The EU plans to impose additional financial burdens not only on imports from Bosnia and Herzegovina but also on imports from all non-EU countries. The proposed levy is known as the Carbon Border Adjustment Mechanism (CBAM), which will tax imports of goods whose production involves carbon emissions.
There are two reasons for introducing this tax. The first is environmental protection—CBAM is one of the measures aimed at achieving the EU’s goal of being climate-neutral by 2050. The second reason is to protect the EU economy from unfair competition from non-EU countries where carbon is either untaxed or inadequately taxed. CBAM is set to come into effect on January 1, 2026.
Bosnia and Herzegovina, like other non-EU countries, has the option to avoid CBAM, signaling that the EU does not intend to simply boost its budget. CBAM can be avoided by implementing an emissions trading system (EU ETS), which has existed in the EU since 2005. The EU ETS allows companies to buy and sell emission quotas or “the right to pollute.”
Quotas are traded on exchanges or directly between companies, and their price depends on supply and demand. Some companies may receive free quotas. Companies that do not use their quotas can sell the surplus. Lower carbon emissions mean lower costs, making the EU ETS another measure aimed at environmental protection.
Through the EU ETS, Bosnia and Herzegovina could generate revenues for its own budget, while CBAM revenues would go to the EU budget. Bosnia and Herzegovina committed to implementing the EU ETS under the Sofia Declaration, and Chairwoman of the Council of Ministers Borjana Krišto (HDZ) promised that the trading system would be established.
However, the Director of the Energy Community, Artur Lorkowski, recently expressed doubt that Bosnia and Herzegovina will meet all the conditions required to avoid CBAM. These conditions include passing a national electricity law and establishing an electricity market at the state level.
Risk of Economic Shock
Vjekoslav Vuković, President of the Foreign Trade Chamber of Bosnia and Herzegovina (VTK BiH), explained to Klix.ba the potential impact of CBAM on trade with the EU, where Bosnia and Herzegovina exports 70% of its products. He highlighted the potential financial loss to the country’s economy.
“Full application of CBAM would affect more than 40% of Bosnia and Herzegovina’s exports to the EU, including aluminum, steel, iron, fertilizers, electricity, and cement. Without the EU ETS, Bosnia and Herzegovina would lose BAM 300 million by 2030, money that would end up in EU countries,” Vuković emphasized.
He particularly pointed out the consequences of additional taxation on electricity, which is highly sensitive to any form of carbon tax. Bosnia and Herzegovina is a major exporter of electricity, predominantly generated from coal.
“Considering the spillover effect that electricity could have on other industries and households through increased market prices, which has not yet been fully assessed, economic stability will be a primary concern in the coming years,” he added.
Speaking about the potential for CBAM to cause job losses, wage reductions, or company closures, Vuković stated that small and medium-sized enterprises would not be able to operate without profits or absorb losses to mitigate the negative impacts.
“We hope companies will remain competitive, improve their operations, create opportunities in new markets, expand production capacities, and enable new jobs,” he added.
The introduction of CBAM (Carbon Border Adjustment Mechanism) by the European Union could have serious economic consequences for Bosnia and Herzegovina. Based on the analysis of the Foreign Trade Chamber of Bosnia and Herzegovina (VTK BiH), industries such as aluminum, iron and steel, electricity, and cement are particularly vulnerable, as a significant portion of their exports depend on the EU market.
Most Affected Sectors
- Iron and Steel, Aluminum: A large share of exports from these sectors is directed toward the EU, making them highly sensitive to additional costs due to CBAM.
- Electricity: As a significant exporter of carbon-intensive electricity, Bosnia and Herzegovina faces potential increases in production costs, with this impact likely to spill over into the prices of local industries and households.
- Cement: Although smaller in scale, cement exports are highly dependent on EU partners, rendering this sector particularly vulnerable to changes.
Understanding and Preparation Among Businesses
Research among domestic companies shows that most are not sufficiently familiar with CBAM or the EU ETS, although there is growing interest in green technologies. Some companies are already investing in sustainable practices such as renewable energy and energy efficiency, while larger companies are better prepared to adapt and bear the costs of CBAM.
Recommendations for Avoiding CBAM
To avoid CBAM, Bosnia and Herzegovina needs to:
- Implement the EU ETS: A carbon trading system allows for local management of carbon emissions, avoiding direct EU taxes.
- Adopt an Electricity Law: This state-level law would regulate and enable the implementation of the EU ETS.
- Strengthen Green Technologies: Investing in emissions-reducing technologies not only lowers costs but also opens new markets.
Government Responsibility
The lack of response from the relevant ministries and their inadequate action hinder preparations for CBAM. VTK BiH and business leaders are urging state authorities to urgently adopt the necessary laws and measures to protect the country’s economy.
If Bosnia and Herzegovina fails to take the necessary steps, the application of CBAM starting in 2026 could result in significant export losses, increased costs for domestic industries, and a threat to economic stability.
