CBAM: A Solution for Environmental Improvement or the Executioner of Energy-Intensive Industry?

A national carbon tax can ease export pressure while accelerating the green transition of the domestic economy. The European Union launched the European Union Emissions Trading System (EU ETS) in 2005 as the first greenhouse gas (GHG) emissions trading scheme within the EU. In order to meet its commitments under the European Green Deal and the Fit for 55 initiative, the EU further introduced the Carbon Border Adjustment Mechanism (CBAM) - a tool designed to prevent “carbon leakage” and ensure fair competition between domestic and imported products.

Currently, CBAM applies to products from energy-intensive industries, including aluminum, cement, iron, steel, fertilizers, and electricity. In the coming period, it is planned to expand to cover the entire EU ETS system.

What Does CBAM Mean for Industry Operating in Serbia?

Given that around 70% of Serbian exports are directed to the EU, CBAM represents a serious challenge for the domestic economy. A major issue lies in the fact that domestic industries in the affected sectors currently emit up to ten times more GHG compared to their EU competitors. This means that Serbian exporters will face additional levies when exporting products to the EU market, increasing overall costs and product prices - directly undermining their competitiveness.

Such developments could result in the suspension of exports that were valued at €1.5 billion in 2023. At the same time, products covered by CBAM are currently imported into the Republic of Serbia from non-EU countries in the amount of €1.4 billion, often with a very high carbon footprint. This completely undermines the efforts of domestic producers to reduce GHG emissions.

A Double Threat: Exports Under Pressure, Imports Without Control

Considering the above, it is clear that without an appropriate national carbon price alignment mechanism, Serbia risks:

• Losing the competitiveness of domestic products in the EU market;
• Increased imports of high-emission goods from third countries;
• Discouraging domestic producers from investing in decarbonization.

Light at the End of the Tunnel: A National Carbon Tax?

To mitigate the impact of CBAM on the domestic economy, it is proposed to establish a parallel mechanism - a national carbon tax complementary to the European mechanism and approved by the European Commission (for goods from third countries entering the Serbian market), as well as a national CBAM (modeled after the EU system - meaning that goods exported to the EU would pay the carbon charge in Serbia rather than in the EU).

This mechanism would:

• Cover CBAM goods imported into Serbia;
• Use the existing MRV (monitoring, reporting, and verification) IT system;
• Be aligned with the Law on Climate Change, which already provides a regulatory framework.

The introduction of a national carbon pricing mechanism must be accompanied by a set of regulatory measures that would enable energy-intensive industries operating in Serbia to reduce CO₂ emissions, including the creation of a more favorable energy mix for the country.

Supporting Measures for Industry and the Path Toward Climate Neutrality

For the transition to be successful, it is necessary to:

• Redirect revenues from the national carbon tax toward further decarbonization through a re-established Green Fund;
• Establish national verification and certification recognized by the EU for carbon emissions under CBAM;
• Establish and implement a local green bond standard within Serbia’s legislative framework, in line with ICMA global guidelines for issuing green bonds;
• Introduce tax incentives for green investments.

In addition, three important regulatory messages for decision-makers in support of industrial decarbonization are:

1. Allow the import of alternative fuels and waste-derived raw materials, as well as ensure the availability of alternative raw materials from domestic and foreign markets, in order to reduce GHG emissions resulting from the use of fossil fuels and natural raw materials - until sufficient quantities of prepared waste are produced in the Republic of Serbia for energy reuse.
2. Restrict the export of waste for which processing capacities already exist in Serbia. By properly applying the proximity principle, priority should be given to domestic processing.
3. Enable the issuance of permits for the construction of power plants for 100% self-consumption without limitations.

Given that Serbia has committed to reducing its GHG emissions by 33.3% by 2030 (compared to 1990 levels), the introduction of a national carbon pricing mechanism is not merely a response to CBAM - it is a strategic move toward a sustainable, competitive, and climate-responsible economy.