The European Union has decided to fully implement its Carbon Border Adjustment Mechanism (CBAM) as of 1 January 2026. The core principle of CBAM is that every ton of carbon dioxide embodied in goods entering the EU market will be priced. During the transitional period, which runs until the end of 2025, importers were required only to report emissions, without any obligation to pay. However, the collection of charges via CBAM certificates will begin soon.

For the countries that are Contracting Parties to the Energy Community—including Serbia, Bosnia and Herzegovina, Montenegro, North Macedonia, Albania, Moldova, Ukraine, Georgia, and Kosovo* — this represents a major step, as CBAM covers not only carbon-intensive products such as steel and certain other goods, but also electricity. Since the aim of the Energy Community is to extend EU energy and climate rules to these non-EU countries, electricity generated in coal or gas-fired power plants and subsequently exported to the EU will no longer be able to enter the European market from 2026 without paying for the carbon footprint embedded in each megawatt-hour. As a result, issues of market integration and decarbonization have gradually become central topics for the entire region. All of this, and much more, is explained in the CBAM Readiness Tracker 2025 of the Energy Community Secretariat, which serves as the basis for the data presented here.

As noted in the report, two changes are being introduced initially. First, quarterly emissions reporting will be replaced by annual reporting. Second, importers into the EU will be required to purchase CBAM certificates to cover the emissions associated with the goods they import—including electricity, which is the focus of the analysis below. Certificates will be available for purchase from February 2027, but they will apply to emissions generated already during 2026, meaning there is no real grace period.

Energy Community countries find themselves in a specific situation. Wind and solar capacities are growing faster than before, and CO₂ emissions per kilowatt-hour are gradually declining. On the other hand, coal-fired power plants still account for a significant share of electricity generation, while the accompanying legislation and emissions pricing systems remain far behind EU standards. CBAM will therefore, at least in its initial phase, result in additional costs for electricity exports from the region to the European Union.

The CBAM Regulation is based on the assumption that there is no practical way to simultaneously maintain full market coupling with the EU while selectively applying CBAM to electricity originating from a particular country. For this reason, the Regulation provides that electricity imports from a third country may be exempted from the obligation to purchase CBAM certificates only if that country transposes the EU electricity market rules (Electricity Integration Package – EIP), becomes technically interconnected with the EU internal electricity market, adopts a long-term climate strategy and a climate law with the objective of achieving climate neutrality by 2050, introduces an emissions trading system (ETS) for the electricity sector with a CO₂ price broadly aligned with the EU ETS by 2030, and ensures that electricity from other countries that do not meet these conditions cannot enter the EU via its system.

Only once the European Commission, following a detailed assessment, confirms that all of these criteria have been fulfilled, can electricity from that country be exempted from the obligation to purchase CBAM certificates. In practical terms, this means that CBAM imposes not only a requirement of market integration but also a requirement to adopt robust climate policies. To date, only Montenegro has established its own emissions trading system (ETS). Ukraine plans to launch a pilot ETS phase in 2026. Other countries are generally considering introducing a carbon tax around 2027, with a later transition to an ETS, or have no concrete plans in place at all.

At the same time, long-term climate strategies targeting climate neutrality by 2050 exist in only a few countries, while climate laws embedding this objective into national legislation have been adopted only in Ukraine and Moldova.

The CBAM Regulation also requires countries seeking an exemption to prepare a detailed roadmap. Given the complexity of an ETS and the time required to establish it, the report raises a very direct question: whether the Energy Community Contracting Parties will realistically be able to meet this requirement within the prescribed timelines.

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Regional Electricity – Imports and Exports

Significantly larger volumes of electricity flow through the networks of Energy Community countries (particularly the Western Balkans, Ukraine, and Moldova) toward the EU than these countries actually export. Although the available data do not allow the precise origin of every megawatt to be identified, the system configuration clearly shows that the Western Balkans Six, surrounded by EU Member States, form a natural transit corridor for cross-border flows between different EU markets, as explained in more detail in the report. Ukraine and Moldova have been synchronized with the Continental European grid since 2022, while Georgia remains physically disconnected.

Data for 2024 show that almost none of the countries (except Bosnia and Herzegovina and, to some extent, Montenegro) recorded significant net electricity exports on an annual basis. However, scheduled commercial flows toward the EU are far larger than this modest level of exports, indicating that the vast majority of electricity passing through their systems is not domestic, but rather transit electricity from neighboring EU Member States.

This is directly linked to the previously explained exemption framework, as the report emphasizes that, in order to apply CBAM rules correctly, the EU must clearly distinguish between: (1) actual commercial imports of electricity from a country that does not benefit from a CBAM exemption, and (2) electricity that merely transits through that country’s network between two EU markets. This distinction is essential, among other reasons, to avoid imposing CBAM obligations on electricity that the country in question does not produce at all. For this reason, the exemption conditions themselves place strong emphasis on rules to prevent circumvention and on the clear separation of transit flows from genuine exports.

Alongside regulatory reforms, the report also analyzes electricity flow patterns. Due to previously unfavorable hydrological conditions and increased domestic demand, most Energy Community countries became net electricity importers on an annual basis in 2024. Bosnia and Herzegovina was the exception, remaining the largest exporter, while Montenegro recorded only a small net export. Serbia registered net imports of approximately 520 GWh, according to the data (Table 3, page 13 of the report).

At the same time, the role of these countries as transit corridors between different EU markets is clearly evident. In 2024, as much as 9,181 GWh of scheduled commercial electricity flows toward EU Member States passed through Serbia—the highest volume in the region by a wide margin. This is followed by North Macedonia with 3,354 GWh, Montenegro with 3,042 GWh, Bosnia and Herzegovina with 2,158 GWh, Albania with 1,307 GWh, and Moldova with 188 GWh (Table 2, page 12 of the report). In principle, commercial flows do not indicate how much electricity a country has produced, but rather how much trading activity (contracts) has been registered across its borders.

When all figures are compared, it becomes clear that a substantial share of the electricity passing through these systems is not of domestic origin. Serbia is a clear example of this pattern, as shown by the data above, and similar dynamics can be observed in North Macedonia, Montenegro, and Albania.

Renewable Energy Development and Auctions as a Driving Force

By adopting National Energy and Climate Plans (NECPs), most Energy Community countries have formally accepted the 2030 renewable energy share targets set by the Ministerial Council. However, delays in adopting these plans have somewhat reduced investment certainty. Most countries have set targets at or slightly above the binding levels. At the same time, Serbia is the only country whose NECP sets a renewable energy share for 2030 at around seven percentage points below the mandatory level, as explained in the document itself.

In the electricity sector, Albania, Bosnia and Herzegovina, Georgia, Montenegro, North Macedonia, and Serbia have recorded increases in the share of renewables, indicating the gradual integration of new wind and solar capacities into the energy mix. The most significant gap, however, remains in the transport sector. In heating and cooling, the picture is mixed: North Macedonia and Ukraine are well aligned with the targets set by the Renewable Energy Directive, Bosnia and Herzegovina and Serbia are close to these levels, while Montenegro represents a specific case—having exceeded a 60 percent renewable energy share in heating and cooling as early as 2020, it is, under EU rules, not required to set a new target for 2030.

The report emphasizes that the transition toward renewable energy increasingly relies on auctions as a modern support mechanism. Between September 2024 and 2025, an intense wave of auctions was recorded across the region. Amid the energy crisis, Moldova successfully conducted its first renewable energy auction, awarding 165 MW of solar and wind capacity, and is already preparing a second auction that will combine renewable projects with battery energy storage systems (BESS). Following the adoption of its first standalone Renewable Energy Law in 2024, Montenegro launched its first solar auction in the summer of 2025, targeting up to 250 MW of new capacity.

During the same period, Serbia completed its second renewable energy auction, awarding 424.8 MW of solar and wind projects, with expected installations totaling around 650 MW. New qualification rules—based on the share of capacity allocated to the guaranteed supplier or directly to end customers—enabled more projects to enter the quota, increased the total planned capacity, and further stimulated the development of market-based power purchase agreements (PPAs). In contrast to these examples, two renewable energy auctions held in Ukraine were unsuccessful. At the same time, Bosnia and Herzegovina remains the only Contracting Party that has not yet launched renewable energy auctions, despite having an established legal framework.

Overall, the data confirm that auctions have become a key instrument for accelerating the energy transition within the Energy Community—while also highlighting that the pace of implementation varies significantly across countries.

*This designation is without prejudice to status and is in line with United Nations Security Council Resolution 1244 and the Opinion of the International Court of Justice on Kosovo’s declaration of independence.

Prepared by Milica Vučković

The story was published in Energy portal Magazine RESPONSIBLE BUSINESS