Huw Jones

LONDON (Reuters – An initial investigation found that there was no evidence of abuse in the European Union’s carbon emission market, as record prices rose over the last year. The bloc’s securities regulator said Thursday.

After allegations that some hedge funds had speculated in an area that represented 8.1 Billion tonnes, or 95% of the global carbon market value, in 2020, the European Commission asked the European Securities and Markets Authority to examine the Emissions trading system (ETS).

“The increasing number of participants in the market appears in line the observed expansion EU ETS market,” ESMA reported in its report. It was referring to Europe’s trading scheme.

“The mere increase in market participants cannot be considered proof of any pattern of disorderly trading, or other abusive behavior in the carbon markets. The ESMA will however continue to analyse these trends within its next report.

ESMA reported that sharp rises in allowance price were due to a faster than expected decrease in emission allowances, as well as increased demand. It said that the price increase was similar to that for coal and other fossil fuels.

ESMA ETS Graphic: https://fingfx.thomsonreuters.com/gfx/mkt/zdvxongwrpx/ESMA%20ETS%20Graphic.PNG

ETS, which is the core of the bloc’s plan to make it carbon-neutral by 2050 by implementing a cap-and trade system for greenhouse gases to lower them by making emitters pay for every tonne they produce, forms a key part of its policy.

Three exchanges trade the market: ICE (NYSE 🙂 Endex and EEX in Germany, as well as Nasdaq Oslo and Nasdaq Oslo.

To help reduce the planet’s warming emissions, the bloc is currently negotiating greener policies. This includes opening a second EU market for carbon in buildings and transport.

Debate around carbon pricing has intensified, with European Commission President Ursula von der Leyen telling the United Nations COP26 climate summit https://www.reuters.com/business/cop/was-glasgow-pact-win-climate-time-will-tell-2021-11-14 this month that a robust framework of rules was needed to make global carbon markets a reality.

ESMA stated that it would produce a second report for the Commission by 2022 to determine if certain trading behaviors require additional regulatory actions.