The EU Carbon Border Adjustment Mechanism is linked to a redirection of Western Balkan electricity flows. Trade patterns are shifting in ways that strengthen Serbia as a northern transit hub while reducing activity on several established routes into the European Union.
The change became more apparent in the second quarter of 2026. Scheduled exports from Serbia to Hungary rose 111% year on year, and commercial flows from Romania to Hungary increased 156%.
Concentration around Hungary and routes serving Ukraine
The regional pattern differs from 2025 trading structures, when electricity moved more evenly across connections with Croatia, Bulgaria, Greece, Hungary and Italy. After the start of the definitive CBAM period on 1 January 2026, trading increasingly concentrated along corridors able to absorb carbon-related costs.
Those corridors were described as reflecting demand, price spreads, and onward delivery opportunities. The second-quarter changes also coincided with transmission routes linked to Ukraine’s expanding import requirements.
Hydrology, prices and regional surpluses alongside CBAM
CBAM was not the only factor cited for the shift in flows. The first quarter included exceptional hydropower output, lower Western Balkan prices, and temporary regional surpluses.
As hydrological conditions normalised in the second quarter, the region moved from net exports of around 1,247 GWh to net imports of approximately 1,048 GWh.
Greece’s southeastern supply role and changes in merit order
Greece also strengthened its position as a southeastern supply centre. Exports increased towards Bulgaria, North Macedonia and Albania as expanding solar and wind generation altered the regional merit order.
Albanian exports to Greece fell back after their hydro-driven first-quarter surge. The regional adjustments were reflected across multiple cross-border directions rather than a single corridor.
Weaker recovery on traditional EU-bound trade routes
The failure of several traditional trade routes to recover fully was described as difficult to separate from CBAM effects. 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, gross scheduled exchange remained approximately 19% below H1 2025. Price spreads alone were not sufficient to offset indicative default CBAM charges of roughly €73.70/MWh for Montenegrin electricity and €78.37/MWh for Serbian supply.
In the second quarter, Italy averaged around €27/MWh above Montenegro, while Hungary traded about €13/MWh above Serbia. Those spreads were cited as insufficient relative to the expected carbon-related costs.
Transmission capacity value changes under carbon liabilities
The carbon adjustment was described as changing how transmission capacity is valued in practice. Traders can secure cross-border rights but may still choose not to nominate electricity when wholesale spreads do not cover expected CBAM liability.
This means that high capacity allocation does not necessarily translate into scheduled commercial flow. The mechanism links nomination decisions to the ability to cover carbon exposure under default charge assumptions.
Serbia’s market size and transit network links to Ukraine
Serbia is characterised as the Western Balkans’ largest electricity market and 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. Its generation mix remains carbon-intensive, with lignite production down 12% year on year to 6.54 TWh in Q2 2026.
Lignite output was noted as still anchoring domestic generation and determining 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 exports.
Divergence between scheduled trades and physical loop flows
The redirection is accompanied by growing divergence between scheduled and physical flows. On the Bosnia and Herzegovina–Croatia border, scheduled exports reportedly declined by about 43%, while physical flows rose around 270%.
The physical flows reached 824 GWh, compared with 282 GWh commercially scheduled. Electricity was described as following network physics rather than trade contracts.
A transaction scheduled from Serbia towards 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 retain larger security margins and rely more heavily on redispatch and countertrading.
Tighter documentation requirements for CBAM evidence chains
The rerouting does not stop electricity exports or trading from continuing under existing business arrangements. However, it increases the importance of documenting the source behind each commercial schedule for CBAM purposes.
Virtu.Energy, a CBAM electricity-focused engineering platform, said EU-bound transactions should be supported by CBAM evidence packages examinable by EU-accredited verification bodies. Formal compliance responsibility remains with the authorised CBAM declarant or importer.
The practical burden extends through production, metering, trading, contractual arrangements and cross-border allocation records across exporters, intermediaries and generating companies. The process becomes more complex when electricity crosses several bidding zones or changes ownership before entering the EU.
Bidding zones increase risk of missing origin data
If electricity passes through multiple bidding zones or ownership changes occur before entry into the EU, each intermediary must preserve contractual links and data connection to the original source. A broken evidence chain could prevent application of actual emissions even when power originates from a low-carbon generator.
Virtu.Energy analysts recommend integrating pre-verification immediately, particularly for multi-border transactions. Identifying missing origin information, metering details or capacity-allocation evidence before delivery allows parties to correct contractual or technical gaps ahead of reporting deadlines.
Larger domestic liquidity alongside reduced EU integration
The shift also shows up in liquidity measures within Western Balkan markets. Day-ahead volume across four observed exchanges increased 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 figures were presented as indicating more liquidity domestically but less integration across EU borders.
Status of CBAM revisions affecting default calculations
A pending revision of CBAM could moderate distortions by calculating defaults from the complete generation mix instead of national factors tied to specific systems. That approach would reduce penalties imposed on countries with meaningful hydro, wind and solar production.
Easier access to actual emissions would allow verified renewable exports to avoid national carbon intensity associated with coal-heavy generation systems. Until revisions are agreed and implemented, regional electricity is expected to continue seeking routes where demand is strongest and combined price spreads can absorb carbon exposure.
