Exemption from CBAM for Electricity Imports from Montenegro?

Montenegro’s Energy Minister is seeking an exemption for his country under CBAM, announcing plans for Montenegro to connect its electricity grid with that of the European Union in the near future.

Country-Specific Exemptions Under the CBAM Regulation

The CBAM Regulation provides exemptions for goods originating in countries where the European carbon pricing mechanism is fully implemented. Beneficiaries include Liechtenstein, Norway, Iceland, and Switzerland (EFTA countries). In addition to this exemption, the regulation also includes a specific exemption for electricity imports.

Exemptions for Electricity Imports

To qualify for an exemption, the exporting country’s electricity grid must first be integrated into the EU’s electricity market through market coupling. Furthermore, it must be technically impossible to apply CBAM, and the exporting country must meet several additional criteria.

Criteria for Granting an Exemption

The criteria for exporting countries are stringent and must all be met simultaneously:

1. A formal agreement obligating the country to adopt EU laws in the electricity sector and related areas.
2. Implementation of key provisions of EU electricity market legislation into the country’s own laws.
3. A commitment to achieving climate neutrality by 2050, enshrined in the country’s legal framework.
4. Establishment of an emissions monitoring system by 2030 with a CO2 price equivalent to the European level.
5. Submission of a detailed roadmap to the European Commission, including compliance with set deadlines.
6. Ensuring no indirect electricity imports into the EU grid from countries that do not meet these criteria.

The Situation in Montenegro

Montenegro is seeking an exemption for its electricity exports until the connection with the EU market is established and the conditions outlined above are met. Much of Montenegro’s electricity is exported to Italy, whose reliance on this supply has grown with the rising gas prices following the war in Ukraine. For the Balkan states, the economic significance of electricity exports is substantial, as they achieve much lower prices in their domestic energy markets. However, since a large share of their electricity mix is coal-based, the price increase caused by CBAM is equally significant.

Outlook for Future Developments

If Montenegro and other Balkan states want to avoid the price increase on exports caused by CBAM, they have several options. They could follow the path of the EFTA states and join the European Emissions Trading System. Alternatively, they could implement an equivalent carbon pricing mechanism and benefit from CBAM’s adjustment mechanism. Lastly, they could pursue the electricity import exemption by taking the necessary steps outlined above.

Support in Managing CBAM

If you need assistance in assessing the impact of CBAM on your company, trade flows, or procurement, feel free to contact us anytime at helge@kolum.earth. We are happy to help you navigate these new developments. Best regards, Helge Wieggrefe