Electricity trading between the Western Balkans and neighbouring European Union markets remained significantly below last year’s levels during the first half of 2026, providing an early indication that the EU Carbon Border Adjustment Mechanism (CBAM) is beginning to reshape regional commercial flows.
Gross cross-border electricity trade between the Western Balkans and the EU declined by approximately 19% year on year during the first six months of 2026. The reduction was most pronounced in the first quarter, when trade fell by around 23%, before easing to a decline of approximately 15% in the second quarter.
Strong hydropower production initially pushed Western Balkan electricity prices below EU benchmarks during the first quarter, affecting the direction and volume of cross-border flows. However, trading activity did not fully recover after the hydrological surplus weakened and the region returned to its more typical position as a net electricity importer.
At the same time, activity within the Western Balkan electricity market moved in the opposite direction. Trading volumes on regional day-ahead exchanges increased by approximately 19% to 2.70 TWh in the second quarter, supported in part by a recovery in trading on Serbia’s SEEPEX exchange.
The result is an increasingly divided regional market, with a larger volume of electricity being traded within the Western Balkans while less power crosses the EU border.
CBAM default emissions factors are emerging as an important element behind this shift. Based on second-quarter certificate prices, indicative carbon costs were estimated at €86.42/MWh for Bosnia and Herzegovina, €78.37/MWh for Serbia and €73.70/MWh for Montenegro. Albania, by contrast, faced a default carbon cost of zero due to its predominantly hydropower-based electricity generation mix.
Such costs are high enough to significantly reduce or eliminate the commercial margin on many coal-heavy electricity exports. As a result, traders may increasingly redirect electricity through markets with lower emissions exposure or retain supply within the Western Balkans when the price premium available in EU markets is insufficient to absorb the additional carbon cost.
Hydrological conditions, fuel prices, power plant availability and electricity demand also influenced regional trade during the first half of the year, meaning that the full decline in cross-border activity cannot be attributed to CBAM alone. However, the continued weakness in EU-Western Balkan electricity trading after the first-quarter hydropower effect faded suggests that carbon pricing is already beginning to influence nominations, trading decisions and arbitrage strategies.
For lignite-dependent utilities such as EPS, Elektroprivreda BiH and Elektroprivreda Republike Srpske, the implications extend beyond the direct cost of carbon certificates. Reduced export competitiveness limits access to potentially higher-priced EU markets and further weakens the economics of ageing thermal generation assets.
As CBAM implementation develops, verified plant-level emissions data, renewable power-purchase agreements and investment in lower-carbon generation are becoming increasingly important commercial tools rather than simply regulatory requirements. The first-half figures suggest that the Western Balkan electricity market is already adapting to a new reality in which the carbon intensity of electricity is becoming an increasingly important factor in determining where and whether that power can be traded.
