Bosnia’s Export Economy Faces EU Carbon Test as IMF Charts Path to a Cleaner Energy Future

The IMF warns that EU CBAM could cut Bosnia and Herzegovina’s GDP by 0.43% by 2035 without domestic action, threatening carbon-intensive exports and coal-dependent jobs. It recommends carbon pricing, stronger emissions verification, renewable-energy investment, targeted social protection and international support to turn the transition into an opportunity for industrial modernisation.

Bosnia and Herzegovina faces growing economic pressure from the European Union's Carbon Border Adjustment Mechanism (CBAM), with the International Monetary Fund warning that delayed action could weaken exports, reduce economic growth and put jobs at risk in coal-dependent regions. The IMF analysis, prepared by Alpa Shah, Daniel Bastidas, Nate Vernon-Lin and Karlygash Zhunussova, draws on data and research from institutions including the World Bank, European Commission, International Energy Agency, State Electricity Regulatory Commission of Bosnia and Herzegovina, Climate TRACE, IIASA and the Energy Community. Its message for policymakers, development partners and businesses is clear: CBAM is no longer simply a climate regulation. It is becoming a major trade, investment and development challenge.

Around 10.7 percent of Bosnia and Herzegovina's exports, equivalent to about 3.2 percent of GDP, are covered by the current CBAM framework. Iron and steel, aluminium, cement and electricity are among the most exposed sectors. As the EU expands the mechanism, the affected share could eventually reach 14.3 percent of exports, equivalent to about 4.3 percent of GDP.

Carbon Costs Could Hit Growth and Exports

Without a domestic policy response, the IMF estimates that Bosnia and Herzegovina's real GDP could be around 0.43 percent below the baseline by 2035. Total exports could fall by 0.82 percent, while exports to the EU could decline by 1.73 percent.

Cement faces the greatest pressure. Around 90 percent of the country's cement exports have historically gone to the EU, and the IMF estimates that EU-bound cement exports could fall by nearly 83 percent by 2035. Iron and steel exports to the EU could decline by around 12 percent, while electricity exports are assumed to fall by 50 percent.

The electricity sector is particularly vulnerable because coal remains central to generation. Thermal power plants produced about 55 percent of Bosnia and Herzegovina's electricity in 2025, leaving the carbon intensity of electricity almost three times the EU average. Some electricity exports are already being redirected towards Serbia and other non-EU markets, but the IMF warns that such trade diversion may not provide a lasting solution.

Another major risk is poor emissions measurement. If companies cannot provide verified information about their actual emissions, EU default emissions factors may be applied. Under this more severe scenario, iron and steel exports to the EU could fall by almost 30 percent by 2035 and aluminium exports by around 18 percent, while cement exports could become economically unviable by 2034. The GDP loss could reach about 0.67 percent.

Carbon Pricing Could Keep Revenues at Home

For the government, one of the most important choices is whether carbon-related payments are collected domestically or effectively transferred abroad through CBAM. Bosnia and Herzegovina plans to establish an emissions trading system, but the IMF sees practical difficulties because a national system covering power and industry would involve only about 17 major firms, creating concerns about market liquidity and concentration.

A carbon tax on coal is presented as a more practical near-term option. Coal accounted for around 95 percent of power- and industry-related emissions in 2022, and the country could use its existing fuel-tax infrastructure rather than immediately building an entirely new carbon market.

The fiscal potential is considerable. A coal tax reaching €25 per tonne of CO₂ could generate about $0.29 billion to $0.32 billion in additional revenue in 2030, equal to roughly 0.9–1 percent of GDP. Revenue could rise to approximately $0.6 billion, or 1.6 percent of GDP, by 2035.

The IMF estimates that a coal tax combined with productive use of the revenues could limit the GDP loss to around 0.29 percent by 2035, compared with 0.43 percent if the country takes no domestic action.

Development Partners Have a Major Transition Role

The findings point to a broader agenda for the World Bank, EU institutions and other international development partners. Financial and technical assistance could support emissions monitoring, renewable energy, transmission networks, electricity-market reforms, industrial energy efficiency and economic diversification in coal-producing regions.

Building a strong monitoring, reporting and verification system is among the most urgent priorities. Reliable emissions data would allow exporters to demonstrate their actual carbon footprint instead of potentially paying CBAM based on higher EU default values. The same infrastructure would also support a future domestic carbon tax or emissions trading system.

Social protection will be equally important. Energy represents about 16 percent of average household expenditure and approaches 20 percent for poorer households. Without compensation, a coal tax could reduce household consumption by around 1.4–2 percent relative to baseline by 2030.

However, the IMF shows that revenue recycling could change the outcome. Its illustrative model allocates 20 percent of carbon revenues to targeted cash transfers, 30 percent to reductions in labour taxes and 50 percent to public investment. Under the coal-tax scenarios, consumption among the poorest households could increase by around 3–3.2 percent.

Businesses Face Risks but New Markets Are Emerging

For private companies, CBAM creates both disruption and investment opportunities. Cement and steel producers will need to cut emissions and improve energy efficiency to remain competitive. Steel companies could increasingly move towards electric-arc furnaces if low-carbon electricity becomes available, while cement producers can reduce clinker use, improve efficiency and switch fuels.

Renewable-energy companies, technology providers and infrastructure investors could benefit from the transition. Solar and wind generation almost tripled between 2021 and 2025, but still represented only around 8 percent of electricity generation. Expanding renewables, grids and transmission capacity could lower emissions while improving the competitiveness of Bosnian industrial and electricity exports.

The employment challenge is significant. Without domestic action, around 3,845 full-time-equivalent jobs could be affected by 2035. Under coal-tax scenarios supported by revenue recycling, estimated losses fall to roughly 1,400–1,900 jobs. Tuzla, Zenica, Ugljevik and Gacko are particularly exposed because of their dependence on coal mining and thermal power.

The IMF therefore points towards a coordinated transition: strengthen emissions verification immediately, introduce workable domestic carbon pricing, gradually reduce coal subsidies, protect vulnerable households, help industries invest in cleaner technologies, expand renewable energy and transmission infrastructure, and diversify coal-dependent regions. For Bosnia and Herzegovina, CBAM presents a serious economic risk, but it also offers an opportunity to use carbon revenues and international support to modernise the economy before external carbon costs become substantially higher.