ESMA publishes its Final Report on the EU Carbon Market

Key results

The Final Report presents an in-depth analysis of Emissions Allowances (EUA) and Emissions Allowances derivatives trading based on data collected from different sources, including EMIR reports, MiFIR transaction reports, daily position reports and MiFID II weekly, auction data and data. obtained from the EU Registry. ESMA, when analyzing the trading in the carbon markets and the counterparties in this market, has identified the following:

  • long positions in carbon derivatives are mainly held by non-financial entities for hedging purposes;
  • short positions are mainly held by banks and investment firms that provide liquidity and carbon finance;
  • investment fund positions remain limited, with positions mainly held by third-country funds; Y
  • The share of high-frequency and algorithmic trading is significant in the carbon market, even if the relevant companies have only very small or no real positions.

Regarding recent events, ESMA is aware that the war in Ukraine has had a major impact on the carbon market, with US prices falling by 30% between February 23 and March 4, which was the deadline for the issuance of ESMA. analysis. ESMA points out that the price of carbon as of March 22 had recovered, but appreciates that the situation remains volatile.

Policy Recommendations

ESMA, based on its findings and observations, has made a number of policy recommendations on transparency and monitoring of the EU carbon market from the perspective of securities regulators, for example:

  • extend position management controls to US derivatives;
  • modify US position reports;
  • trace the chain of transactions in MiFIR regulatory reports; Y
  • provide ESMA with access to primary market transactions.

The proposed measures would provide more information to market participants, regulators and the public and are intended to contribute to the continued smooth functioning of the market, which plays an important role in the EU’s transition to a low-carbon economy.

Issues to be considered by the European Commission

ESMA has also identified two possible courses of action, with arguments for and against, that the European Commission (EC) could consider in relation to:

  • the introduction of position limits on carbon derivatives, cited in public debates as a possible addition to the legislative framework; Y
  • monitoring of the centralized carbon market at EU level, in line with ACER-style monitoring for gas and electricity.

Next steps

The ESMA Report provides a comprehensive factual basis for the EC, the Council of the EU and the European Parliament to determine whether further measures are deemed necessary to regulate the carbon market. ESMA stands ready to assist with implementation measures and additional data analysis or advice that could be useful in future discussions on the EU carbon market.

More information:

Dan Nacu Manole

communications officer

+33 (0)1 58 36 52 06


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