The implementation of the Carbon Border Adjustment Mechanism (CBAM) is significantly reshaping the electricity markets in Southeast Europe, particularly impacting traditional trading routes. As of the first quarter of 2026, there is a marked transition away from established corridors that previously facilitated trade between the Western Balkans and the European Union. This shift is driven by a growing emphasis on carbon efficiency and regulatory compliance, as market participants seek to mitigate potential CBAM-related costs.
Historically, the Western Balkans served as a vital conduit for electricity flows within Southeast Europe, linking EU markets through strategic interconnections such as Hungary–Serbia–Bulgaria and Croatia–Serbia–Romania. These routes were integral to arbitrage opportunities, allowing traders to optimize electricity flows based on price differentials across regions. However, recent data indicates a significant decline in cross-border exchanges between the Western Balkans and the EU, with a reduction of approximately 25% in scheduled transactions compared to Q1 2025. Notably, imports from the EU into the Western Balkans plummeted by 40.7%, while exports in the opposite direction saw a more modest decline.
This contraction has led to a fundamental change in the net trade dynamics of the region, with the Western Balkans transitioning from a net importer to a net exporter of about 1.35 TWh of electricity. This shift is primarily attributed to decreased import activity rather than increased exports, highlighting how regulatory uncertainties surrounding CBAM are influencing trading strategies.
The apprehension regarding carbon costs associated with electricity transiting through non-EU countries has rendered traditional trading routes less appealing. Traders are now more cautious about utilizing these corridors for intra-EU transactions due to potential carbon liabilities. Consequently, there is an observable trend towards reconfiguring electricity flows to favor routes that remain entirely within EU jurisdiction or those that involve low-emission systems.
Albania has emerged as a significant beneficiary of this evolving landscape. With its hydro-centric energy generation and minimal carbon emissions, Albania can export electricity to the EU without incurring additional carbon costs. In Q1 2026, Albania ramped up its scheduled exports across borders, including notable increases in flows to Greece, Kosovo, and Montenegro, resulting in an overall redistribution of around 1.2 TWh compared to the previous year.
This surplus from Albania is increasingly reaching EU markets through Greece, which has also seen a boost in hydro generation capacity. The enhanced electricity flows from Albania to Greece have created a new south-to-north trading corridor that stands in contrast to older routes reliant on coal-heavy systems.
The changing dynamics reflect a broader trend where traders are prioritizing routes based on carbon exposure rather than merely economic considerations. As market participants adapt their strategies to minimize CBAM costs, they are selecting pathways that may be longer or less direct but offer reduced carbon liabilities.
Intra-regional trading within the Western Balkans has intensified as well. With cross-border exchanges with the EU becoming more restricted, regional markets are increasingly turning inward. This shift is fueled by an abundance of hydroelectric power and diminished incentives for exporting to EU markets under current CBAM conditions. While this creates a more interconnected intra-WB6 market, it also signifies reduced integration with EU electricity networks.
The implications for price formation and market liquidity are significant; while increased intra-regional trading can enhance liquidity and price discovery within the Western Balkans, it does not fully compensate for lost access to higher-priced EU markets. The result is a redistribution of trading activity rather than genuine expansion, potentially affecting revenue generation and overall market depth.
The performance of key interconnectors illustrates this reconfiguration further. For instance, utilization rates for the Montenegro–Italy submarine cable have declined sharply despite its role as a direct link between lower-priced WB6 markets and higher-priced EU markets. Scheduled flows from Montenegro to Italy fell by over 2,100 MWh per day, while physical flows decreased by approximately 1,400 MWh per day. This decline occurred even amidst widening price spreads between these markets due to CBAM costs negating previous economic advantages.
This evolving situation emphasizes that interconnector value is increasingly influenced by regulatory frameworks rather than solely by price differentials or capacity constraints. Interconnectors linking low-carbon systems to the EU are likely to maintain or enhance their value, whereas those connecting high-emission systems may face declining utilization rates.
The divergence between commercial schedules and actual physical flows adds another layer of complexity. As traders adjust their schedules to avoid CBAM exposure, physical electricity flows may not align with these commercial intentions. For example, while scheduled exports from Albania to Greece increased, actual physical flows continued through Montenegro and Bosnia and Herzegovina toward EU markets.
This mismatch introduces inefficiencies into grid operations as transmission system operators must manage discrepancies between scheduled transactions and actual flows, raising risks of congestion and operational instability.
From an infrastructure investment perspective, these shifts necessitate reevaluating projects initially designed under stable arbitrage assumptions. Interconnectors once expected to generate robust congestion revenues may now see diminished utilization rates, while new opportunities could arise in corridors connecting low-carbon systems or bypassing high-emission regions.
Overall, Southeast Europe’s electricity network is transitioning from one optimized for economic efficiency towards one increasingly influenced by carbon policy considerations. The traditional trading logic—focused on cost optimization—is being reshaped by the need for managing carbon exposure effectively.
Future trends will hinge on several factors: clarity regarding transit flow treatment under CBAM could restore some attractiveness for WB6 corridors; adjustments in emission factor methodologies might help alleviate current disparities; and developing carbon pricing mechanisms within the Western Balkans could align incentives across both EU and non-EU markets.
Despite potential adjustments, it appears unlikely that this trajectory will fully reverse; carbon pricing has become an integral aspect of electricity market design and will continue shaping trade patterns moving forward.
