Exports from renewable power production from Energy Community constituent states to the EU could cost more per MWh than exports from lignite-fired generation under the current implementation of the EU's carbon border adjustment mechanism (CBAM), Energy Community CBAM lead Peter Pozsgai said at the Energy Trading Central and South Eastern Europe (ETCSEE) conference in Vienna on 12 June.
CBAM will be applied to all cross-border electricity flows from Energy Community states, including power generated from renewables. Producers will be able to deduct any payments made into a regional carbon tax or emissions trading system (ETS) equivalent — a key pillar of market coupling as laid out in 2022's energy integration package.
But renewable energy producers will not pay into a regional carbon tax or ETS equivalent, and thus will not be able to deduct this carbon tax from the CBAM applied to all electricity exports. In effect, exports from renewable sources will be priced higher than those from lignite-fired plants in the Western Balkans six — Albania, Bosnia and Herzegovina, Kosovo, North Macedonia, Montenegro and Serbia.
Pozsgai "hopes this can be amended" and emphasised that the Energy Community and the European Commission will hold a stakeholder meeting on 1 July with the aim of providing more clarity on CBAM's implementation.
Electricity is treated separately from other physical commodities under the CBAM legislation. Carbon quantity will be based on average country-wide emissions rather than on individual plant efficiency. Each country's CO2 emissions factor will be calculated as the weighted-average emissions from all fossil fuel-fired generation in the country and is higher than the indirect emissions factor applied to other goods that are subject to CBAM when they enter the EU. This weighted-emissions factor will be applied to all cross-border power exports, regardless of generation source.
CBAM loomed over discussions at ETCSEE, with the regulation being discussed on every panel over the two-day event. Market participants already have observed lower forward liquidity as uncertainty mounts on how CBAM will be implemented and expressed concern about taking financial positions while CBAM implementation evolves.
But trading firms and regulators alike expressed a desire for market coupling, while acknowledging that CBAM's implementation instead may hinder regional market integration. "Regional integration is hugely important for security of supply and efficiency and should move forward regardless of CBAM, and if they meet requirements, there should be discussions of [CBAM] being lifted," according to the European Commission's deputy head of unit of the Directorate-General for Energy, Andras Hujber.
"Price sensitivity will increase with the implementation of CBAM," Hungarian state-owned energy firm MVM chief commercial officer Laszlo Fritsch said.
Provisions in the 2022 integration package provided a pathway to a four-year exemption for Energy Community states, provided they complete market coupling measures before CBAM's scheduled start on 1 January 2026. But no Energy Community countries have met these requirements yet. Serbia will be the first country to couple with EU neighbours Hungary and Romania in the fourth quarter of 2026, but it is unclear whether a CBAM exemption will be granted from that point forward or applied retroactively.
European power transmission system operator association Entso-E earlier this week asked the EU to postpone the definitive period of CBAM to provide electricity markets with more time to adjust.
