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
BIS and Central Banks Experiment with GenAI to Assess Climate Risks
A recent report from the Bank for International Settlements (BIS) Innovation Hub details Project Gaia, a collaboration between the BIS Innovation Hub Eurosystem Center and certain central banks in Europe
Nearly 25% G-SIBs Commit to Adopting TNFD Nature-Related Disclosures
Nature-related risks are increasing in severity and frequency, affecting businesses, capital providers, financial systems, and economies.
Singapore to Mandate Climate Disclosures from FY2025
Singapore recently took a significant step toward turning climate ambition into action, with the introduction of mandatory climate-related disclosures for listed and large non-listed companies
SEC Finalizes Climate-Related Disclosures Rule
The U.S. Securities and Exchange Commission (SEC) has finalized the long-awaited rule that mandates climate-related disclosures for domestic and foreign publicly listed companies in the U.S.
EBA Proposes Standards Related to Standardized Credit Risk Approach
The European Banking Authority (EBA) has been taking significant steps toward implementing the Basel III framework and strengthening the regulatory framework for credit institutions in the EU
US Regulators Release Stress Test Scenarios for Banks
The U.S. regulators recently released baseline and severely adverse scenarios, along with other details, for stress testing the banks in 2024. The relevant U.S. banking regulators are the Federal Reserve Bank (FED), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC).
Asian Governments Aim for Interoperability in AI Governance Frameworks
The regulatory landscape for artificial intelligence (AI), including the generative kind, is evolving rapidly, with governments and regulators aiming to address the challenges and opportunities presented by this transformative technology.
EBA Proposes Operational Risk Standards Under Final Basel III Package
The European Union (EU) has been working on the final elements of Basel III standards, with endorsement of the Banking Package and the publication of the European Banking Authority (EBA) roadmap on Basel III implementation in December 2023.
EFRAG Proposes XBRL Taxonomy and Standard for Listed SMEs Under ESRS
The European Financial Reporting Advisory Group (EFRAG), which plays a crucial role in shaping corporate reporting standards in European Union (EU), is seeking comments, until May 21, 2024, on the Exposure Draft ESRS for listed SMEs.
ECB to Expand Climate Change Work in 2024-2025
Banking regulators worldwide are increasingly focusing on addressing, monitoring, and supervising the institutions' exposure to climate and environmental risks.
