ESMA Publishes Preliminary Report on Carbon Market in EU
The European Securities and Markets Authority (ESMA) published a preliminary report on the carbon market in the European Union (EU). The report responds to the request made by the European Commission (EC) to ESMA in its Communication on energy prices for a preliminary analysis of European emission allowances (EUAs) and derivatives on EUAs. ESMA will conduct an in-depth analysis of the carbon market in EU based on data sources available to securities regulators under European legislation. ESMA will deliver its final report to the EC in early 2022. EC, taking into account ESMA’s final report, will assess whether there is a need for targeted actions in the carbon market in EU.
The report first 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 the European Market Infrastructure Regulation as well as the tools available to securities supervisors to fulfil their responsibilities. It then presents a preliminary assessment of recent market developments in the carbon market. The report, based on commercial data, also provides an analysis of price evolution and volatility in EUAs and derivatives on EUAs. Weekly position reports in respect of derivatives on EUAs were used for the initial assessment of active counterparties. ESMA, in its preliminary analysis, has identified the following:
- 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 in line with the observed expansion of the EU Emissions Trading System market.
- Open positions are to a large extent, and almost evenly, held by investment firms/credit institutions (40% to 47% depending on the period considered) and by non-financial counterparties (45% to 50%); however, the (remaining ~8%) percentage of open positions, held by investment funds and other financial counterparties, remains relatively low.
- The breakdown of open positions between the various categories of counterparties does not appear to have significantly changed since 2018 and is broadly in line with the expected functioning of the market, where non-financial entities buy EUA futures to hedge their carbon price exposure, while financial counterparties act as intermediaries to facilitate trading and provide liquidity to the market.
Related Link
Keywords: Europe, EU, Banking, Securities, Insurance, Low-Carbon Economy, MiFid, EMIR, MAR, Sustainable Finance, ESG, Derivatives, Carbon Markets, ESMA
Previous Article
EBA Proposes SREP Framework and Endorses Equivalence Decision of ECRelated Articles
EC Consults on PSD2 and Open Finance; EU Reaches Agreement on DORA
The European Commission (EC) published a public consultation on the review of revised payment services directive (PSD2) and open finance.
EC Mandates ESAs to Propose Amendments to SFDR Technical Standards
The European Commission (EC) has issued two letters mandating the European Supervisory Authorities (ESAs) to jointly propose amendments to the regulatory technical standards under Sustainable Finance Disclosure Regulation or SFDR.
EBA Examines Supervisory Practices, Issues Deposits Reporting Template
The European Banking Authority (EBA) published its annual report on convergence of supervisory practices for 2021. Additionally, following a request from the European Commission (EC),
US Agency Publications Address Basel, Reporting, and CECL Developments
The Farm Credit Administration published, in the Federal Register, the final rule on implementation of the Current Expected Credit Losses (CECL) methodology for allowances
SEC Extends Comment Period on Climate Risk Disclosures
The U.S. Securities and Exchange Commission (SEC) looks set to intensify focus on crypto-assets and cyber risk and extended the comment period on the proposed rules to enhance and standardize climate-related disclosures for investors.
APRA Reduces Committed Liquidity Facility, Issues Other Updates
The Australian Prudential Regulation Authority (APRA) announced reduction in the aggregate Committed Liquidity Facility and issued an update on the operational preparedness for zero and negative market interest rates.
CMF Consults on Basel Rules, Presents Roadmap to Address Climate Risks
The Commission for the Financial Market (CMF) in Chile published capital adequacy ratios (as of February 2022, January 2022, and December 2021) for 17 banks and for the banking system.
PRA Issues Statement on NPEs and Policy on Trading Activity Wind-Down
The Prudential Regulation Authority (PRA) issued a statement on the European Banking Authority (EBA) guidelines on management of non-performing exposures (NPEs) and forborne exposures.
EBA Updates Standards for 2023 Benchmarking of Internal Approaches
The European Banking Authority (EBA) updated the implementing technical standards that specify the data collection for the 2023 supervisory benchmarking exercise in relation to the internal approaches used in market risk, credit risk, and IFRS 9 accounting.
EIOPA Responds to Stakeholder Views on Blockchain in Insurance
The European Insurance and Occupational Pensions Authority (EIOPA) published a feedback statement on the responses received to the consultation on blockchain and smart contracts in insurance.