Carbon tax is one way to put a price on the greenhouse gas (GHG) emissions, and create incentives for investing into emission reduction activities. The basic idea is to ensure that emitters of specific GHG bear a cost they must pay because of the emission-intensive technology they use. Carbon tax can be enacted either upstream (suppliers of coal, natural gas processing facilities, and oil refineries), midstream (electric utilities) or downstream (energy-using industries, households, or vehicles), depending on the structure and characteristics of a country’s energy supply chain and industrial sector. The simplest approach, administratively, is to tax the upstream, where the fewest entities would be subject to it. By 2024, 39 economies have implemented carbon taxes worldwide.
Carbon tax is different from the cap-and-trade mechanism, although they both serve the purpose of putting a price on the externalities of carbon emissions. Carbon tax differs from a cap-and-trade mechanism, although both are tools to price carbon. In a cap-and-trade system (such as the EU ETS), the government sets a cap on total emissions and issues a fixed number of allowances that firms must hold; firms can trade allowances so that the market determines the carbon price, which in turn drives investment decisions. In this system, the amount of emissions is foreseeable, but their price isn’t.
As the EU struggles with carbon leakage (i.e. producers relocating to countries with laxer climate rules) and pollution export, many producers outside the EU are increasingly targeted by the Carbon Border Adjustment Mechanism (CBAM). CBAM is a levy on imported goods tied to their embedded emissions, designed to level the playing field for EU producers who pay under the EU ETS. As Serbia exports heavily to the EU, its producers may face increased costs or competitive pressure under CBAM.
To harmonize with the EU’s direction – and to avoid being fully subject to EU CBAM charges – Serbia is proposing two legislative instruments: a Law on GHG Emissions Tax (Carbon Tax Law) and Law on an import tax on carbon-intensive goods (Import Tax Law). The intention is not only to harmonise with EU environmental standards but also to ensure that Serbia collects revenue from emissions pricing, rather than transferring that revenue to the EU through CBAM charges.
According to the draft framework, the carbon tax would apply to large emitters in the energy and industrial sectors. These include (1) the production of artificial fertilizers and nitrogen compounds, (2) cement production, (3) the production of crude iron, steel, and ferroalloys, (4) aluminium production, and (5) electricity generation. The tax rate is four euros per tonne of CO₂-equivalent. This level of ambition is aligned with Serbia’s draft Integrated National Energy and Climate Plan (INECP), which identifies carbon pricing as one of the key policy instruments for achieving emission reduction targets.
The tax is also viewed as a transitional instrument, possibly allowing deductions/credits for investments in decarbonization. A taxpayer whose main activity is electricity production, and who earned at least 80% of their total revenue from this activity in the previous tax period, is entitled to a tax credit equal to 20% of the funds they invested during the tax period in prescribed measures and activities aimed at reducing carbon dioxide emissions.
Parallel to the domestic carbon tax, Serbia is preparing a tax on imports of carbon-intensive goods. This measure is designed to mirror, to a certain extent, the logic of the EU’s CBAM. It would impose a charge on imported products whose production processes generated significant GHG emissions. Importers who can demonstrate that equivalent carbon costs have already been paid in the country of origin would likely be eligible for exemptions or credits, preventing double taxation. The import carbon tax is expected to apply only to importers exceeding certain annual thresholds and would initially focus on sectors most exposed to carbon leakage.
The relationship between the two instruments is complementary. The carbon tax aims to internalize the cost of domestic emissions, encouraging Serbian producers to decarbonize, while the import tax ensures that imported goods are subject to a comparable carbon cost, maintaining fair competition between domestic and foreign producers. Over time, the two mechanisms could converge toward the EU carbon pricing architecture, enabling Serbia to link or transition to the EU ETS as part of its broader EU accession process. Their success, however, will depend on careful design and gradual implementation, backed by transparent monitoring, predictable price increases, and targeted support for sectors most affected by the transition.
The public consultation phase for the draft laws is open until 21 October 2025, and all interested stakeholders can access the documents and submit comments via the official website.