As of 1 January 2026, Serbia enters a new economic reality: the full implementation of CBAM (the Carbon Border Adjustment Mechanism) will not only pose a regulatory challenge but also test the domestic economy’s readiness for an accelerated energy transition. Although the European Union designed this mechanism to ensure fair competition and prevent carbon leakage, the consequences for countries whose economies lag in decarbonization could be significant. Serbia is no exception.
How will the new levies affect exporters of steel, aluminum, fertilizers, and cement? Is EPS about to face the most challenging period in its history? How realistic is it to retain part of the revenue within Serbia through a domestic carbon tax—and does the state have a clear vision for financing an energy transition worth tens of billions of euros?
We discussed these questions with Slobodan Minić, Special Advisor to the Fiscal Council of Serbia, who warns that the impact of CBAM will not be the same across sectors, and that Serbia no longer has the luxury of postponing essential reform decisions.
What impact will the introduction of CBAM on 1 January 2026 have on the Serbian economy, particularly on directly affected companies in the iron and steel, cement, aluminum, and fertilizer sectors?
— When the European Commission first announced the Carbon Border Adjustment Mechanism (CBAM) in late 2019, there was a justified concern that the Serbian economy could be disproportionately affected. The reasons were clear: the European Union is our most important market, accounting for around two-thirds of Serbia’s exports. At the same time, our domestic economy objectively lags behind European competitors in terms of decarbonization. To illustrate, Serbia emits 95 percent more greenhouse gases per unit of GDP than the Central and Eastern European average.
However, a detailed analysis shows that the effect of CBAM—at least in its current form—will not be catastrophic for the economy as a whole, although the impact on the directly affected sectors could be significant. According to the Fiscal Council’s estimates, CBAM will increase the cost of Serbian exports by around EUR 45 million in 2026, and this burden could grow to EUR 150–200 million annually by 2030. The reasons for this increase are twofold: on one hand, the EU is gradually phasing out free allowances for its own producers in these sectors (which proportionally increases CBAM obligations for importers), and on the other hand, the market price of carbon is expected to continue rising in the coming years.
In focus:
Looking at individual sectors, the impact of CBAM is uneven and depends on their specific characteristics. By far the largest share of the estimated cost—some 75–80 percent—will fall on the iron and steel sector, due to the high volume of exports to the EU and the sector’s relatively high emission intensity. By contrast, the cement sector, although it also has higher emissions compared to European companies, is not expected to face significant business consequences. Cement is a low-value, high-weight product with high transport costs, meaning most of its production is sold on local and regional markets rather than exported to the EU.
How will this specifically affect the competitiveness of Serbian companies in these sectors, and is there a risk that some of our producers may lose access to the EU market?
— CBAM undoubtedly introduces significant additional costs that weaken the competitiveness of Serbian companies in the affected sectors, but this is a risk that appears manageable. Although emissions from our producers in these industries are higher than those of their European counterparts, the difference is not dramatic, averaging 15-20 percent. Consequently, CBAM will inevitably lead to higher prices for our products on the European market in the medium term: we estimate that aluminum prices may increase by 3–4 percent. In comparison, fertilizers and steel prices may increase by around 10 percent. In contrast, cement prices could rise by as much as 40 percent.
However, it is crucial to consider the broader context: production costs will not rise only for us. European producers of CBAM goods will also face higher costs starting in 2026, as the EU gradually phases out free emission allowances—a mechanism that, until now, has helped shield them from competitive disadvantages. In other words, market conditions are changing for all players. When this is taken into account, the net loss of competitiveness for Serbian companies should remain moderate—between one and five percentage points, depending on the sector.
I believe this is not an insurmountable gap, provided domestic companies intensify investments in new technologies and in emission reductions in the coming years.
The power sector has been identified as the most vulnerable to CBAM. How much revenue could EPS realistically lose due to reduced exports, and is there any scenario in which electricity exports to the EU remain profitable?
— That’s correct—the power sector, and EPS as the dominant producer, is truly the elephant in the room when discussing the effects of CBAM. I mentioned earlier that emission differences in industry are moderate, but in electricity production, they are dramatic. Because Serbia relies predominantly on lignite, emissions in this sector are three to four times higher than the EU average. Simply put, Serbia has not followed the EU trend of rapid power-sector decarbonization over the past two decades, and the result of that inertia is an exceptionally poor starting position ahead of CBAM’s full implementation.
An additional problem is that electricity has no discounts and no transition period, because the EU abolished free allowances in this sector long ago. As a result, the full carbon price will be charged starting in 2026.
In practice, this means that every megawatt-hour exported to the EU would incur an additional levy of around EUR 60. With such a burden, electricity exports become economically unviable, and EPS becomes entirely uncompetitive in the European market. Fiscal Council analyses show that, due to the loss of export revenue, EPS could lose EUR 200–300 million annually by 2030. This is a huge amount of money that has so far contributed significantly to the company’s performance—and it may now be missing precisely at a time when massive investments in renewable energy are urgently needed.
Although some voices within the EU are calling for postponing the application of CBAM to electricity to resolve certain technical issues and uncertainties, such a delay would be only a temporary reprieve. The long-term solution for Serbia likely lies in active negotiations with the EU, aimed at establishing a clearly defined roadmap for the domestic power sector.
In the ideal scenario, this would include meeting the conditions for a temporary exemption for electricity exports until 2030, followed by a gradual integration into the EU Emissions Trading System (EU ETS) under reasonable terms. Anything else carries the risk of Serbia becoming an isolated energy island in Europe—a situation that, according to our assessments, benefits no one.
Interview by Milena Maglovski
The interview was published in Energy portal Magazine RESPONSIBLE BUSINNES
