CBAM tests, market integration and green investments

Author: Zoran Gjorgjievski, CEO of North Macedonia’s National Electricity Market Operator MEMO

This text reflects a personal viewpoint and represents an attempt to present the Macedonian position in an argument-based manner — with respect for European objectives, but also with a clear message that the implementation of CBAM must be just, proportionate, and based on clearly defined implementation phases.

The Carbon Border Adjustment Mechanism (CBAM), which is scheduled to enter into force on 1 January 2026, represents one of the most ambitious instruments within the European climate package. Its objective – to create a level playing field between industries within the European Union and those outside the Union – is, at a theoretical level, justified and logical. However, the application of CBAM to electricity in regions such as ours, where market and regulatory conditions are still transforming, raises serious risks and challenges that deserve careful assessment. This is particularly relevant given the increased volume of investments in renewable energy sources (RES) recorded in recent years, accompanied by ambitious plans for their further expansion through active institutional support.

For Macedonia, which has invested significant efforts in the development of an organized electricity market – currently operating at the day-ahead level and, as of next year, also at the intraday level – as well as in its gradual integration with the single European market, the application of CBAM may create structural imbalances.

Changes in the structure of electricity generation and price formation on European markets in recent years indicate high volatility, which is even more pronounced in markets of a similar size to ours, primarily due to limited liquidity and the specific characteristics of the generation mix. The introduction of an additional carbon component, based on indirect verification methodologies, may introduce further unpredictability and reduce the competitiveness of domestic RES producers.

At the same time, subjecting exports to CBAM could create pressure during hours of low consumption and increased RES production – periods in which the majority of electricity exports from our country are concentrated. This could lead to a paradoxical situation in which RES producers are forced to curtail or suspend production in order to avoid imbalance costs.

Risks for the organized electricity market

Although initial analyses suggest that an increase in trading volumes on the day-ahead market may be expected in the short term, the inability to place total production through the organized market will encourage market participants to seek alternative channels. This carries the potential to undermine the development of a transparent and competitive market and to reduce trading liquidity.

For a young market like ours, which has recorded significant liquidity growth of over 40% and a record number of active participants in just the past year, this could represent a real slowdown of its development momentum.

The energy crisis of the 2021–2023 period clearly demonstrated that security of supply and price stability cannot be ensured without functional, liquid, and investment-attractive electricity markets. Under such conditions, the application of CBAM to electricity, without taking into account the specific characteristics of organized markets in non-EU countries, may produce the opposite effect: reduced liquidity, increased uncertainty, and delayed investments in renewable energy.

Differing speeds of two interrelated mechanisms – market coupling and CBAM – call into question the integration of electricity markets

This is particularly important given that regional integration into the single European market has been slowed by a number of objective and subjective factors, both in the Energy Community Contracting Parties and within the EU itself, and cannot proceed at the same pace as the implementation of CBAM. These differing speeds of two interrelated mechanisms – market coupling and CBAM – call into question the very rationale of the Energy Community, namely the integration of electricity markets.

It thus becomes evident that introducing CBAM without adequate progress in market integration with the EU creates a structural imbalance, whereby Energy Community countries incur additional costs without fully benefiting from an integrated market. Therefore, accelerating market coupling and aligning the start of CBAM implementation accordingly is a key prerequisite for mitigating the economic and investment impacts of CBAM.

Potential slowdown of renewable energy investments

Although CBAM is theoretically intended to stimulate green investments, in practice, there is a risk that it could have the opposite effect on already implemented projects, primarily due to the seasonal and daily characteristics of RES generation and the limited capacities for electricity storage.

A premature and insufficiently calibrated introduction of CBAM for electricity may create a perception of increased regulatory risk

This situation may place serious pressure on the financing sources of RES projects, exposing them to increased credit risk, especially in cases where expected returns on investment (ROI) are brought into question due to CBAM-related effects. This analysis does not even address the distorted investment expectations created during the energy crisis, when extreme electricity price growth further skewed investment projections.

Furthermore, Macedonia’s energy transition largely depends on private capital and strategic investors, who expect a stable, predictable, and competitive market environment. A premature and insufficiently calibrated introduction of CBAM for electricity exports by the EU may create a perception of increased regulatory risk, which could result in the postponement or redirection of investments to other markets.

Need for a transitional period and regional coordination

Despite the challenges outlined above, it is important to emphasize that Macedonia supports the objectives of European decarbonization and is already making substantial efforts to align with EU policies. What is essential is the provision of an appropriate transitional period, aligned with the pace of integration into the single European market.

Such a transitional period would allow the domestic industry and the energy sector to adapt gradually, without compromising already established market instruments and ongoing investments.

The regional context is equally important. The electricity systems of the Western Balkans are highly interconnected, and the risk of destabilization in one country can easily spill over into others. Therefore, it is necessary for the European Commission to consider a model that rewards reforms, supports the gradual phase-out of coal, and enables the integration of electricity markets without creating new barriers.

Where is the market headed?

Although CBAM has a clear climate and economic rationale, the question remains whether its application at this point in time is aligned with the realities in the countries of the Energy Community.

Macedonia demonstrates a clear commitment: market liquidity is increasing, renewable energy sources are developing dynamically, and concrete steps are being taken toward market coupling with the EU. Excessive rigidity in the application of CBAM could undermine this positive trajectory.