The EU Carbon Border Adjustment Mechanism (CBAM) is linked to changes in Western Balkan electricity flows, with Serbia strengthening its role as a northern transit and trading hub. The shift also coincides with weaker performance on several established routes into EU markets. The change became more visible in the second quarter of 2026.
In Q2 2026, scheduled electricity exports from Serbia to Hungary rose by 111% year on year. Commercial flows from Romania to Hungary increased by 156% over the same period. The data points to a growing concentration of trading around the Hungarian market and transmission corridors connected to Ukraine’s expanding electricity import needs.
The pattern differs from the region’s trading structure in 2025, when electricity moved more evenly across connections with Croatia, Bulgaria, Greece, Hungary and Italy. Since the definitive CBAM regime started on 1 January 2026, trading has increasingly concentrated along corridors where demand, price spreads and onward delivery opportunities can absorb additional carbon-related costs. CBAM is not the only factor cited for the change.
CBAM-related shifts are described alongside market conditions in early 2026. The first quarter saw exceptionally strong hydropower output, lower Western Balkan electricity prices and temporary regional surpluses. As hydrological conditions normalised in Q2, the region moved from net exports of about 1,247 GWh in Q1 to net imports of approximately 1,048 GWh in Q2.
Regional trade patterns and price-spread constraints
Greece also strengthened its position as a southeastern supply centre, with exports towards Bulgaria, North Macedonia and Albania increasing as solar and wind generation rose. The regional merit order shifted with that generation mix change. Albanian exports to Greece declined after a hydro-driven surge during the first quarter.
Several traditional cross-border routes were slower to recover, a development described as harder to separate from CBAM effects. Gross scheduled electricity exchanges between six Western Balkan markets and neighbouring EU countries were about 15% lower year on year in Q2. Across the first half of 2026, the decline reached around 19%.
Wholesale price spreads were not sufficient to offset indicative default CBAM charges. Italian electricity prices averaged around €27/MWh above Montenegro in Q2, while Hungarian prices were about €13/MWh above Serbia. Indicative default charges were cited at around €73.70/MWh for Montenegro and €78.37/MWh for Serbia.
The carbon adjustment is described as changing how transmission capacity is used for nominations. Traders may secure cross-border capacity but still choose not to nominate electricity when expected wholesale spreads do not cover associated CBAM liabilities. As a result, higher capacity allocation does not necessarily lead to higher scheduled commercial flows.
Serbia’s transit role and divergence between schedules and physical flows
Serbia is described as having a particularly important position in the changing market structure. It has the largest electricity market in the Western Balkans and operates a major transit system linking Bosnia and Herzegovina, Montenegro, Kosovo, North Macedonia and Bulgaria with Hungary. Through neighbouring networks it also connects with Ukraine.
Serbia also operates the region’s most liquid power exchange, while its generation mix remains heavily dependent on carbon-intensive sources. Serbian lignite production fell 12% year on year to 6.54 TWh in Q2 2026, but coal continues to underpin domestic generation and contributes to Serbia’s high CBAM default factor. Its geography provides access to a northern corridor where Ukrainian demand and Hungarian market liquidity can support selected exports.
The rerouting of commercial flows is accompanied by divergence between scheduled transactions and physical electricity flows. On the Bosnia and Herzegovina–Croatia border, scheduled exports reportedly fell by about 43%, while physical flows increased by roughly 270%. Physical flows reached 824 GWh, compared with 282 GWh of commercially scheduled electricity.
The explanation given is that electricity follows network physics rather than commercial contracts. A transaction scheduled from Serbia towards Hungary can generate loop flows through Bosnia and Herzegovina, Croatia, Montenegro or neighbouring EU networks. When schedules and physical flows diverge significantly, transmission system operators are described as needing larger security margins and relying more on redispatch and countertrading.
Redispatch and countertrading are described as creating additional costs that can affect network tariffs or congestion-management accounts. They can also weaken links between where a commercial transaction is located, where physical constraints occur, and where congestion revenues are collected.
Domestic liquidity trends and CBAM evidence requirements
Domestic market liquidity is developing in the opposite direction to cross-border integration described elsewhere in the region. Day-ahead trading volume across four observed Western Balkan exchanges increased by 19% to 2.70 TWh in Q2. ALPEX recorded a 52% increase, Montenegro’s MEPX rose 49%, North Macedonia’s MEMO increased 31%, while Serbia’s SEEPEX grew 7%.
The figures are presented as indicating greater domestic liquidity while EU-border integration weakens. The challenge is described as affecting a region whose energy transition depends on access to larger balancing areas, deeper electricity-market liquidity and EU-based renewable offtakers.
The redirection of electricity flows does not stop cross-border trading but increases emphasis on documenting origin for EU-bound transactions. Analysts at Virtu.Energy said transactions entering the EU 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 documentation burden extends through the delivery chain because declarants must obtain generation, metering, trading, contractual and cross-border allocation records from exporters, intermediaries and producers. The challenge increases when electricity crosses multiple bidding zones or changes ownership before entering the EU since each intermediary must preserve contractual and data links to the original generator.
A broken evidence chain could prevent an importer from applying actual emissions even if electricity originated from low-carbon sources. Virtu.Energy analysts recommend pre-verification early in delivery stages for transactions involving multiple borders and intermediaries. Identifying missing generation, metering or capacity-allocation records before delivery allows gaps to be corrected; deficiencies found after reporting could force reliance on a higher national default factor.
Status of CBAM revisions affecting default calculations
A pending revision of CBAM could reduce some distortions tied to default values by calculating them based on each country’s full national generation mix. That approach would lower carbon burdens for countries with significant hydropower, wind and solar production compared with coal-heavy systems under current default assumptions. Easier access to actual-emissions reporting is also cited as enabling verified renewable exports to avoid charges based on coal-intensive national carbon intensity.
Until agreed changes are implemented, Western Balkan electricity is expected to continue moving toward corridors where demand is strongest and price spreads can absorb carbon-related costs. Serbia and Hungary are described as emerging as a key northern channel while Ukraine’s structural electricity deficit creates additional demand along that route.
The market change is described as occurring on two fronts for regional exporters, traders and generators: physical-commercial routing into the EU becoming more selective alongside an evidence route required by CBAM becoming equally important. Demonstrating where electricity was generated, how it was traded and how it reached the EU market is described as increasingly determining which cross-border transactions remain commercially viable.