CBAM’s knock-on effect in Southeast Europe: when electricity schedules diverge from physical flows

One of the least visible consequences of the Carbon Border Adjustment Mechanism (CBAM) in Southeast Europe’s electricity markets is also among the most consequential for system operations: a growing gap between what traders schedule and what the grid actually carries. While carbon costs and trading volumes dominate headlines, the emerging mismatch between commercial nominations and physical flows raises risks for stability, increases operating expenses, and complicates long-term market design.

Schedules and flows typically move together—until Q1 2026

In an integrated electricity market, commercial schedules are usually closely aligned with physical electricity movements across interconnectors. Market participants nominate cross-border trades based on price signals, and those nominations broadly correspond to the electricity that physically moves through transmission networks. This alignment helps transmission system operators (TSOs) manage congestion, maintain balance, and ensure security of supply within predictable parameters.

That relationship began to break down in Q1 2026. Data across Southeast Europe show that commercially scheduled exchanges between the Western Balkans and the European Union declined significantly, while physical flows through the region remained largely intact—and in some corridors even increased. The divergence points to a shift in what drives electricity movement: commercial decisions increasingly reflect CBAM-related costs and regulatory considerations, while physical flows continue to follow electrical physics.

Corridor-level examples show trading activity falling faster than power moves

The scale of the mismatch is illustrated by several corridor observations. On the Hungary–Romania interface, commercially scheduled flows declined by nearly 14,000 MWh per day, while physical flows decreased by only around 4,100 MWh per day. On the Romania–Bulgaria border, commercial exchanges fell by 8,800 MWh per day compared with a drop of just about 2,900 MWh per day in physical flows.

Taken together, these discrepancies suggest that electricity continued to move along these paths even as scheduled trading activity weakened—effectively bypassing parts of the commercial framework.

Why CBAM can widen the gap: nominations change faster than networks can

This phenomenon is described as predictable rather than anomalous. Electricity cannot be directed along a single contractual path; it flows through networks according to Kirchhoff’s laws, distributing across available routes based on impedance and network topology. When commercial schedules change—whether due to price signals, regulatory costs, or trading strategies—the physical system does not instantly reconfigure itself to match those schedules. Instead, it continues operating according to its inherent physical properties.

The introduction of CBAM is said to have intensified this disconnect by changing the economics of cross-border trade. Traders adjust nominations to minimise exposure to carbon costs, which reduces scheduled exchanges along certain corridors—particularly those involving coal-heavy Western Balkan systems—while generation patterns, demand centres, and network constraints continue to drive where power actually goes.

The south–north Western Balkans route highlights “loop” dynamics

The south–north corridor through the Western Balkans—running from Greece through Albania and Montenegro into Bosnia and Herzegovina before reaching EU markets—has long been a critical artery for regional electricity flows. In Q1 2026, increased hydro generation in Albania and Greece boosted physical flows along this corridor. At the same time, CBAM-related considerations altered commercial trading patterns so that scheduled exports did not match actual flow paths.

Electricity generated in Albania was often scheduled for export to Greece but physically flowed through Montenegro and Bosnia and Herzegovina toward other EU destinations.

Operational risk rises as predictability falls

The divergence has direct operational implications. For TSOs, predictability is essential for maintaining system stability: when schedules align with physical flows, congestion points can be anticipated more effectively and balancing requirements managed with greater confidence. When alignment breaks down, system behaviour becomes less predictable; unscheduled or “loop” flows can emerge that place unexpected stress on parts of the network and raise the risk of congestion or outages.

The article notes that such vulnerability is already evident from recent history. It cites the June 2024 blackout triggered by near-simultaneous outages of key transmission lines in Montenegro and Albania—an event not directly attributed to CBAM—but one that underscores how sensitive critical corridors can be to disruptions. The Q1 2026 divergence adds another layer of complexity that could exacerbate similar risks if not properly managed.

Transmission capacity may be allocated inefficiently—and costs can follow

Beyond reliability concerns, divergence can reduce efficiency in transmission capacity use. Interconnectors are designed to facilitate cross-border trade based on economic signals; when schedules do not reflect actual physical needs, capacity may be reserved without matching real system loading patterns. This can lead to suboptimal allocation of resources with potential cost implications for both TSOs and market participants.

The article further links these inefficiencies to higher system operation costs. TSOs may need additional balancing measures for unexpected flows, procure reserves for stability, and invest in monitoring and control systems to manage uncertainty. Over time, such costs are typically passed on through network tariffs.

Trading risk increases when hedges don’t track reality

For market participants—traders especially—the breakdown between schedules and outcomes increases imbalance risk. Positions that appear hedged based on commercial schedules may not align with actual physical results, potentially leading to unexpected costs or penalties tied not only to market dynamics but also to system behaviour.

The divergence also complicates congestion management mechanisms common in integrated markets. Congestion is generally reflected through price signals and capacity allocation processes tied to scarcity of transmission resources. If physical flows diverge from commercial schedules, those mechanisms become less effective: prices may not accurately signal congestion levels and capacity allocation may not reflect actual constraints—undermining both pricing efficiency and investment decisions.

Regulators face a coordination challenge between CBAM goals and grid realities

From a regulatory perspective, reconciling CBAM objectives with operational requirements remains central. CBAM aims to align carbon costs across borders and prevent carbon leakage but does not directly incorporate how electricity physically moves through networks. The observed divergence suggests additional coordination between market design choices and system operation may be necessary so policy objectives do not inadvertently compromise stability.

Potential responses: better TSO coordination and clearer treatment of transit effects

The article points toward several possible mitigation paths. One is enhanced cross-border coordination among TSOs through improved data sharing, joint capacity calculation, and coordinated congestion management aimed at reducing impacts from unscheduled flows. Another is greater clarity around CBAM implementation—particularly regarding transit flows—to reduce incentives for traders to alter schedules in ways that could intensify divergence.

It also raises the possibility that market design could evolve to integrate physical realities more directly into pricing or settlement processes related to unscheduled flow impacts—or provide tools enabling participants to manage risks associated with schedule-flow mismatches more effectively. Any such changes would require careful design to avoid adding complexity or unintended consequences.

A transition still underway

Looking ahead, whether divergence persists depends on how market participants and policymakers respond within the new environment created by CBAM. If current patterns continue unchecked, Southeast Europe could face increasing operational challenges alongside higher system costs and gradual erosion of market efficiency. Conversely, proactive steps aligning policy goals with market design and system operation could help mitigate risks during a shift toward carbon-adjusted trading frameworks.

What stands out from Q1 2026 is that integrating carbon pricing into cross-border electricity trade has implications extending beyond economics into real-time grid behaviour: divergence between what is traded and what physically flows signals adaptation underway—but without yet reaching a stable new equilibrium for both efficiency and security.