The Carbon Border Adjustment Mechanism (CBAM)—the EU’s tool for pricing the carbon footprint of imported goods—has been in effect since the beginning of 2026. The EU itself is lagging behind both in rolling out some of its adopted rules and in fleshing out certain strategic commitments. All the more reason for us, as a country, to properly prepare for the Green Transition, of which CBAM is just the tip of the iceberg. Instead, the state is dragging its feet, and the Serbian economy is already paying the price of inaction—both the hard-hit major exporters and the small businesses that the authorities routinely leave behind. This text explains what CBAM is, who is falling behind and with what consequences, and why the right response is a credible, fully funded green industrialization strategy—the only one that can simultaneously prepare the economy and unlock funding from the EU and international institutions.
CBAM
The EU is far further along in its green transition than the rest of the world, and CBAM is a logical measure to protect what it is trying to achieve. Essentially, EU countries levy a type of carbon footprint tax on their own manufacturers; without this mechanism, producers from other countries who don’t pay such taxes both build their larger carbon footprint into the EU’s consumption and undercut EU companies with cheaper goods on their own home turf. In the initial phase, steel, aluminum, cement, fertilizer, electricity, and hydrogen are the first in line, but the plan is to eventually extend the mechanism to all goods containing these materials, and potentially even further. Clearly, implementing this levy significantly shifts the goalposts and changes the profit margins for selling goods into the EU.
The mechanism is designed so that, over time, companies pay an increasing percentage of the carbon price applicable on the EU market, multiplied by a high assumed level of CO2 emissions per product. The cost paid at the border can be reduced in two ways. First, a company can prove that the actual emissions of its product are lower than the EU assumes—but to do that, it needs verified emissions data. Second, it can prove that a carbon price has already been paid in Serbia, which is then deducted from the amount owed to the EU. (In this case, the tax the company pays is not directly reduced, but it allows the host country, rather than the EU, to collect the carbon tax revenues and—presumably—reinvest them in greening and supporting the transformation of its own industry.)
Both pathways require functional systems: for measuring and verifying emissions on a product-by-product basis, for documenting domestic carbon taxes and linking them to specific goods, and finally, an administrative setup and industrial policy that will funnel that tax revenue back into funding companies so they can actually cut their emissions. So far, only the initial components of these systems are in place. Emission permitting has begun, but product-level verification, the chain of custody for proof of payment, and the industrial policy mechanism—as well as the industrial policy itself, which is most important—for recycling these revenues have yet to be built.
Serbia is Running Late, and that Delay Comes with a Price Tag
Serbian exporters of goods subject to this "carbon tariff"—mostly steel and aluminum—are facing a direct CBAM bill that the Fiscal Council estimates at around €118 million in 2026, with a trend rising to nearly €145 million by 2030. However, because Serbia’s proof-of-payment system is incomplete, firms cannot yet claim the tax deductions they should be entitled to due to the paid domestic carbon tax. As a result, instead of a reduced amount, they are paying the full price upfront.
There aren't many direct taxpayers: under current scope, the blow in Serbia is concentrated on a relatively small number of metal exporters. But through supply chains—since the carbon footprint of their suppliers is factored into theirs—unofficial estimates by the Serbian Chamber of Commerce (PKS) range from 500 to 2,000 affected firms. And just how far and how fast CBAM will expand—downstream to steel and aluminum products, and eventually to all sectors under the EU ETS—remains uncertain for now, with every expansion widening the circle of those affected. That is precisely the point: the uncertainty of the scope is a cost in itself, making it difficult for businesses to plan ahead.
On top of that, the administrative cost of documenting emissions is largely a fixed cost. In relative terms, for a small firm it can become huge, and outweigh the savings it brings. Financing the full cost until tax deductions kick in, compounded by the accompanying uncertainty, could force smaller firms to walk away from contracts. As with other paperwork, Serbia provides no assistance to anyone in this regard.
We have already written about how delays in issuing permits and administrative uncertainty weigh down investments; the same pattern is repeating itself here. Even a large corporation with every advantage—access, capital, and the willingness to modernize—waited more than two years for a permit to build the exact upgrade it needed to face CBAM prepared. Smaller firms are simply throwing in the towel. Many of CEVES’ SME100 exporters have installed solar panels on their own roofs to keep their products acceptable to European buyers. They are not liable under CBAM, but their clients pay EU carbon charges and want to minimize them. Well, and even that requires wading through unnecessary red tape and the corruption that is increasingly accompanying it.
Part of the delay is indeed down to the EU: it introduced the levy as of January 2026, even though it is still moving the goalposts on the rules that determine what firms owe and how they prove exemptions—such as how electricity merely transiting through Serbia is separated from actual Serbian exports, or what counts as proof that the Serbian carbon tax has been paid. Serbia is rightfully pushing back on these issues. However, much of what is missing is on the Serbian side, and Brussels is not blocking it: a few bylaws are lacking, procedures have yet to be implemented (including data exchange between the Customs Administration and the Tax Administration), and there are only five accredited verifiers.
Without a Strategy, Serbia is Unarmed in the Fight for Funds and Better Terms
The biggest gap, however, is the lack of credible industrial decarbonization programs—the lack of a genuine strategic commitment. CBAM is just the visible tip of the European Green Agenda iceberg today. A far greater threat and cost lies ahead. It will arrive when the Serbian power sector, which relies heavily on coal, is integrated into the EU-level carbon pricing system. This could happen as early as 2030, and under current assumptions and documents, EPS (Elektroprivreda Srbije) could face costs of around €2 to €3 billion annually. That figure is simply unsustainable. Granted, it makes no sense for the EU to keep something on paper that is either unclear or impossible—but that must not be an excuse for Serbia to passively kick the can down the road on making real decisions about accelerating the transformation of its power sector.
A green industrial policy is an opportunity to finally adopt—and secure funding for—a real industrial strategy, one that is both green and genuinely productive. No such strategy, nor any other true development strategy, exists. For a decade and a half, Serbia has not budged from a single instrument—massive subsidies and a red carpet for big, mostly foreign investors—and has next to no functional tools to help its own firms, especially smaller ones, modernize. A real strategy would spend public money on making the economy both cleaner and more productive—through better processes, hard data on emissions, stronger suppliers, and retraining workers—instead of repeatedly relying on shifting money from one pocket to another.
The government thinks they are waiting for EU money. They are certainly asking for it. But that order of operations is wrong. Larger external and concessional funds can only flow once Serbia puts forward shelf-ready, bankable projects and a credible plan—and those planning elements are exactly what we lack. It is in Serbia’s interest not to give the European Union an excuse for delays and inaction.
It all forms a connected chain. Preparing for that larger cost means decarbonizing electricity, which implies phasing out coal capacity—and that cannot be credibly achieved without a genuine just transition program for the roughly 25,000 people working in the thermal power and mining sectors, and without protecting households for whom higher energy prices are already unaffordable. Viewed in isolation, each of these items becomes a reason to delay; brought together into a single plan—energy transformation, workforce transition, and household protection—they become exactly the kind of credible, bankable program that attracts funding from the EU, international financial institutions, and other partners. A strategy is not just how Serbia decarbonizes; it is how Serbia unlocks the money to do it.
None of this can be built, nor be meaningful and credible without the one thing that cannot just be “regulated”: a professional and accountable, i.e. truly independent administration that keeps the strategy funded, respected, and alive well past the "next election." We are still waiting for that—hopefully, not for long.
What Steps Serbia Needs to Take
| Priority | What Serbia needs to do — and why it matters |
| Allow Serbian carbon payments to count toward the EU bill | Finalize rulebooks, proof of payment, product templates, and data exchange between Customs and the Tax Administration so that the domestic tax actually offsets what firms owe the EU—which was the main point of paying tax at home in the first place. |
| Make decarbonization support visible in the 2027 budget | Create clear budget lines for the decarbonization of taxpayers and for groups left out by the tax law (households, municipalities, suppliers, just transition). Assess dedicated funds only if they are transparent and disciplined. |
| Build the capacity of firms and suppliers | Turn the existing SME roadmap into an actual practical pipeline—diagnostics, auditing, MRV tools (monitoring, reporting, verification), project preparation, financing, verification, and customer documentation—by connecting RAS, PKS, the Innovation Fund, banks, and IFIs. |
| Prepare the power sector and a roadmap for negotiations with the EU | Plan a response to the massive cost looming on the horizon: market coupling, EPS decarbonization, tariffs, household protection, and the terms Serbia will demand from the EU. Treat the Article 2(7) exemption as a demanding requirement, not a given. |
| Make project preparation and SOE fiscal risk transparent | Publish actual project pipelines with documentation status, land-title resolutions, cost audits, financing, and exposure to guarantees—because poor preparation is what is actually blocking the flow of money. |
| Turn coal phase-out deadlines into local plans | Replace the distant year of 2050 with concrete phases for power plants and mines, workforce mapping, land repurposing, and regional funding, so that people can actually plan their lives around it. |
| Protect workers and households | Adopt a definition for green jobs, publish annual progress on the just transition, introduce transition vouchers, and link tariff and carbon reforms to targeted support for households. |
| Build a national framework for eco-industrial parks | Treat industrial zones as shared low-carbon infrastructure—which brings cheaper decarbonization for SMEs—with open access and state-aid discipline, rather than as packages of fiscal privileges. |
