Carbon Border Adjustment Mechanism, better known as CBAM (Carbon Border Adjustment Mechanism), is an initiative of the European Union aimed at combating climate change and pollution. The aim of the mechanism is to prevent so-called “carbon leakage” by making the price of imports into the EU reflect their carbon intensity, similar to how it is regulated within the Union itself.
On a practical level, CBAM requires EU importers to purchase certificates corresponding to the carbon price that would have been paid if the products had been produced under EU regulations. The mechanism aims to encourage manufacturers outside the European Union to reduce their carbon emissions. CBAM is planned to be phased in from 2023, with a focus on the most polluting sectors, such as cement, electricity, fertiliser, steel and aluminium. The plan is that from January 1, 2026, CBAM will be fully implemented in Serbia. Currently, apart from reporting, no financial obligations are required, however, in a little more than a year, the situation will change.
Impact on the Serbian economy
CBAM has significant implications for the Serbian economy. It was talked about more on the first day at SEE Energy 2024 business conference, on a panel dedicated exclusively to this important topic. According to the data presented during the panel, at least 1,500 companies from Serbia are bound by this mechanism. A study from Vienna showed that around 20 percent of companies from Serbia expect that their products will have to increase in price due to the new regulations. Many of these companies are analyzing their carbon dioxide emissions for the first time in order to adapt to the new requirements.
The European Commission has recently changed the methodology for calculating CBAM, which means that from 2026, larger sums will be paid than initially predicted, thus significantly less favorable. This represents a great challenge for the region, but also an opportunity for the Serbian economy to accelerate the decarbonization process and adapt to new standards.
CBAM connects the process of production, supply and trade. In Serbia, energy production is heavily dependent on coal, which means that the country’s energy mix directly affects the issue of CBAM. There is no way to avoid this mechanism; the regulation is very rigid and sets high standards and conditions, and it will reach our country as well.
Serbia has two possible paths: establishing a regional emissions trading system or introducing a national carbon tax. Minister Dubravka Đedović Handanović hinted that a national carbon tax could be a solution. This option would mean that the tax is paid only on electricity exported to the EU, while the regional system would entail payment of the tax on all energy produced from thermal power plants.
CBAM for companies means redefining business practices, setting clear goals and involving all employees in the process. Solutions may include switching to green energy, investing in solar power plants and other emissions-reducing technologies, and once solutions are found, implementation remains. In short, it would represent a decarbonization road map.
Although CBAM may seem like a challenge, there are positive signs. In the European Commission report from April 2024, Serbia was among the 20 countries that reported the most on CBAM, and it was the only one from the Western Balkans. This shows that companies in Serbia have started to take steps towards adaptation, but the biggest challenge remains decarbonization in order to preserve the competitiveness of the Serbian economy.
The role of the state and necessary measures
The private sector points out that adequate regulation is badly needed. Although there is awareness of the importance of decarbonisation, the lack of regulation is holding back faster adaptation. “We won’t do anything until we have to”, is not a good attitude, emphasize businessmen, pointing out that regulation is the main driver of changes, both in the EU and in our country. It is necessary for Serbia to pass laws and regulations in a timely manner that will enable companies to remain competitive, instead of receiving new directives from quarter to quarter that must be implemented quickly, which is ultimately difficult to achieve.
The introduction of a carbon tax mechanism has been proven to be the most effective tool for decarbonisation. However, such a mechanism needs to be carefully measured and stimulated, including other measures to encourage green investments. Creating a fund that will be returned to the economy through investments in green technologies can be one way to support the transition.
CBAM is a reality that will not go away. Although it was thought that it would be delayed due to geopolitical turmoil, it did not happen. Even in Germany, in September 2023, just before the implementation of CBAM, 50 percent of companies were not aware of their obligation. For countries outside the European Union, such as Serbia, the challenge is even greater. Other examples, such as Turkey, which seriously approached this challenge and invested tens of billions in establishing a national system, show that it is necessary to react here as well. We do not have the luxury of being isolated, say the participants of this panel.
In terms of regulation, there is a lot of room for improvement. It is necessary to speed up procedures for obtaining permits, such as facilitating the acquisition of prosumer status and simplifying other administrative processes.
Carbon emissions are increasingly taking on a monetary value, and their price is rising, which represents a cost that we can no longer ignore. Our partners, customers and financiers already take these costs into account when doing business and calculating.
Ignoring CBAM is not an option; it is necessary to use this opportunity to modernize the economy, invest in sustainable energy sources and adapt to global trends. Only with a proactive approach can we ensure economic growth and sustainability in the future.
SEE Energy 2024a business conference focused on sustainable energy technologies, is still being held today at the Master Center in Novi Sad.
Milica Vuckovic
Source: energetskiportal.rs
