If implemented in its current form the Carbon Border Adjustment Mechanism Regulation (CBAM Regulation) risks triggering a power crisis. The EU still has time to act to prevent this outcome. CBAM is an unprecedented piece of legislation designed to tackle carbon leakage and accelerate the energy transition. As with any new initiative, experience shows that frequent adjustments are likely to be needed. One area that requires particular attention is the treatment of electricity imports.
Europe’s energy system is not confined to the EU but operates across as a pan-European power market. Several EU member states depend on supply from neighbouring non-EU countries, while others rely on transit routes through them. If CBAM is applied unchanged to these flows, the functioning of the pan-European market could be undermined, fragmenting power trade and creating serious risks for both price stability and supply security. The danger is that, as of 1 January 2026, a significant portion of Europe’s integrated power system will be lost to EU consumers overnight. This would not only drive-up costs and weaken resilience but also create vulnerabilities that hostile actors might exploit. To prevent such an outcome, the EU should consider suspending CBAM’s application to electricity and instead phase in a more comprehensive “Green Power Package” (GPP).
CBAM and the Pan-European Power Market
From 2026, importers of covered products such as iron, steel, aluminium, cement and fertilisers will need to purchase CBAM certificates, reflecting the carbon content of imports. While this will involve an initial period of adjustment, trade in these goods should eventually stabilise. The challenge for electricity is far more complex.
Over the past two decades, the EU has helped foster a pan-European power market that extends well beyond its borders, encompassing the EEA and Energy Community states. This wider market benefits both EU consumers and governments, providing access to additional capacity and supporting resilience. If CBAM is applied to electricity imports without modification, however, cross-border liquidity could dry up, prices could rise, and access to non-EU capacity during emergencies could be lost.
Another shortcoming is the use of historic default values to calculate carbon content. These fail to reflect recent EU-backed investments in renewables in many neighbouring states, with the result that green power risks being treated as carbon-intensive. Current rules also provide no practical means of exempting or offsetting renewable electricity, thereby undermining the EU’s own climate objectives.
Uneven Impacts Across Member States
The effects would be felt unevenly across the Union.
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Greece risks losing the ability to export significant amounts of its new solar generation capacity if power flows via the Western Balkans are treated as high-carbon by default-given there is no exemption in the Regulation for power transiting through non-EU states.
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Ireland relies on UK interconnectors for up to 15% of its supply. CBAM charges on these imports would likely push Irish power prices higher.
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Italy currently benefits from diversified sources, including a 600 MW cable from Montenegro and plans for the 4 GW Medlink connection with Tunisia and Algeria. CBAM charges could undermine both existing flows and the viability of Medlink.
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Hungary and Romania, and other member states bordering the Western Balkans, would face higher costs and reduced options in times of tight supply.
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Germany and other industrial states would be affected by systemic price increases, hitting energy-intensive sectors at a time when Europe is trying to expand defence and infrastructure production.
The impact would also extend beyond the EU. The UK’s expanding offshore wind capacity could ease prices and strengthen grid stability on both sides of the Channel, but CBAM charges would constrain these flows. In the Western Balkans, major EU-supported green power investments risk being priced out. And when Ukraine eventually resumes power exports after the war, it too could face obstacles under current CBAM rules.
Towards a Green Power Package
The EU still has an opportunity to adjust course before January 2026. A constructive alternative would be to suspend the application of CBAM to electricity and instead introduce a phased, pan-European approach — the “Green Power Package” (GPP).
The GPP would start with those systems already most compatible with the EU’s framework, such as the UK, where an agreement in principle to link the EU and UK ETS is already in place. Western Balkan and other Energy Community states could then be brought in as they introduce carbon pricing and market reforms, with the GPP providing a clear route to integration. This would give investors the certainty needed to finance renewable projects across the region.
This phased approach would align CBAM with the EU’s climate and security objectives, while avoiding sudden disruptions to the power market. It would prevent price spikes, preserve grid resilience, and reduce the risk of exploitation by hostile actors. Most importantly, it would ensure that the EU’s green transition continues to advance, in cooperation with its neighbours rather than at their and our expense.
Alan Riley is a Visiting Professor at the College of Europe in Natolin.
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