On 18 November 2021, the European Securities and Markets Authority (ESMA) issued a preliminary report on the EU carbon market. The report responds to the request made by the European Commission to the ESMA in its communication on energy prices for a preliminary analysis of European emission allowances (EUAs) and derivatives on EUAs. The report presents an overview of the financial regulatory environment for the carbon market under the Market Abuse Regulation, the revised Markets in Financial Instruments Directive and European Market Infrastructure Regulation and the tools available to securities supervisors to fulfil their responsibilities. The ESMA will conduct an in-depth analysis of the EU carbon market based on data sources available to securities regulators under European legislation. The ESMA will deliver its final report to the Commission in early 2022. The Commission, taking into account the ESMA’s final report, will assess whether there is a need for targeted actions in the EU carbon market.

Among other things, the ESMA has assessed the price evolution of EUA and derivatives thereof as well as their volatility, on the basis of commercial data. This assessment shows that EUAs have more in common with energy commodities than with other traditional financial instruments, such as shares or bonds. The ESMA has also used data available from weekly position reporting to assess the evolution of the number of market participants and their open positions in carbon markets. This assessment shows that the number of counterparties holding a position on EUA futures has tended to increase since 2018 in all categories of counterparties, in relatively homogeneous proportions. This is in line with the observed expansion of the EU ETS markets.

Leave a Reply

Your email address will not be published. Required fields are marked *