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5th Dec 2022

EU watchdog: no proof of carbon market manipulation

  • Carbon trading forms the heart of the 'Fit for 55' climate package, but has been subject of debate due to rising prices (Photo: Otodo)
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In a preliminary report published on Thursday (19 November), the European Securities and Markets Authority (ESMA) found no proof of illegal market speculation in the EU's carbon trading market (the emissions trading system, ETS).

In October, the European Commission asked ESMA to track any possible market manipulation, after accusations hedge fund speculators drove up prices in Europe.

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ETS-trading forms the heart of the 'Fit for 55' package, a complex set of proposals aiming to reduce EU carbon emissions by 55 percent by 2030.

According to the EU, infrastructure covered by ETS reduced emissions by about 35 percent between 2005 and 2019.

It is set to be expanded to energy use for households and fuel, boosting the scrutiny the system is under.

"We must end speculation on the energy markets, that is why we are we are increasing our monitoring of the gas and energy markets," European Commission president Ursula von der Leyen told the European Parliament in Strasbourg on 20 October.

The move is part of a toolbox of policies against soaring energy prices.

Normal market behaviour

But the ESMA watchdog has now rejected concerns that speculation resulted in excessive carbon prices.

ESMA attributed the surge in price of carbon allowances that have recently risen to the historic high of €70 per tonne to normal market behaviour, driven by a faster-than-expected reduction in emissions allowances and increased demand.

It also pointed out that other energy commodities like oil and gas have seen even sharper volatility.

According to ESMA, 455 financial entities and investment firms took part in the ETS market in 2021, up 86 percent from 2018.

But ESMA allayed fears this has resulted in "patterns of disorderly trading or abusive behaviour present in the carbon market" and said the increase "appears in line with the observed expansion of the EU ETS market."

Although no proof of foul play has been found, the watchdog did note that it had only limited access to essential data.

The Intercontinental Exchange (ICE), where most carbon was traded until June 2021, fell under the UK's Financial Conduct Authority - data that ESMA could not access due to Brexit, with ESMA stating that "the analysis of the derivatives markets can only be based on a limited time period from June 2021 until the end of 2021."

EU carbon trading has since been moved from London to the Dutch affiliate Ice Endex in Amsterdam.

The watchdog will now undertake a more comprehensive analysis to be published early next year.

This study will also include data from the smaller German and Norwegian markets, which can be studied over a longer period, "potentially giving more insights," the report said.

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