The EU’s Carbon Border Adjustment Mechanism (CBAM) is already affecting electricity trade between the Western Balkans and EU markets ahead of full regional readiness. CBAM applies a carbon cost to electricity imported into the EU from non-EU sources unless an exemption applies. The mechanism is changing price spreads, cross-border trading incentives, export revenues and the investment logic for renewables across Serbia, Montenegro, Bosnia and Herzegovina, North Macedonia, Albania and Kosovo.
The core impact comes through the carbon-adjusted pricing of electricity flows. Even if EU-side buyers continue importing, the carbon component weakens the realised value for exporters in the region. For systems that remain coal-heavy and for exporters that have relied on EU interconnectors to capture export revenue, CBAM shifts where trade value is captured.
EU-Western Balkans spreads move after CBAM’s January 2026 start
A first visible effect has been a widening gap between Western Balkan and neighbouring EU electricity prices. After CBAM’s definitive phase began in January 2026, EU–Western Balkans price spreads increased sharply, averaging around €30/MWh. Some interconnector spreads moved higher than that average.
The Italy–Montenegro spread reached around €44/MWh. Hungary–Serbia was around €34/MWh, while Croatia–Serbia stood at about €27/MWh. Romania–Serbia was around €26/MWh, and Bulgaria–Serbia about €25/MWh.
In a conventional market setting, lower prices in Serbia, Montenegro or Bosnia and Herzegovina would attract flows into higher-priced EU areas until congestion, capacity pricing or generation availability constrained trading. Under CBAM, the widened spread does not function purely as a power arbitrage signal. It reflects how carbon risk is priced into cross-border margins.
Exporters absorb most of the CBAM price shock under default values
Most of the CBAM-related price burden is absorbed by producers in the Western Balkans. The share cited for exporting-side impact is around 85–95% of the price shock in Serbia, Montenegro and Bosnia and Herzegovina. That means CBAM can depress realised export values even when physical exports continue.
The severity is linked to CBAM’s default-emissions methodology. Current treatment uses country-specific default values reflecting emissions intensity from fossil-fuel electricity generation in each exporting country. The approach matters particularly for coal-heavy systems.
The default values cited are 1.148 tCO₂/MWh for Bosnia and Herzegovina, 1.041 tCO₂/MWh for Serbia, 0.984 tCO₂/MWh for Kosovo, 0.979 tCO₂/MWh for Montenegro and 0.887 tCO₂/MWh for North Macedonia. With an assumed EUA price of €70/tCO₂, this implies obligations of around €80/MWh, €73/MWh, €69/MWh, €69/MWh, and €62/MWh, respectively.
Serbia’s default burden can exceed day-ahead spread levels
The Serbian case highlights how large default-based obligations can be relative to market spreads. A CBAM default burden of around €73/MWh is described as potentially larger than the day-ahead spread that would normally make an export commercially attractive. Even if Serbian power appears cheaper than Hungarian, Romanian or Croatian power on screen, carbon-adjusted export value can be reduced once the obligation is included.
This creates a new floor under EU import prices and a new ceiling over Serbian export revenues. Dispatch may still occur, but margin capture can weaken due to the carbon component embedded in realised pricing.
A proposed shift to grid-average emissions would reduce but not remove pressure
A reform proposal would soften default burdens by changing how default values are calculated. Instead of relying only on fossil-fuel generation emissions intensity, it would use overall grid emissions intensity for the exporting country. The stated aim is to better reflect low-carbon generation such as hydro, wind and solar in the national mix.
If applied using that method, Serbia’s possible default value would fall from 1.041 tCO₂/MWh to 0.667 tCO₂/MWh. The indicative CBAM obligation would drop from about €73/MWh to roughly €47/MWh. Montenegro would fall from 0.979 tCO₂/MWh to 0.414 tCO₂/MWh, cutting obligation from about €69/MWh to around €29/MWh.
Bosnia and Herzegovina would move from a cited level of around [source text contains a formatting error: “€80/MWhto €45/MWh”]. The source indicates a reduction to about [source text intends “€45/MWh”]. Even with those changes, a Serbian burden of around [source text intends “€47/MWh”]
The reform is described as commercially significant but not eliminating competitive pressure on exports and producer revenues. For Montenegro, hydro-heavy generation is said to be poorly captured by fossil-only defaults, so a grid-average approach could better reflect system characteristics. However, until methodology settlement produces bankable outcomes, traders may still price uncertainty.
Tight conditions keep flows going while margins deteriorate in early 2026
The early evidence on trade is described as more nuanced than an immediate collapse in exports. Exports to the EU remained relatively high during January and February 2026 despite CBAM effects. The cited drivers include temperature-related demand and favourable hydro conditions.
This indicates CBAM does not stop electricity trade immediately; it reprices it. In tight market conditions, EU buyers may still import Western Balkan power while price incidence shifts toward regional producers through reduced realised margins.
The distinction matters for different stakeholders tracking different metrics. A policymaker focused only on scheduled exports may see limited disruption, while finance directors focused on realised export revenues may observe weaker cash outcomes when net prices fall.
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