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Climate Action

Ensuring the integrity of the European carbon market

On 14 July 2021, the European Commission adopted a series of legislative proposals setting out how it intends to achieve climate neutrality in the EU by 2050, including the intermediate target of an at least 55% net reduction in greenhouse gas emissions by 2030. The package proposes to revise several pieces of EU climate legislation, including the EU ETS, Effort Sharing Regulation, transport and land use legislation, setting out in real terms the ways in which the Commission intends to reach EU climate targets under the European Green Deal.

The European carbon market has grown substantially since its start in 2005. As it gets more sophisticated, it is important that the rules governing oversight of the market keep pace with its development and adequately address risks that may arise.

In order to foster confidence and ensure a safe and efficient trading environment, the European carbon market is subject to a robust oversight regime designed along the lines of the regime applicable to the European financial markets.

The main traders in the European carbon market are energy companies and industrial companies that have obligations under the EU Emissions Trading System (ETS). Financial intermediaries such as banks also trade, usually on behalf of smaller companies and emitters.

To better examine trading behaviours and the potential need for targeted actions, the Commission asked the European Securities and Markets Authority (ESMA) to analyse the trading of emission allowances. ESMA’s preliminary report on the EU carbon market confirms that it functions in an orderly manner, comparable to other financial markets, and that no specific cases of market manipulation have been detected by the relevant market authorities.

On 28 March 2022, ESMA published its final report regarding trading in the EU carbon market. The conclusions of ESMA’s comprehensive analysis are reassuring and confirm the conclusions brought by the preliminary report. Overall, ESMA considers that the data analysis has not unearthed any abnormality in the functioning of the EU carbon market from a financial supervisory perspective.

The observed evolutions of carbon prices and volatility are in line with market fundamentals. It is also reassuring that the national competent authorities have not reported any cases of market abuse. The Commission continues to work closely with national authorities. It is important that regulators keep a watchful eye on the market to ensure its integrity.

Preventing market abuse and other market misconduct

As from January 2018, emission allowances are classified as financial instruments by the revised Directive on Markets in Financial Instruments (MiFID2). Previously, only the derivative contracts of emission allowances were in the scope of financial market rules.

This classification constitutes an important element in safeguarding the carbon market from market abuse and other types of market misconduct regulated under the Market Abuse Regulation (MAR).

Financial market rules applicable to the carbon market mean that:

  • High integrity standards apply to all market participants, who are prohibited from engaging in manipulation through practices such as spreading false information or rumours;
  • Companies with large installations regulated by the EU ETS are subject to stricter rules on inside information to prevent unfair advantages among market participants;
  • Better transparency and simpler access to information (e.g. how much is traded and at what price on carbon exchanges) is available to all market participants;
  • Anti-money laundering safeguards (e.g. know-your-customer checks) are extended to all segments of the carbon market.

Relevant financial market legislation


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Frequently asked questions on oversight of the European carbon market (May 2020)

Competent authorities