CBAM’s early impact in Southeast Europe: a measurable split between low-carbon and coal-heavy power exporters

The Carbon Border Adjustment Mechanism (CBAM) is starting to do more than shift trading patterns or move price spreads across Southeast Europe. Evidence from the first quarter of 2026 suggests CBAM is rapidly redrawing the region’s competitive landscape by embedding carbon intensity directly into the economics of cross-border electricity trade—creating an immediate split between low-carbon and coal-based generation portfolios.

Default emission factors turn carbon intensity into a trade cost

At the center of this divergence are CBAM default emission factors, which determine the carbon cost applied to electricity imports into the European Union. These factors are expressed in tonnes of CO₂ per megawatt-hour and are intended to approximate the carbon intensity of exporting systems. In practice, they can simplify—and sometimes blunt—the complexity of real generation mixes.

The magnitude of the differences matters. In Q1 2026, Albania faced a CBAM cost of €0/MWh, reflecting its hydro-dominated system. Serbia incurred approximately €78.45/MWh, Bosnia and Herzegovina €86.5/MWh, and Montenegro around €73.8/MWh. Rather than acting as minor adjustments, these charges can completely change whether exports remain economically attractive once carbon costs are accounted for.

Hydro-heavy exporters gain structural advantage; coal-heavy systems face a double penalty

The immediate effect is a bifurcation of regional competitiveness. Low-carbon systems—especially those dominated by hydro—gain a structural edge that extends beyond their already low marginal generation costs. With a zero or near-zero CBAM charge under the default framework, they can export into EU markets without absorbing additional carbon-related costs, positioning them as preferred suppliers in a CBAM-regulated environment.

Coal-heavy systems face what amounts to a dual penalty: higher emission intensity translated into carbon charges, often large enough to outweigh underlying price differentials between markets. What had been closer to a level playing field becomes stratified, with access to cross-border trade increasingly determined by carbon intensity as much as production cost.

Albania vs Montenegro shows how CBAM can override market signals

The contrast between Albania and Montenegro illustrates how quickly CBAM can dominate traditional pricing cues. Both countries benefited from strong hydro output in Q1 2026, supporting lower domestic prices. Yet their export outcomes diverged.

Albania increased exports across multiple borders by leveraging both surplus generation and its zero emission factor under CBAM defaults. Montenegro’s export performance fell despite favourable price spreads—particularly with Italy, where the differential reached approximately €43/MWh. The explanation given is that the CBAM cost applied to Montenegrin electricity effectively absorbed that advantage and made exports economically unattractive.

Implications for coal-dependent utilities: utilisation risk and asset value uncertainty

For coal-dependent systems such as Serbia, Bosnia and Herzegovina, and Montenegro—where thermal fleets have historically supported both domestic supply and export capacity—CBAM challenges an operating model built on relatively low operating costs from existing assets. By attaching costs based on carbon intensity rather than operational efficiency, CBAM reduces competitiveness and introduces uncertainty around future utilisation.

The shift goes beyond lower export volumes. It affects the broader economic lifecycle of coal-based generation: revenues decline when access to higher-priced markets becomes constrained by carbon charges, while costs rise because cross-border transactions must account for carbon pricing effects. Over time, this could translate into lower capacity utilisation and weaker cash flows—raising questions about asset values for utilities and investors.

Uneven incentives may slow transition investment

CBAM is designed in theory to incentivise decarbonisation by making carbon-intensive production less competitive. But the signals it sends appear uneven in practice. Low-carbon systems receive an immediate advantage that reinforces investment attractiveness in hydro, wind, and solar generation.

Coal-heavy systems face more complex incentives because CBAM increases their effective carbon-related costs without necessarily providing a clear transition pathway—particularly where capital access, regulatory frameworks, or grid infrastructure may be less developed. The article warns that this asymmetry could lead market participants toward a wait-and-see approach: existing assets are penalised while replacement investments are not yet fully mobilised, potentially creating a transitional gap.

Market integration friction: “CBAM-efficient” corridors emerge

The divergence also affects regional market integration efforts underway in the Western Balkans as they align energy markets with those of the European Union through cross-border trade. By introducing differential treatment based on carbon intensity, CBAM creates friction in that process: markets structurally aligned with low-carbon generation effectively draw closer to EU-linked trade flows, while coal-reliant systems are pushed further away.

This shows up in reconfigured trade routes as traders seek to minimise exposure to CBAM costs by favouring routes and sources associated with lower emission intensity. The article describes this as movement toward “CBAM-efficient” corridors—expanding Albania’s role as a transit and export hub while making traditional transit routes through coal-heavy systems less attractive.

Carbon price link amplifies differences; default factors add rigidity

From a pricing perspective, the divergence adds complexity because prices in low-carbon systems are influenced primarily by supply conditions such as hydrology and renewable output. In coal-heavy systems, export constraints increasingly limit arbitrage opportunities even when domestic supply conditions would otherwise support competitiveness—leading to suppressed domestic prices without equivalent monetisation externally.

The interaction between CBAM and the EU ETS further intensifies these differences because CBAM costs are linked to carbon prices. In Q1 2026, the article cites an EU ETS carbon price of €75.36/tCO₂ already imposing significant costs on exporters with higher emissions intensity; if allowance prices rise further—as long-term projections suggest—the gap between low- and high-carbon systems could widen accordingly.

Finally, default emission factors applied uniformly at country level introduce rigidity: they do not adjust for changes in generation mix over time. As described in the article, even if a coal-heavy system temporarily relies on low-carbon generation during periods of high hydro output, it can still face the same CBAM charge under default assumptions—creating potential distortions where applied costs do not match actual emissions patterns.

Policy choices ahead: reduce distortions while maintaining decarbonisation goals

For policymakers balancing decarbonisation objectives with market integration priorities, the challenge highlighted is how to reconcile CBAM’s cross-border alignment purpose with implementation across diverse energy systems. The article points to potential mitigation measures such as more granular recognition of actual emissions—for example through plant-level reporting or certification approaches for low-carbon generation—and efforts to align Western Balkan carbon pricing frameworks more closely with the EU ETS to reduce asymmetry driving divergence.

Looking ahead, the structural divide between low-carbon and coal-based power systems is likely to deepen unless changes occur either in market design or in generation portfolios. The article concludes that competitiveness across Southeast Europe’s electricity markets is no longer determined solely by cost efficiency or resource availability; it is increasingly tied to carbon intensity under regulatory frameworks like CBAM—establishing a new hierarchy that will continue shaping trade flows, price formation, and investment decisions throughout the region.