production facilities. For carbon-intensive manufacturers and electricity exporters, redirecting sales can preserve commercial margins when non-EU buyers offer more favourable prices. Changing a shipment’s destination does not, by itself, reduce the emissions generated during production.
In Bosnia and Herzegovina, the International Monetary Fund (IMF) identified about 11% of exports as being affected by CBAM concerns in its 2026 country work. The exposed product categories include electricity, aluminium, cement, iron and steel. The IMF also reported early indications that electricity exports were being redirected towards destinations outside the EU. This illustrates how carbon-related trade costs can shape commercial choices before industrial emissions change.
Electricity export decisions and CBAM cost calculations
The IMF’s reporting on electricity diversion highlights that the sustainability of such an approach is uncertain. Neighbouring markets may expand generation capacity and introduce or develop domestic carbon-pricing arrangements, which could reduce any commercial advantages from redirected electricity exports. Diversion may therefore provide temporary relief without establishing a lasting competitive position. Exporters face the need to compare returns across destinations rather than relying on headline price differences.
Power trading provides an example of how CBAM affects cross-border commercial decisions. When assessing a sale into the EU, an exporter needs to weigh the wholesale electricity price against transmission costs, while accounting for exposure and the applicable carbon adjustment. A premium that appears attractive in Europe can narrow or disappear once CBAM costs are included. The outcome can be sensitive to assumptions such as a relatively high national electricity default emissions factor.
Electricity economics can also vary between trading hours. Hourly price spreads, the physical transmission route, and the availability of compliance evidence all influence the final result. Annual average electricity prices may therefore mask periods when EU exports remain profitable alongside periods when alternative destinations provide better returns. These variations affect how exporters evaluate where to sell.
Industrial exporters’ CBAM timing and destination flexibility
Steel and cement producers face different commercial conditions because benchmark-linked adjustments moderate the immediate CBAM obligation. This can provide some industrial exporters with greater flexibility over destination choices while the EU’s free-allocation phase-out progresses. Companies still need to assess whether differences in carbon costs between markets justify changing customers, product specifications, and logistics. Some commodity shipments may be redirected relatively easily, while others depend on specialised purchasers and certification requirements.
The ability to change destination is not uniform across industrial sectors. Existing commercial arrangements and technical requirements set by buyers can limit how quickly exporters respond to differences in carbon-adjusted prices. For some producers, long-term supply relationships with European customers can constrain switching even when alternative markets offer different carbon-related economics. These constraints shape how quickly exporters can adjust trade flows.
Netbacks, competition effects, and investment implications
A broader commercial assessment compares net returns after accounting for carbon and transport costs across multiple potential destinations. For electricity traders, this involves calculating the EU sale price after transmission expenses and adding the relevant CBAM liability. Steel exporters need to compare European margins after border adjustment with returns available in regional and overseas markets, considering freight and customer specifications. The calculations also require attention to competition in alternative destinations.
If multiple exporters target the same buyers outside the EU, additional supply could weaken market economics there even if short-term margins are protected for individual firms. In that scenario, companies could face underutilised production capacity despite having access to alternative customers. Investment decisions depend on whether lower emissions improve an asset’s commercial position across different markets. Exporters need to weigh the value of emissions reductions against costs tied to maintaining customer access and meeting destination requirements.
Measuring climate effects beyond EU import volumes
A decline in carbon-intensive imports recorded by the EU does not automatically indicate that global production emissions have fallen. If covered goods continue being manufactured but are sold to buyers outside the Union, emissions at exporting plants may remain unchanged. The effect could be larger if redirected demand leads producers to increase output, potentially raising global emissions above levels associated with trade patterns that provide stronger incentives for lower-carbon production.
Assessing CBAM’s climate impact therefore requires more than monitoring volumes of covered imports entering the EU. Indicators mentioned include emissions per tonne of production and the destinations receiving goods displaced from European trade routes. The mechanism’s effectiveness also depends on whether it encourages genuine industrial emissions reductions outside the EU rather than simply shifting where high-carbon production is located and sold.
Domestic carbon pricing, investment costs, and valuation risks
Governments can respond through domestic emissions pricing, support for industrial investment, and more credible emissions-monitoring systems. Each option involves implementation and financing requirements alongside operational changes for industry. A domestic carbon tax can support eligibility for certain CBAM deductions where payments meet applicable conditions, but it also increases production costs for local industry. Industrial upgrades require capital and may depend on additional electricity infrastructure.
Emissions verification also requires data that some facilities have not historically collected. The policy challenge described is combining continued market access with improvements in production emissions since rerouting exports addresses an immediate commercial problem but does not replace investment in lower-carbon manufacturing and generation. For investors assessing electricity generation and industrial production assets, changing trade-route economics adds considerations beyond existing capacity alone.
Valuations need to account for combined effects of carbon costs, transport expenses, financing requirements, and availability of alternative markets. Existing capacity does not guarantee output can continue reaching profitable customers under revised trade conditions shaped by CBAM-related economics. Early trade responses in the Western Balkans show how CBAM can influence the commercial geography of electricity and industrial goods before underlying production technology changes.