The implementation of the Carbon Border Adjustment Mechanism (CBAM) is poised to significantly alter the landscape of electricity imports into the European Union starting in 2026. This regulatory framework will require that electricity imports be reported based on their emissions intensity, fundamentally changing the economics for Southeast European (SEE) power flows, especially for non-EU exporters. The early patterns observed in January indicate a future where compliance costs and market dynamics will diverge sharply based on carbon emissions attribution.
In January, Bulgaria exported over 400 GWh of electricity to Romania, primarily generated from nuclear and hydro sources. These exports are characterized by low emissions, and if appropriately certified, they will face minimal exposure under CBAM regulations. Conversely, electricity exported from non-EU countries in the Western Balkans during peak demand periods may be assessed at an average emissions intensity rather than reflecting the actual generation source. This discrepancy could lead to higher compliance costs for these exporters.
Notably, Serbia and Bosnia and Herzegovina exported electricity to EU-connected systems even when their domestic generation relied on coal or gas. Without precise emissions tracking or proper Guarantees of Origin, these exports risk being classified under CBAM using default emissions factors, which could range from 400 to 700 kg CO₂/MWh. Given current carbon pricing levels within the EU Emissions Trading System (ETS), this could impose additional costs of €30 to €70 per MWh on top of existing wholesale prices.
Montenegro presents a unique case; while its energy system is predominantly hydro-based, it lacks integration with EU-recognized emissions certification frameworks. As a result, its electricity exports may be inaccurately categorized as carbon-intensive. The significant price fluctuations observed in January on the Montenegro Electricity Exchange (MEPX) did not fully capture this risk, but forward contracting behaviors are increasingly reflecting these concerns.
For industrial consumers, the implications of CBAM are particularly pronounced. Importing electricity during peak hours—when prices can exceed €200/MWh—may also entail hidden carbon costs that are not immediately apparent in market prices. This situation complicates procurement strategies, transforming what might seem like a straightforward decision into a long-term compliance obligation. January’s data suggests that peak pricing periods will likely coincide with heightened emissions exposure due to CBAM.
Traders face new challenges as well; the introduction of CBAM creates a basis risk between physical power transactions and financial outcomes. A trade that appears profitable based on price differentials can quickly become unviable once emissions costs are factored in. This is particularly relevant for traders sourcing power from mixed or fossil-heavy systems who aim to sell into EU markets without certified low-carbon attributes. The cumulative nature of this risk may go unnoticed until it reaches significant levels.
The trends observed in January indicate that EU-integrated systems—particularly those reliant on nuclear and hydro resources—are likely to maintain a competitive edge. Countries like Bulgaria and Romania can offer not just energy but also compliance certainty regarding emissions. In contrast, Western Balkan nations may face additional carbon costs even when exporting surplus energy. This evolving dynamic is expected to influence market behavior over the next two years, favoring long-term contracts with clear emissions attribution while disadvantaging spot market strategies.
The overarching market implications are evident: CBAM will not necessarily reduce volatility but will instead reprice it based on carbon exposure. High-price trading hours are likely to coincide with high-carbon-risk periods unless supported by verified low-carbon sources. The trading patterns observed thus far suggest that while current market operations hinge on flexibility, future value and risk assessments will increasingly depend on the ability to substantiate the carbon credentials of electricity supplies.
