No proof so far of abuse in EU carbon market, says watchdog

Reuters

Published Nov 18, 2021 02:01PM ET

Updated Nov 18, 2021 08:27PM ET

By Huw Jones

LONDON (Reuters) - A preliminary investigation has found no proof that the European Union's carbon emissions market was being abused as prices surged to record highs over the past year, the bloc's securities watchdog said on Thursday.

The European Securities and Markets Authority was asked by the EU's executive, the European Commission, to study the Emissions Trading System (ETS) after accusations that hedge funds were speculating in a market that accounted for 8.1 billion tonnes or 90% of global carbon market value in 2020.

"The growing number of market participants appears in line with the observed expansion of the EU ETS market," ESMA said in its report, referring to the European trading scheme.

"The increase in the number of market participants by itself cannot be taken as proof for any patterns of disorderly trading or abusive behaviour present in the carbon market. ESMA will nonetheless further analyse these trends in its next report."

A combination of faster than expected reduction in emission allowances and increased demand was behind the sharp increases in allowance prices, ESMA said. The price rise was comparable to that of coal and crude oil, it said.

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

ETS is a cornerstone of the bloc's policy to become carbon-neutral by 2050, operating as a cap-and-trade system to reduce greenhouse gases by forcing emitters to pay for each tonne of carbon dioxide they generate.

The market is traded on three exchanges: ICE (NYSE:ICE) Endex in the Netherlands, EEX in Germany and Nasdaq Oslo in Norway.

The bloc is negotiating new green policies, including launching a second EU carbon market for the buildings and transport sector to help cut planet-warming emissions faster.