Western Balkan countries should move quickly to introduce their own carbon pricing systems for electricity generation to offset the financial impact of new European Union carbon taxes set to take effect next year, environmental campaigners said on Thursday.

Under the EU’s Carbon Border Adjustment Mechanism (CBAM), which begins on January 1, 2026, importers of goods such as electricity from outside the bloc will have to pay for the carbon dioxide emissions linked to the production of that energy in its country of origin.

The change will hit coal-reliant energy producers in Bosnia and Herzegovina, Montenegro, North Macedonia, and Serbia, making their electricity exports far more expensive for EU buyers in Italy, Croatia, Hungary, Romania, Bulgaria, and Greece, according to a report by the CEE Bankwatch Network.

EU Carbon Tax Threatens Balkan Export Revenues

Currently, up to 60% of the electricity imported into the EU from these four Western Balkan states comes from coal-fired plants, the report said. Once the CBAM enters into force, the cost of carbon emissions will likely slash EU demand for Balkan power overnight — cutting off a key source of export revenue for regional utilities.

However, the EU has built in a potential escape clause. Countries that show “substantial progress” in applying EU energy and climate laws, such as adopting a carbon pricing mechanism, could qualify for partial exemptions from the tax.

“By introducing domestic carbon pricing, the countries could mitigate the impacts of CBAM and generate significant revenue to spend on a just and sustainable energy transition,” CEE Bankwatch said in its report, as reported in Reuters.

Billions Could Be Raised for Energy Transition

According to the group, implementing such pricing could raise as much as €4.2 billion ($4.9 billion) per year across the Western Balkans. The revenue could be directed toward financing renewable energy projects, supporting affected workers, and gradually phasing out coal.

“CBAM could finally force Western Balkan governments to tackle the elephant in the room and start closing their highly polluting and increasingly uneconomic coal power plants,” said Pippa Gallop of the CEE Bankwatch Network.