Montenegro faces a cost of 190 million euros per year due to carbon dioxide tax, it has been confirmed. Center for Investigative Journalism (CIN-CG) at the Ministry of Energy. This will be an additional burden on the finances of the Electric Power Company of Montenegro (EPCG), which will end this year with a deficit of around 90 million euros, according to estimates by top officials.
The minus was due to the reconstruction of the Pljevlja Thermal Power Plant (TPP), which was put into operation yesterday and produces about half of the country's total energy. The reconstruction cost Montenegro at least 80 million, but it will not solve the carbon dioxide (CO2) problem, which will cause EPCG to incur huge annual charges.
Montenegro is one of the countries to which, from January 1, 2026, the rules of the European Union (EU), namely the Carbon Border Adjustment Mechanism (CBAM), will apply, which in practice means that anyone exporting coal-based electricity with a lot of pollution to the EU will pay an additional tax on the export of certain products with high CO2 emissions, so such exports will automatically be more expensive than before.
The EU has had an emissions trading system (ETS) in place since 2005. In the 20 years since the system has been in operation and a CO2 tax has been paid, tens of billions of euros have been collected annually. This money is returned to the member states and is used to finance renewable energy development projects. Due to the high C02 tax system, more than 100 thermal power plants have been closed in EU countries over the past decade.
The introduction of this tax for countries outside the EU from which electricity is imported means in practice that it will become more expensive and as such less attractive for European importers. Thus, from January 1, the EU is putting a kind of ban on easy profits from exporting "dirty" electricity to the EU.
The countries of the region, including Montenegro, had 20 years to prepare for this transition. The Government of Montenegro and EPCG knew that January 1, 2026, when penalties would be paid, was approaching, and instead of adapting to the rules and looking for alternative solutions, they entered into a TPP reconstruction project, which does not solve the C02 problem. Now everything is coming to a head and the sustainability of a key state-owned company and main exporter is being questioned.
UNREADYNESS
According to a report by the Energy Community Secretariat, which CIN-CG has access to, Montenegro is unprepared for January 1, 2026, because it does not have a completed system that accurately measures and confirms how much pollution is generated in electricity production (MRV), nor does it have a domestic pollution tax through emissions trading like in the EU (ETS) for electricity, nor an electricity market that is linked to the European one (market coupling). Therefore, the electricity that EPCG exports and that is produced at the Pljevlja Thermal Power Plant, as soon as it heads towards the EU, will carry that "carbon bill", and the cost could be in the millions, if an agreement is not reached with Brussels in the next 30 days to postpone the implementation of the CBAM.
The Ministry of Energy confirmed to CIN-CG that Montenegro is not ready for CBAM to start on January 1, 2026, because we have not established an MRV and ETS system like in the EU, and our electricity market is not fully integrated with the European one. The Ministry has done its own calculations and estimates that, if we do not get a postponement, CBAM could cost Montenegro around 190 million euros per year, or around 62 euros per megawatt hour of electricity exported from here to the EU. Minister's Department Admir Šahmanović They expect clear guidelines, technical assistance and a transition period or postponement of full implementation from the European Commission so that the cost does not fall suddenly on the state and EPCG.
The state-owned energy company says that they see CBAM as a serious new cost for electricity exports from 1 January 2026, especially since part of the production still comes from the Pljevlja Thermal Power Plant. They say that they are already paying for pollution for emissions not covered by free permits, and that from 2026 this will apply to every ton, as free quotas are being abolished. However, they claim that this cost does not have to be automatically passed on to citizens and the economy, and that there are currently no announcements of electricity price increases due to CBAM. They expect more clarity on what exactly the regime will be and whether the region will receive a transitional period after the Energy Community Ministerial Council session at the end of the year.
THE EU HAS NOT FINISHED ITS JOB EVEN
The EU Delegation told CIN-CG that the guidelines for the application of CBAM are not yet complete because the EC is preparing the final rules for calculating emissions and applying them to electricity by the end of 2025, which is the most complex part of the entire mechanism. At the same time, they say that an exemption for Montenegro is not possible without a clear plan that must be sent to Brussels with a roadmap and deadlines for the introduction of the MRV and ETS systems, as well as for harmonizing the energy market with the EU. Only when the Commission receives this roadmap and assesses that the deadlines are realistic, can a transitional regime or exemption for electricity from Montenegro be discussed.
Montenegro's fate is shared by Albania, Bosnia and Herzegovina, Georgia, Kosovo, Moldova, North Macedonia, Serbia and Ukraine.
One of CIN-CG's sources familiar with the issue says that there is an option that until countries prepare for the full implementation of CBAM, Birsel will allow coal-fired electricity imports into EU countries to be exempt from this duty.
CBAM is part of the broader "Fit for 55" package, which aims for the EU to reduce emissions by 55 percent by 2030 and achieve climate neutrality by 2050.
HELP NEEDED BRUSSELS
The Ministry of Energy told CIN-CG that Montenegro, like other countries in the region, is not yet ready to implement the CBAM. They hope that the implementation of this tax will be postponed.
"Although we have made significant progress in the previous period, several key elements are still missing in order to be treated as a country that can be exempted from the application of CBAM to electricity exports. This primarily refers to: completion and full implementation of the MRV system (monitoring, reporting and verification), establishment of a functional and operational emissions trading system (ETS), finalization of market integration with the EU in the electricity sector, additional strengthening of institutional capacities and IT systems. These are extremely complex and technically demanding processes, which require both legislative and infrastructure reforms. That is why we have intensified our work in recent months to meet the criteria and prevent negative financial consequences for our economy," the Ministry of Energy stated.
When asked if there is an estimate of how much CBAM would cost Montenegro in 2026 if the EC does not accept our request for a postponement, the Ministry of Energy said that there are estimates from international organizations and analytical companies, and that they are working on their own scenarios, which they will further update when they see the definitive volume of exports and the price of C02 in the EU ETS.
"According to an analysis based on data for 2024, the potential CBAM exposure for electricity from Montenegro is estimated at around 190 million euros per year, with an average CBAM cost of around €62,45/MWh. In any case, these are significant financial resources. The precise amount will depend on a number of factors - the price of C02 on the EU ETS market in 2026, the volume of electricity exports, the structure of domestic production, as well as the possibility of absorbing the cost within the market. This is precisely why we insisted on providing a transitional period for Montenegro and other Energy Community countries, in order to avoid a sudden shock and ensure a fair adjustment process," the Ministry of Energy explained.
The Ministry said that they expect clear and timely technical guidelines from the EU for the implementation of CBAM in the context of the Energy Community, but also the possibility of a transitional regime or postponement of full implementation for countries that are in the process of establishing an ETS.
"Stronger technical and financial support in the implementation of the ETS and MRV systems would be extremely important, as would concrete mechanisms that prevent the distortion of the competitiveness of countries that are in the phase of accelerated decarbonization. At this moment, no
"formal decision of the EC on the postponement of the application of the CBAM for Montenegro. There is an active and intensive technical dialogue with the Commission, but there is still no official document confirming our request. We will continue to insist on fair treatment and on a solution that will not jeopardize our energy stability and economic development."
The EC has not yet published specific guidelines for the application of CBAM to the countries of the Energy Community, including Montenegro, although full implementation will begin on January 1, 2026, because, as explained by the Ministry of Energy, the electricity segment, which is particularly important for our region, is one of the most technically complex parts of CBAM.
"The EC is currently working on resolving a number of relevant issues - the calculation of actual emissions, the treatment of transit flows, analytical methodologies, the role of the EC and the status of market integration. Therefore, the guidelines are being published in phases, with additional consultations with the contracting states. The Ministry is in daily contact with the relevant bodies of the European Commission and the EC so that all open issues are resolved as soon as possible," the Ministry of Energy said.
They state that it is realistic for Montenegro to establish the basic elements of the ETS and a fully functional MRV system by the end of 2026, but this requires extremely intensive work and strong technical support.
"Most of the legislative framework is in the final stages of preparation, and plans
"Activities for the rapid establishment of verification bodies, IT structures and administrative procedures are also underway. However, it is important to emphasize that the establishment of an operational ETS, with full market functioning, auctions and all accompanying mechanisms, may require additional time after the adoption of the law. The Ministry has formed special working teams and accelerated all processes in order to meet the deadlines," the Ministry claims.
They explain that "we are actively seeking a fair and balanced approach to the implementation of the CBAM, while respecting the fact that EC countries have specific challenges and a different starting position than EU Member States."
"The Ministry will continue to act transparently, responsibly and in constant communication with the EC in order to ensure a solution that is sustainable, economically fair and in line with our European obligations."
PROMISES THAT THERE WILL BE NO INCREASE IN ELECTRICITY PRICES FOR THE TIME BEING
EPCG said that currently, as the operator of the Pljevlja Thermal Power Plant, they pay 24 euros per ton of emitted C02 for the part of emissions for which free permits have not been allocated. According to the current rules, free permits are scheduled to be abolished from 2026, which would apply the aforementioned cost to each ton of emissions.
"It is important to note, however, that additional clarification of the method of application of the CBAM mechanism is expected in the coming period, including deadlines for the start of full implementation, as well as possible exceptions or transitional periods. There is a possibility that, within the process of harmonization of the Energy Community countries, requests for a one-year postponement of implementation will be considered, which is an initiative that ENTSO has already spoken about, on the condition that the countries of the region gradually introduce their own emissions trading systems (ETS),'' EPCG points out.
The current price of C02 emissions on the European ETS market is around 80 euros per ton, while in Montenegro the price paid for part of the emissions is 24 euros per ton.
"In this regard, additional discussions and harmonizations at the EU and EC levels are expected in the coming months to define the pace and model of adaptation for non-EU countries," the state-owned energy company said, adding that there should be more clarity on these issues after the EU Council of Ministers meeting at the end of the year, where further steps and possible transitional arrangements will be discussed.
While the Fiscal Council of Serbia estimates that the price of electricity for households in the country could increase by as much as 50 percent due to the introduction of CBAM, EPCG promises that, for now, there will be no increase. When asked whether the cost of CBAM will be passed on to citizens and the economy through an increase in the price of electricity in 2026, EPCG said that as far as the price of electricity is concerned, the company can make a decision on the prices of active energy at any time during the year, because the decision is not tied to any specific date.
"The only obligation is to inform the public fifteen days before the price change. Namely, from January 1, 2023, EPCG has the right to make decisions on changes to the price of electricity in accordance with market developments and the results of its business operations, but when making decisions, EPCG always takes into account numerous other factors, in order to ultimately assess whether the decision is good for us and our customers. At this moment, there are no announcements that would indicate a change of this type. If there are any, it is understood that we will inform the public and our customers in a timely manner," EPCG said.
NOT ALL ELECTRICITY FROM TE GOES TO THE EU
Former Director of EPCG Ivan Bulatović He explains to CIN-CG that CBAM means a new fiscal and regulatory framework for Montenegro, especially for EPCG as a key electricity producer that exports its products to the EU market.
"Estimates show that the potential annual cost of CBAM could reach 190 million euros if electricity from the Pljevlja Thermal Power Plant is exported to the EU without recognizing the domestic carbon price. It should be assumed that this scenario is not realistic, because all electricity from the Pljevlja Thermal Power Plant cannot be viewed as energy intended for full export as currently envisaged by the rules for the functioning of CBAM," says Bulatović.
He sees the harmonization of the existing national emissions trading system with the EU system as an alternative to CBAM.
"If a domestic ETS (emissions trading system) is established at the EU level by 2026, which is the recommendation of the Ministry of Ecology for gradual introduction, then CBAM will of course be avoided through payment of a national ETS harmonized with the EU," says Bulatović, adding that this would also mean a huge financial outflow of over 150 million euros per year for EPCG, which would also have to be reflected in the price of electricity, and thus would significantly affect the standard of living of citizens.
Bulatović is also considering a scenario of merging the electricity market with the EU, in which the fiscal burden of CBAM would be reduced by up to 100 percent.
"However, this scenario is not realistic either because Market Coupling (MC) is only planned for 2028 due to technical reasons," Bulatović explains.
He states that it is estimated that Montenegro can increase solar energy capacity by an additional 300-400 MW, wind by 300 MW and battery storage to support flexibility by 2030. This would increase the share of renewable sources in production to 70-75 percent by 2030, which is among the highest in the region, and completely change the picture regarding C02 emissions, as the share from thermal power plant production would be significantly reduced.
Bulatović recalls that Montenegro established its own emissions trading system (ETS) in 2021, becoming the first country in the Energy Community to implement this mechanism. As is the practice in the EU, the entire amount of the C02 tax ends up in the CG-Eco Fund, from which very important energy projects are financed. One of the most significant is a subsidy to citizens in the amount of 20 percent in solar projects 300,500, 3000 5000+.
"This model is very good because benefits are realized through the carbon price and a step towards the green energy transition is achieved," said Bulatović, adding that EPCG has paid around 40 million euros to date for emissions.
In order for EPCG to reduce its exposure to CBAM and increase profitability, Bulatović says, investments of at least 800-950 million euros by 2035 are recommended. Including 350 to 450 million for solar power plants, 250 to 300 million for wind power plants, 120 to 160 million for battery storage and 80 to 120 million for the modernization of the transmission network and digitalization of the management system, as well as 50 to 80 million for the ecological upgrade and optimization of the Pljevlja thermal power plant.
RECONSTRUCTION DID NOT SOLUTION THE CO2 PROBLEM
At the session of the Parliament of Montenegro on November 11, answering a parliamentary question, Minister of Energy Šahmanović explained that all capacities and potentials are directed towards the decarbonization process. Regarding the TPP, he explained that it is an overhaul, after which we will get a new TPP, but which, as he said, we will still have to exclude from the system at some point. He also explained that the TPP is the most stable source of energy, producing over 50 percent of base energy, and over 75 percent in the summer months, and that it will not be easy for the state to find an alternative for both production and employment of workers, who will be left without jobs if the TPP is put out of operation.
The ecological upgrade of the TPP, which was supposed to be completed on November 15th, and which, according to government officials, has cost around 80 million so far, has not reduced CO2 emissions. Although, when preparations for the reconstruction began, it was known that the CO2 problem was knocking on the door. It is estimated that the additional costs due to the import of missing electricity from the TPP will be over 90 million euros.
Energy experts warned that the investment was questionable in terms of profitability, given the uncertain future of coal and EU regulations. No one listened to them. The reconstruction is a project of the former DPS government, which is being carried out by a consortium led by the Chinese company DEC. International together with domestic companies Bemax, BB Solar and Permonte.
"From the non-governmental sector, we timely warned the new management of EPCG in 2021, headed by the executive director Nikola Rovčanin and Chairman of the Board of Directors Milutin Djukanovic on the harmfulness of extending a dubious contract with the former prime minister's son Milo Đukanović and its Chinese partner for the alleged ecological reconstruction of the thermal power plant, in which millions of euros have been invested, or rather thrown away, in the meantime," he tells CIN-CG. Dejan Mijović, economic analyst and former member of the Board of Directors of EPCG.
He adds that the management at the time knew "that the aforementioned contract was the result of a fraudulent attempt by the former government to repair the enormous political damage caused by the previous failure of the construction project of the Second Phase of the Thermal Power Plant."
"So, it knew or should have known its shortcomings and that the project could not ensure the long-term survival of the Thermal Power Plant."
Mijović also recalls that the then Prime Minister Zdravko Krivokapic and Minister of Capital Investments Mladen Bojanic initially resisted the continuation of the project, indicating that it would not fulfill our obligations to the EU and the Paris Agreement and that the TPP would most likely have to cease operations by 2030 under pressure from the Energy Community and the EU.
"However, they failed to resist the powerful energy lobby of EPCG and the coalition partners from DF and DCG, who then managed this state-owned company and deceived the public that the Thermal Power Plant would have to completely cease operations if the contract on environmental reconstruction was not extended," says Mijović.
BRUSSELS WAITS FOR A "ROADMAP" TO GIVE AN EXEMPTION FROM IMPLEMENTATION
The EU Delegation to Montenegro said that in February 2025, the EC proposed a revision of the CBAM regulation and that the amended regulation, which relates to the simplification and strengthening of the CBAM, was published in the Official Journal of the European Union in October 2025.
As explained, the revised regulation represents a key step towards fostering a more competitive and sustainable business environment, while effectively addressing climate change.
"On 28 August 2025, the Commission launched a call for information with the aim of gathering the views of all interested parties on the rules on the methodology for calculating emissions embedded in CBAM products, the rules for the adjustment of CBAM certificates to reflect free allocation under the EU ETS, as well as the rules for the deduction of the carbon price paid in a third country. It is expected that these revised implementing rules will be published later in 2025," the EU Delegation stated.
When it comes to exemptions from CBAM, it is important to emphasize, the Delegation says, the legal requirements for possible exemptions, which include - the text of the CBAM itself stipulates that a third country may be exempted from the CBAM for electricity if it has an emissions trading system (ETS) in place with a carbon price equivalent to the price in the EU ETS, or if it is fully linked to the EU ETS (or a comparable arrangement).
"The country must align the relevant legislation and monitoring/verification rules with EU practice. Article 2(7c) of the CBAM requires the third country to submit to the Commission a roadmap outlining the key steps and timetable for, inter alia, adopting a long-term strategy (neutrality by 2050), aligning domestic legislation with the EU climate acquis, establishing an MRV/accreditation/verification system and implementing an ETS (with equivalent pricing). Typically, these conditions are expected to be met by 1 January 2030 in order for the country to benefit from the electricity exemption. The roadmap needs to be submitted to the Commission so that it can assess whether the conditions for the exemption will be met," the EU Delegation explained.
The EU's goal is for the money paid for C02 emissions to be spent on renewable energy sources, for the benefit of citizens, the state and the energy sector. The problem is that the authorities in Montenegro, both former and current, and the management of EPCG have brushed the problem under the carpet for years, criticizing everyone who warned that it would be expensive, throwing money into the reconstruction of the TPP, which is increasingly becoming a burden that threatens to endanger EPCG.
CBAM costs will eat into the revenue of Elektroprivreda Srbije
According to the assessment of the Fiscal Council of Serbia, CBAM brings a new, significant cost for some Serbian exporters and represents a trigger for the country to urgently confront its long-standing lag in climate transition.
The Fiscal Council's analysis shows that the electricity sector will suffer the greatest impact, with a cost of 200 to 300 million euros per year in the first year of CBAM implementation, which seriously threatens the operations of Elektroprivreda Srbije (EPS).
"To avoid the worst-case scenarios and ensure that this money stays in Serbia, it is crucial to introduce a domestic carbon tax for the industry affected by the CBAM. This would keep at least some of the funds in the domestic budget for financing the green transition. For the electricity sector, where the potential costs are unsustainable, urgent negotiations with the EU are necessary to achieve more favorable conditions and a longer adjustment period. Above all, the energy transition must become an absolute political priority for the Government, as any further delay increases economic and fiscal risks. However, given the huge investment needs - almost 30 billion euros by 2030 - measures on the revenue side of the budget alone are not enough. It is necessary to improve the entire public investment management system to prevent delays and rising project costs that currently represent a serious obstacle to achieving the Government's ambitious goals," the Fiscal Council's analysis states.
One cost projection suggests that CBAM's costs to EPS would be around €180 million in 2026 alone. Given that EPS currently earns around €200 million annually from electricity sales to the EU, this means that CBAM would wipe out almost all of its export revenue.
As the Fiscal Council writes, it is entirely possible that this loss of exports will "spill over" into the subsidized electricity price paid by households, which could lead to a 50 percent increase in the price of electricity for households.
The reason for this result is that Serbia, namely EPS, produces the dirtiest electricity in Europe, so importers should pay around 60 euros for every megawatt-hour from EPS, according to estimates by the Fiscal Council.
"Of course, the EU cannot be expected to allow an unfair situation in its market in the long term, where electricity producers from the EU pay a fee for emitted carbon, but in Serbia they do not," the Fiscal Council added.
Announcement of the shutdown of the Thermal Power Plant
Dejan Mijović says that the Minister of Energy has admitted in recent days that we will have to accelerate the closure of the Thermal Power Plant, for two reasons. First, because the ecological reconstruction will increase the production costs of the Thermal Power Plant from 60 to 83 euros per MWH, significantly above the selling price of 45 euros, and because of the penalty of 80 euros per MWh that will be paid for exported electricity using the CBAM mechanism starting next year. Second, because we must drastically reduce CO2 emissions in line with European climate policy.
"Due to the enormous damage caused by the reconstruction of the TPP that they caused to the company, its workers and the citizens of Montenegro, I filed a report with the Agency for the Prevention of Corruption at the time, but its leaders did not have the strength or desire to deal with it. After the admission of the relevant minister that he fears that the Thermal Power Plant and the Coal Mine will soon have to close and that their numerous workers will be left without jobs, it is too late for the Agency to deal with preventing further damage, so it would be best for it to leave the case for further processing to the Special State Prosecutor's Office because someone must be held accountable for the enormous funds that were obviously not spent in the public interest."
Three scenarios for merging the national system with the European one
Ivan Bulatović says that based on the negotiations conducted between EPCG, the Ministry of Energy and the Ministry of Economy, three scenarios were considered regarding Montenegro's accession to the EU-level emissions trading system, due to CO2. All three scenarios, which assume gradual harmonisation, foresee significant costs for EPCG. The first, in the case of harmonisation of the national ETS system with the EU by 2028, the cost would be 946 million. According to the second scenario, if harmonisation were to occur by 2030, the cost would be 776 million. And according to the third, in the case of gradual implementation of the ETS by 2035, the cost would be 445 million.
"The realization of any of the three scenarios would mean significant financial strain for EPCG and a huge outflow of money that would have to be reflected in the price of electricity and therefore in the standard of our citizens. In any case, the money from emissions trading would have to be available for implementing the energy transition in order to slowly abandon the concept of generating electricity from coal," says Bulatović, adding that now the cost without interest-free loans, which are not available this year, should be around 33 million according to the current annual regulation.
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