The European Securities and Markets Authority (ESMA) has detected no significant problems in the operation of the EU’s carbon markets, according to its first annual report, published on Monday 7 October. The revision of the European Directive establishing an Emissions Trading System (‘ETS’ – see EUROPE 13169/33) for greenhouse gases requires the agency to monitor the integrity and transparency of the market.
Regarding price and volatility, ESMA has noted a decrease since the beginning of 2023, due to a combination of lower demand for emissions allowances. This fall is explained by the weakness of industrial activity, the fall in natural gas prices and the decarbonisation of the European energy sector, as well as by the increase in supply following the decision to auction additional allowances to finance the ‘REPowerEU’ plan.
Emissions allowance auctions remain highly concentrated: ten participants bought 90% of the volumes auctioned. This reflects the preference of most ETS operators to source allowances from financial intermediaries.
Finally, the vast majority of emissions trading on the secondary markets took place through derivatives, reflecting the annual ETS compliance cycle where non-financial sector companies hold ‘long positions’ – for compliance purposes – while banks and investment firms hold ‘short positions’.
ESMA recommends making ‘legal entity identifiers’ (LEI) more available in the register to identify account holders.
To read the report, go to https://aeur.eu/f/dr5 (Original version in French by Anne Damiani)