The EU’s Carbon Border Adjustment Mechanism

In July 2021, the European Commission proposed a “Carbon Border Adjustment Mechanism” (CBAM) as part of a comprehensive legislative effort to reduce net domestic greenhouse gas emissions in Europe by at least 55 percent by 2030, based on 1990. The CBAM is seen as key element to avoid carbon leakage risks for European industry. It will create a level playing field between imports of carbon intense products that face little or no carbon costs and domestic production in Europe that is exposed to rising carbon costs under the EU emissions trading system.

This impulse looks into the effects of CBAM on the power sector in the Western Balkan countries. These countries seek to formally join the EU and have the EU as their largest trade partner.

Although numerous studies have highlighted the significant public health and economic benefits of a clean energy transition in the Western Balkan countries, climate action has been notoriously slow.

The CBAM will add to the pressure for change. This impulse explains the complexities of the CBAM proposal, shows the obligations it will create, and analyses its likely economic impact on power systems in the region.

We hope it will enable decision-makers in the region to clearly understand the opportunities and challenges of the CBAM and also support the EU Commission to understand the level and types of assistance helpful in its neighbourhood.