CBAM reshuffles Southeast Europe’s electricity trade routes, cutting Western Balkans transit role

The Carbon Border Adjustment Mechanism is doing more than changing price signals in Southeast Europe’s power markets—it is starting to redraw the region’s physical and commercial map of electricity flows. Evidence from the first quarter of 2026 points to a decisive break from trading patterns that previously relied on the Western Balkans as a transit bridge into EU systems.

Western Balkans transit corridors lose appeal

For years, the Western Balkans served as a critical transit zone within the broader Southeast European grid. Electricity was not only traded into and out of regional markets; it also passed through them, enabling multi-leg arbitrage strategies that linked EU systems through routes such as Hungary–Serbia–Bulgaria or Croatia–Serbia–Romania. Interconnectors were therefore valued not just for bilateral exchanges but for their role in chaining transactions across several markets.

That model has begun to fragment. In Q1 2026, commercially scheduled cross-border exchanges between the Western Balkans and the EU declined by approximately 25% versus the same period in 2025. The decline was uneven: flows from the EU into the Western Balkans fell by 40.7%, while flows in the opposite direction dropped more modestly.

The imbalance shifted the region’s net position, moving the Western Balkans from a net importer to a net exporter of electricity by roughly 1.35 TWh. Importantly, this change was driven less by stronger export activity than by a collapse in imports from the EU.

CBAM uncertainty disrupts transit-based strategies

The reduction in EU-to-Western Balkans flows is closely tied to disruption of transit-based trading strategies under CBAM. Uncertainty over how electricity passing through non-EU countries would be treated has made those routes less attractive to traders. Even where electricity originates and is consumed within the EU, there is a risk that power transiting through Western Balkan territory could face carbon costs.

This regulatory ambiguity has been sufficient to discourage use of WB6 corridors for intra-EU trade, pushing market participants toward pathways that either remain entirely within EU jurisdiction or involve systems capable of avoiding CBAM-related costs.

Low-carbon supply and “CBAM-efficient” rerouting rise

As a result, the Western Balkans’ role as a transit hub is diminishing. Electricity that previously would have moved through Serbia or Bosnia and Herzegovina is increasingly rerouted via alternative corridors, including direct EU-to-EU interconnections and routes that incorporate low-emission generation profiles designed to avoid CBAM costs.

Albania stands out among beneficiaries of this reconfiguration. With hydro-dominated generation and an effective default emission factor described as equal to zero, Albania can export electricity into the EU without incurring carbon costs under CBAM assumptions. In Q1 2026, Albania increased scheduled exports across all borders—including flows to Greece, Kosovo and Montenegro—and generated a redistribution of about 1.2 TWh compared with Q1 2025.

Those volumes did not stop at immediate neighbours. Electricity exported from Albania moved through Greece into wider EU markets such as Bulgaria and Italy. Greece’s role grew alongside an increase in hydro generation: flows from Albania to Greece rose markedly, followed by northward and westward movement into parts of the broader EU system—forming a south-to-north corridor anchored by low-carbon supply.

Trade optimisation shifts from economics alone to carbon exposure

The emergence of these “CBAM-efficient” routes highlights a broader trend: traders are optimising pathways based on carbon exposure rather than purely economic or physical considerations. As carbon pricing becomes embedded in route selection, even longer or less direct paths can become more attractive if they minimise CBAM-related costs.

At the same time, intra-regional trading within the Western Balkans intensified. With cross-border exchanges with the EU becoming more constrained—and with surplus generation available particularly from hydro—markets turned inward, increasing trade among themselves. The outcome is a more interconnected intra-WB6 market that remains less integrated with the EU.

Liquidity gains inside WB6 don’t fully replace lost access

This inward shift has implications for price formation and liquidity. Increased intra-regional trading can support liquidity and improve price discovery within Western Balkan markets, but it does not fully compensate for reduced access to higher-priced EU destinations. Overall activity appears redistributed rather than expanded, with potential consequences for revenue generation and market depth.

Interconnector performance shows regulation overriding spreads

The corridor changes are also visible in specific interconnector utilisation. The Montenegro–Italy submarine cable illustrates how regulatory effects can overwhelm traditional incentives: despite offering a direct link between lower-priced WB6 markets and higher-priced EU markets—and even as price spreads widened—the cable saw declining use in Q1 2026.

Scheduled flows from Montenegro to Italy fell by more than 2,100 MWh per day, while physical flows decreased by about 1,400 MWh per day. The explanation given is that CBAM costs effectively erased the economic advantage of exporting along this corridor.

Commercial schedules diverge from physical reality

A further complication comes from mismatches between commercial intent and physical grid behaviour. While traders adjust schedules to minimise CBAM exposure, electricity continues to flow according to grid physics—creating situations where increased scheduled exports are not matched by corresponding changes in actual physical flows along certain routes.

An example cited is Albania-to-Greece: increased commercial exports were not fully reflected in physical flows because electricity continued moving through Montenegro and Bosnia and Herzegovina toward EU markets.

Operational strain raises system-level risks

This divergence introduces inefficiencies into system operations. Transmission system operators must manage flows that do not align with scheduled transactions, increasing risks associated with congestion, loop flows and operational instability—meaning corridor reconfiguration affects both market participants and technical grid management.

Investment outlook: infrastructure plans may need recalibration

For investors, changing trade geography raises questions about whether infrastructure projects conceived under stable arbitrage assumptions still make sense. Interconnectors that once promised strong congestion revenues may see reduced utilisation under CBAM-driven route changes, while new opportunities may emerge in corridors connecting low-carbon systems or bypassing high-emission regions.

A longer-term transformation rather than a temporary anomaly

The strategic implication is that Southeast Europe’s power network is evolving from one optimised primarily for economic efficiency toward one increasingly shaped by carbon policy constraints. Carbon pricing does not eliminate market forces—but it alters how they operate across borders.

Looking ahead, some factors could moderate distortions: greater clarity on CBAM treatment for transit flows might restore attractiveness for WB6 corridors used for intra-EU trade; adjustments to emission factor methodologies could reduce disparities between systems; and development of carbon pricing mechanisms within the Western Balkans could align incentives between EU and non-EU markets.

Even so, reversal appears unlikely given CBAM’s growing centrality in electricity market design. For market participants, adapting will require reassessing strategies spanning route optimisation, portfolio management, infrastructure investment decisions and risk assessment—while policymakers face balancing decarbonisation goals against market efficiency and system stability as Southeast Europe navigates energy integration alongside climate policy.