Final report on emission allowances and associated derivatives

Summary:

Report published by the European Union's ESMA (European Securities and Markets Authority) in March 2022 on the EU's carbon market.

Further information:

The Report’s analysis did not find any current major deficiencies in the functioning of the EU carbon market based on the data available. However, ESMA’s analysis of the market has led it to put forward a number of policy recommendations to improve market transparency and monitoring. It presents an in-depth analysis of the trading of emission allowances (EUA) and emission allowance derivatives based on data gathered from different sources, including EMIR reporting, MiFIR transaction reporting, MiFID II daily and weekly position reports, auction data and data obtained from the EU Registry. ESMA, in looking at trading in carbon markets and 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 providing liquidity and carbon financing;
• positions by investment funds remain limited, with positions principally held by third-country funds; and
• the share of high-frequency and algorithmic trading is significant in the carbon market, even if the relevant firms are only holding very small or no actual positions.

• Primary Source

• Alternative Source

News

EurActiv, 28/03/2022: No major abnormalities in EU carbon market, says watchdog https://www.euractiv.com/section/emissions-trading-scheme/news/no-major-abnormalities-in-eu-carbon-market-says-watchdog/

---

Official

European Securities and Markets Authority (EU ESMA): Press Release, 28/03/2022: ESMA publishes its Final Report on the EU Carbon Market https://www.esma.europa.eu/sites/default/files/library/esma71-99-1912_esma_publishes_its_final_report_on_the_eu_carbon_market.pdf

---