WHAT IS IT

The European Union’s Carbon Border Adjustment Mechanism (CBAM), established under EU Regulation (EU) 2023/956, aims to level the playing field in climate-related obligations and costs between the producers in the EU and in non-EU countries exporting to the Union. CBAM currently includes six product categories – aluminium, cement, electricity, fertilisers, hydrogen, iron and steel. With the review of the CBAM Regulation (EU) 2023/956 establishing a carbon border adjustment mechanism, additional product categories and downstream products might be included in CBAM in a later stage.

From 1 January 2026, the importers of CBAM goods into the EU must monitor the level of GHG emissions embedded in the imported CBAM products and must bear costs for those embedded emissions via the purchase and surrender of CBAM certificates based on annual declarations. The price of CBAM certificates is to be linked to the average price of EU ETS allowances to ensure a comparable burden.
 

WHY IT MATTERS

The CBAM Regulation is not part of the Energy Community acquis, but the mechanism is expected to impact the generation mix and the electricity markets of Contracting Parties. From 1 January 2026, electricity imports from the Energy Community to the EU are subject to CBAM, which invokes administrative and financial obligations. Such developments will influence the arbitrage options, the overall amount and pattern of commercial exchanges of electricity and indirectly the profitability of various generation assets in Contracting Parties. CBAM will likely not only affect markets and electricity flows within the Contracting Parties but potentially also those in neighbouring EU Member States, given their interconnected systems and cross-border trade dynamics.

That said, the CBAM Regulation recognises two important principles in electricity:

• The integration of third countries into the Union electricity market is an important factor for those countries to accelerate their transition to energy systems with high shares of renewable energies.
• Integration of third countries into the Union electricity market also contributes to the security of electricity supplies in those countries and in the neighbouring Member States.

Even though the CBAM Regulation is not part of the Energy Community framework, the Secretariat continues to foster dialogue and information exchange, while highlighting the potential effects of CBAM implementation on the Energy Community region and its markets. In line with its mandate to monitor the implementation of energy and climate acquis, the Secretariat has engaged in targeted outreach to power companies, traders and other stakeholders that export electricity to the EU and are therefore already subject to CBAM rules.