EU Carbon Border Adjustment Mechanism implementation is associated with a shift in Western Balkan electricity trade, with flows increasingly routed through Serbia and toward Ukraine-linked corridors. The change has been linked to the way carbon-related costs affect cross-border trading decisions. As a result, trade on some established routes into the EU has weakened while Serbia’s role as a northern transit hub has strengthened.
The pattern became more evident in Q2 2026, when scheduled exports from Serbia to Hungary rose 111% year on year. Commercial flows from Romania to Hungary increased 156%, pointing to greater concentration around the Hungarian market and transmission routes connected to Ukraine’s import needs. The shift also aligns with a broader consolidation of electricity around specific corridors rather than evenly distributed connections.
Changes in regional trading patterns after CBAM start
In 2025, electricity moved more evenly across connections involving Croatia, Bulgaria, Greece, Hungary and Italy. After the definitive CBAM period began on 1 January 2026, trading increasingly consolidated along corridors where demand, price spreads and onward delivery opportunities could absorb carbon-related charges. This restructuring affected how exporters matched schedules with cross-border demand and pricing conditions.
CBAM is not the only factor cited for the observed changes. During the first quarter, exceptional hydropower output, lower Western Balkan prices and temporary regional surpluses supported different flow conditions. When hydrological conditions normalised in the second quarter, the region moved from net exports of about 1,247 GWh to net imports of approximately 1,048 GWh.
Greece also strengthened its position as a southeastern supply centre during the same period. Exports increased toward Bulgaria, North Macedonia and Albania as expanding solar and wind production altered the regional merit order. Albanian exports to Greece fell back after a hydro-driven surge in the first quarter.
Route performance and price spreads versus CBAM default charges
The difficulty of separating route underperformance from carbon policy is reflected in exchange volumes. Gross scheduled exchange between six Western Balkan markets and neighbouring EU states was around 15% lower year on year in Q2. Over the first half, it remained about 19% below H1 2025.
Price relationships alone would normally have supported stronger exports. Italy averaged around €27/MWh above Montenegro in Q2, while Hungary traded about €13/MWh above Serbia. However, those spreads were described as insufficient to offset indicative default CBAM charges of roughly €73.70/MWh for Montenegrin electricity and €78.37/MWh for Serbian supply.
The carbon adjustment has also changed how transmission capacity is valued for traders. Cross-border rights can be secured, but electricity may still not be nominated when the wholesale spread does not cover expected CBAM-related liability. As a result, high capacity allocation does not necessarily translate into scheduled commercial flow.
Serbia’s transit role alongside carbon-intensive generation
Serbia is described as both the Western Balkans’ largest electricity market and its most important transit system. It connects Bosnia and Herzegovina, Montenegro, Kosovo, North Macedonia and Bulgaria with Hungary and, through neighbouring networks, with Ukraine. The country also operates the region’s most liquid power exchange.
The generation mix remains carbon-intensive, influencing default values used for carbon calculations. Serbian lignite production fell 12% year on year to 6.54 TWh in Q2 2026, but coal continues to anchor domestic generation and is linked to Serbia’s high CBAM default value. At the same time, Serbia’s location provides access to a northern route where Ukrainian demand and Hungarian market liquidity can support some export cases.
This positioning can deepen Serbia’s role as both a marketplace and transit platform without necessarily improving the economics of coal generation within Serbia. Electricity originating elsewhere can move through Serbian infrastructure, while CBAM treatment depends on contractual origin, reporting methodology and an importer’s ability to demonstrate embedded emissions rather than relying solely on transit location.
Divergence between scheduled trades and physical power flows
The redirection is accompanied by growing divergence between scheduled and physical flows across borders. On the Bosnia and Herzegovina–Croatia border, scheduled exports reportedly declined by about 43%, while physical flows rose by around 270%. Physical flows reached 824 GWh, compared with 282 GWh commercially scheduled.
The reported mechanism is that electricity follows network physics rather than trade contracts. A transaction scheduled from Serbia toward Hungary can create loop flows across Bosnia and Herzegovina, Croatia, Montenegro or neighbouring EU systems. When commercial schedules and physical flows move in opposite directions, transmission system operators must keep larger security margins and rely more heavily on redispatch and countertrading.
The interventions generate costs that are described as entering network tariffs or congestion-management accounts. They also weaken the link between where a commercial transaction is booked, where physical constraints occur on the network, and where congestion revenue is collected. This affects how operational outcomes align with trading schedules under cross-border constraints.
Larger domestic liquidity but weaker EU integration
Domestic market liquidity is developing while cross-border integration appears weaker across EU borders. Day-ahead volume across four observed Western Balkan exchanges increased by 19% to 2.70 TWh in Q2. ALPEX recorded growth of 52%, Montenegro’s MEPX rose 49%, North Macedonia’s MEMO increased 31%, and Serbia’s SEEPEX advanced 7%.
The data are presented as indicating a market becoming more liquid domestically but less integrated across the EU border. The region’s energy transition is described as depending on access to a larger balancing area, deeper trading liquidity and EU-based renewable offtakers. Under these conditions, rerouted flows do not stop exports or trading from continuing but change how schedules relate to compliance documentation requirements.
Evidencing requirements for CBAM-linked electricity deliveries
The rerouting increases the importance of documenting the source behind each commercial schedule for EU-bound transactions. Analysts at Virtu.Energy said such transactions should be supported by CBAM evidence packages that can be examined by EU-accredited verification bodies. Formal compliance responsibility remains with the authorised CBAM declarant or importer.
The practical burden extends through the delivery chain because declarants must obtain production data, metering information, trading records, contractual documents and cross-border allocation records from exporters, intermediaries and generating companies. Complexity increases when electricity crosses several bidding zones or changes ownership before entering the EU. Each intermediary must preserve contractual links and data connections to the original source.
A broken evidence chain could prevent application of actual emissions even if electricity originated from a low-carbon generator. Virtu.Energy analysts recommend integrating pre-verification immediately for multi-border transactions so missing origin details, metering records or capacity-allocation evidence are identified before delivery. Discovering deficiencies after the reporting period could require use of a substantially more expensive national default factor.
Potential CBAM revision affecting default calculations
A pending revision of CBAM could moderate some distortions described in current practice. Calculating defaults from the complete generation mix would reduce penalties imposed on countries with meaningful hydro, wind and solar production rather than relying primarily on coal-heavy default assumptions tied to national profiles. Easier access to actual emissions would allow verified renewable exports to avoid national carbon intensity values associated with coal-heavy systems.