New Report shows profound electricity market changes in South East Europe as CBAM takes effect
The Energy Community Secretariat’s first quarterly report on electricity markets under CBAM highlights shifts that may undermine EU–Energy Community market integration
According to a new Energy Community Secretariat Report, the first quarter under the definitive phase of the Carbon Border Adjustment Mechanism (CBAM) coincides with the reshaping of electricity market behaviour between the EU and Energy Community Contracting Parties. These nine EU-aspirant economies in Southeast and Eastern Europe are working to integrate their electricity markets with the EU. Many are now approaching a point of no return, having transposed or nearly transposed EU-aligned legislation that paves the way for coupling with the EU’s electricity market. At a time of geopolitical instability, leading to higher volatility in prices and supplies, this would enable more efficient cross-border electricity flows, helping to deliver welfare gains and strengthen energy security across Europe.
Yet CBAM introduces new costs and uncertainties that may risk slowing this progress. When it came into effect on 1 January 2026, electricity exports, including renewables, from Energy Community Contracting Parties to EU Member States became subject to additional surcharges. This, together with other regulatory obligations -- such as the need to prove the origins and the route of electricity in the case of transit–– impacted individual commercial decisions, likely shifting market dynamics.
In the first quarter of 2026, electricity flows between the EU and the Western Balkans diverged from historic trading patterns, reflected in two trends.
First, commercially scheduled cross-border exchanges fell by 25% across borders with EU Member States. Second, day-ahead electricity prices in the Contracting Parties were on average EUR 30/MWh lower than in neighbouring EU markets.
This occurred despite a significant surplus of clean, fossil-free electricity from hydropower, driven by favourable precipitation. Under normal market conditions, such price differences would trigger increased exports from lower-price to higher-price regions, contributing to price convergence. However, under CBAM, renewable electricity exports are treated in the same way as fossil-based generation through the use of default emission factors. This appears to have directly affected trade flows: while hydropower exports from Albania—where the default emission factor is zero—continued, similar exports from other markets, such as Montenegro, largely did not.
Taken together, these developments highlight potential emerging market distortions that may affect both sides of the market: preventing higher-price EU markets from accessing lower-cost electricity, while constraining exports from Energy Community Contracting Parties, and undermining the market integration imperative. Ongoing negotiations on the CBAM amendments aim to partially address some of the underlying causes of these distortions.
The Secretariat will continue to closely monitor market trends under CBAM and assess their implications in upcoming quarterly reports.
The Carbon Border Adjustment Mechanism is the European Union’s regulation aiming to establish level playing field for the EU-based producers and the importers of CBAM goods, including electricity. CBAM is not part of the Energy Community legislation.