CBAM Moves from Paper to Power

From January 2026, the EU’s Carbon Border Adjustment Mechanism (CBAM) will stop being a reporting exercise and start imposing real financial costs on importers of steel, aluminium, cement, fertilisers, hydrogen, and electricity. The price will mirror the EU Emissions Trading System (ETS), currently fluctuating between €70 and €90 per tonne, with analysts warning of levels above €130 by 2030.

For the Western Balkans, a region whose exports depend heavily on the EU, this marks a turning point. The CBAM is not just a compliance tool; it is a market filter. Companies that cannot measure and reduce their embedded emissions risk losing EU buyers. Governments that fail to align Nationally Determined Contributions (NDCs) with industrial decarbonization risk seeing whole sectors excluded from the European market.

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What is an NDC?

Nationally Determined Contributions (NDCs) are the climate pledges countries submit under the Paris Agreement. They define emission reduction targets, timelines, and coverage. Every five years, NDCs are expected to increase in ambition.

Albania’s first NDC (2015) covered only the energy sector with a target of 11.5% CO₂ reduction by 2030. Its revised NDC (2021) expanded scope to industrial processes and other GHGs, raising ambition to a 20.9% reduction by 2030.

The next step, aligned with UNIDO’s NDC 3.0 Guidebook for Industrial Decarbonization, is to embed industrial decarbonization pathways—for cement, steel, and ferrochrome—directly into NDCs.

The Exposure Challenge: Albania and the Region

The World Bank recently refined two indices to help countries measure CBAM exposure:

Applying it to Albania and the Western Balkans

Albania:

• Main sectors at risk: ferrochrome, cement, and electricity.

• Fuel use: industries rely on heavy fuel oil, coal derivatives, and diesel—far more carbon-intensive than EU electrified processes.

• Exposure estimate:

  • Trade Exposure Index for ferrochrome ≈ 1% of global value (similar to Mozambique’s aluminium).

  • Economic Exposure Index ≈ 0.2–0.4% of GDP. Modest at national level, but extreme for affected plants and local economies.

Serbia & Bosnia and Herzegovina:

• Export steel, cement, and electricity, heavily lignite-based.

• Exposure: 0.2–0.5% of GDP, with steel mills most vulnerable.

North Macedonia & Montenegro:

• Smaller absolute volumes, but high carbon intensity in cement and steel.

• Exposure concentrated in specific plants.

Key message: sectoral risk is far greater than national averages suggest. A single plant closure in Albania or Serbia can destabilize jobs, fiscal revenues, and regional trade flows.

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Why “Default Values” Matter

If suppliers cannot provide verified plant-level emissions data, EU importers must use Commission “default values.” These are typically much higher than actual emissions, meaning exporters pay more than necessary. For Albania’s fuel-heavy industries, default values could double effective costs.

NDCs and CBAM: An Intertwined Agenda

The UNIDO NDC 3.0 Guidebook highlights three pillars for industrial decarbonization:

1. Process: Strengthening institutional mechanisms and MRV (monitoring, reporting, verification).

2. Data: Improving data accuracy and consistency for industrial emissions.

3. Targets: Raising ambition with sector-specific decarbonization goals.

For Western Balkan countries, this means:

• Expanding NDCs beyond power generation to include cement, steel, ferroalloys, and aluminium.

• Aligning national MRV systems with EU CBAM requirements, so exporters’ data is recognized.

• Using CBAM pressure to leverage international climate finance for industrial modernization.

In other words: if CBAM is the stick, enhanced NDCs are the carrot.

The UNIDO guidebook also stresses the importance of “whole-of-economy” engagement in designing NDCs. For Albania and its neighbors, this means industrial stakeholders cannot remain passive recipients of regulation. Governments must create participatory processes that integrate industry chambers, exporters, utilities, and research institutions into NDC revisions. Without this, NDCs risk being seen as paper commitments, disconnected from the supply chain realities CBAM is already monetizing.

Another critical message from the guidebook is sequencing. Decarbonization pathways should be staged: short-term (low-cost efficiency measures), medium-term (fuel switching and renewable integration), and long-term (deep electrification and hydrogen). For Albania’s ferrochrome and cement sectors, this sequencing would start with improved energy efficiency and waste heat recovery, before moving into more capital-intensive transformations. Aligning NDCs with such sectoral roadmaps ensures that CBAM compliance does not come as a shock, but as a managed transition.

Finally, UNIDO highlights that international support is conditional: climate finance, technology transfer, and concessional loans increasingly flow toward countries that present credible, sector-specific NDC strategies. In practice, this means that Albania’s ability to secure EU and IFI investment will depend on whether its NDC and NECP articulate not just renewable energy ambitions, but concrete industrial decarbonization targets.

The Economic Politics of CBAM

CBAM is a geopolitical tool as much as a climate policy. It forces countries negotiating EU accession to internalize EU climate costs or risk losing market access.

• Albania’s dilemma: ferrochrome exports fund jobs and local economies, but without electrification or fuel-switching, EU buyers will either pass down costs or switch suppliers.

• Regional tension: countries may be tempted to subsidize industries, but EU accession negotiations will limit such options.

• Opportunity: proactive alignment of NDCs with CBAM can attract EU and IFI (International Financial Institution) funding, turning vulnerability into investment leverage.

UNIDO’s framework makes this political dimension explicit: NDCs should not only serve the Paris Agreement, but also be positioned as industrial policy instruments. For Albania, framing ferrochrome modernization and cement decarbonization as “NDC-driven reforms” opens the door to EU budget support, GCF (Green Climate Fund) resources, and bilateral technical assistance. In contrast, leaving CBAM-exposed sectors outside NDC coverage risks portraying them as stranded assets, making them unattractive for both EU buyers and financiers

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Albania’s NECP in Context

Albania’s National Energy and Climate Plan (NECP 2020–2030) commits to 42% renewables in total primary energy supply and a 20.9% GHG reduction by 2030.
Yet the plan focuses heavily on electricity generation and grid integration (e.g., ALPEX power exchange with Kosovo), not on industrial decarbonization. CBAM now forces Albania to address the “forgotten sectors.”

A Custom Exposure Note for Albania

Step 1. Identify CBAM-covered exports: ferrochrome, cement, and electricity.

Step 2. Estimate emission intensity: based on fuel use vs. EU benchmarks.

• Ferrochrome (fuel oil/diesel): 3–5x EU average steel benchmarks.

• Cement: reliant on coal and petcoke combustion.

• Electricity exports: still tied to hydropower, but seasonal deficits covered with imports of fossil power.

Step 3. Calculate indices:

*Results based on data from NECP 2021, UN Comtrade, World Bank Blog)

Result: while national GDP exposure looks modest (~0.2–0.4%), sectoral exposure is critical. Ferrochrome and cement plants face existential risk without fuel switching and verified data.

Strategic Pathways Forward

For Governments:

• Revise NDCs to explicitly include CBAM-exposed industries

• Establish MRV systems compatible with EU CBAM to avoid default penalties

• Use accession negotiations to secure EU transition funds for industrial modernization

In line with UNIDO’s NDC 3.0 approach, governments should also embed industrial decarbonization in broader economic strategies, linking CBAM readiness to labor policies, skills retraining, and social protection. Transitioning ferrochrome plants or cement kilns away from heavy fuel oil is not just a technical challenge—it also requires reskilling workers, supporting local economies, and ensuring communities tied to high-emitting plants are not left behind. Integrating these “just transition” elements into NDCs strengthens both political buy-in and financial credibility.

For Companies:

• Invest in emissions monitoring and verification immediately

• Negotiate with EU buyers on cost-sharing mechanisms

• Explore fuel-switching (biomass, natural gas, electrification) to reduce intensity

For Traders:

• Reposition as compliance facilitators: bundle logistics with data, verification, and CBAM cost simulations

• Support suppliers in presenting verified emissions data to EU clients

Conclusion: From Exposure to Strategy

The Western Balkans stand at a crossroads. CBAM is not an abstract EU policy; it is a market filter that will reward verified, low-carbon suppliers and penalize the rest. For Albania and its neighbors, the integration of NDCs with industrial decarbonization is no longer optional.

Handled well, CBAM can accelerate modernization, attract climate finance, and reinforce EU accession. Handled poorly, it risks eroding industrial bases, jobs, and revenues.

As the UNIDO guidebook concludes, NDC 3.0 is not about marginal improvements. It is about transforming climate pledges into concrete industrial pathways that create jobs, attract finance, and protect competitiveness. For Albania, weaving CBAM-exposed sectors into its next NDC update is not simply a climate obligation, it is an economic necessity.

Entrenovu’s view: CBAM compliance must be treated as industrial strategy, not just regulatory reporting. The time to act is now.