Power exports from EU-led regulatory body Energy Community constituent states will likely be subject to a carbon cost equivalent to the EU ETS price beginning in 2026 as part of the carbon border adjustment mechanism (CBAM), as states have so far not met the requirements which would grant them exemption from CBAM until 2030, secretariat director Artur Lorkowski told Argus in a recent interview. Edited highlights follow.
CBAM is a transformative EU policy designed to equalise carbon costs for embedded emissions in goods, including electricity, produced outside the EU. However the EU's neighbourhood, particularly the Energy Community contracting parties, holds a unique status. These countries are actively aligning their legal and regulatory frameworks with the EU, a critical step towards EU accession. Unlike other regions they are already implementing core EU energy and climate policies, setting them on a path toward full Union membership. This distinct trajectory sets them apart from the rest of the world in terms of policy development.
Is there any path to CBAM exemption without full day-ahead and intraday market coupling?
Market coupling is the main desired outcome of the overall energy market integration journey that contracting parties started 20 years ago when — together with the EU — they established the Energy Community.
This priority precedes the concept of CBAM, and remains essential for accelerating their integration into the EU energy market ahead of accession. Achieving market coupling, particularly in the day-ahead market, is critical to delivering competitive prices for consumers while fostering low-carbon technologies.
The CBAM regulation makes market coupling a precondition for an exemption from CBAM for electricity. As EU law, this must be implemented. However greater clarity is needed on the specific criteria to determine when a third country may be considered as having "an electricity market which is integrated with the Union internal market for electricity through market coupling".
Has a mechanism been determined to separate transit flows from export volumes, and in which way would CBAM be applied?
Contracting parties, particularly in the western Balkans, experience significant electricity flows as a result of trades between EU member states crossing their territories due to their geographical location, transmission system characteristics, available capacities and advanced market reforms.
These flows, often labelled "transit," are a natural outcome of a properly-functioning electricity market and may involve several title transfers before reaching their destination. Unlike the straightforward transit of physical goods, such as cement or aluminium, which are merely transported from one point to another, these electricity flows reflect the integrated and dynamic nature of interconnected electricity markets.
The European Commission is currently reviewing the implementation of CBAM during its transitional period, which ends this year. I hope this stocktaking will help to find a solution to how the principles of CBAM can be maintained in a way that does not impede the normal functioning and further development of interconnected electricity markets between contracting parties and member states.
By what date must Energy community constituent countries meet these requirements in order to be exempt on 1 January?
To meet the market coupling precondition, contracting parties must fully transpose and implement the Electricity Integration Package with their transmission system operators (TSOs) and nominated electricity market operators (Nemos) becoming operational parties in market coupling.
Additionally, they must satisfy the criteria in Article 2(7) of the CBAM Regulation. Even after meeting these requirements, an administrative process is needed on the EU side to list them in the CBAM Regulation's exempted jurisdictions annex.
With the slow progress in transposing and implementing the Electricity Integration Package, it is highly probable that all parties will fall under CBAM from 1 January 2026. Consequently, electricity from the region will face a carbon cost equivalent to the EU ETS price upon import into the EU, leading to substantial changes in arbitrage opportunities and trading patterns.
Irish MP Barry Andrews said he "doubted" that CBAM would occur during the EC parliamentary plenum, and brought up the costs of decoupling that Ireland has experienced after the UK exited the EU. Do you believe EU countries that neighbour the western Balkans could experience higher prices if CBAM is applied?
While it's challenging to predict specific outcomes, it's important to note that prices are influenced by various market dynamics, including supply and demand fluctuations, carbon pricing mechanisms and regional integration progress. The application of CBAM could create price adjustments, but these will ultimately depend on how markets adapt and respond to the new regulatory environment.
Some EC constituents, such as Moldova, are perennial importers. Will CBAM be applied to the occasional export flows despite their net importing positions?
The CBAM Regulation specifies that electricity imports are measured per border in time intervals no longer than one hour, with no deductions allowed for exports or transit during the same hour.
As a result, all electricity exports to EU member states are subject to CBAM. However it remains unclear whether inter-TSO flows or technical flows required for system balancing will be classified as exports under CBAM, which requires further clarification.