Impact of the EU carbon border adjustment mechanism and variable renewable energy integration on fossil-based energy systems

The Carbon Border Adjustment Mechanism (CBAM) aims to mitigate carbon leakage and foster global decarbonisation by introducing carbon pricing on imported carbon-intensive goods entering the EU. This paper evaluates CBAM’s impact on the interconnected electricity market of Croatia and Bosnia and Herzegovina, analysing how variable renewable energy sources (VRES) deployment and CBAM compliance reshape energy trade, emissions, and system flexibility. Using the Dispa-SET model, a unit commitment and power dispatch tool for multi-zonal systems with high renewables integration, the study examines electricity flows, fossil fuel dependency, and decarbonisation trajectories across three scenarios: NECP, representing planned technologies; LRES, reflecting low renewables integration; and HRES, with high renewable deployment. The results show that accelerated VRES deployment reduces fossil fuel dependency, with CO2 intensity in Bosnia and Herzegovina dropping to 0.85 gCO2/kWh by 2035 under the HRES scenario. Electricity exports from Bosnia and Herzegovina to Croatia decline from 3.41 TWh in 2025 to 1.39 TWh by 2035 under the NECP scenario but stabilise at 2.35 TWh in the HRES scenario. Curtailment in Bosnia and Herzegovina rises to 2.73 TWh/year by 2035, or 24.2 % of VRES generation, highlighting the challenges of managing high renewable penetration. The interplay between declining coal power operations, reduced emissions, and shifting electricity exports underscores the complexities of aligning regional energy systems with EU decarbonisation goals while ensuring energy security.