Second blow from the EU to Spain: the ESMA does not see speculation in CO ₂

The European Securities and Market Authority (ESMA) has sent its preliminary report on the operation of the carbon market to the European Commission so that it can be analyzed at the meeting of the European Council next December in which the causes of the strong increases in electricity prices.

On this occasion, as happened last week with the report prepared by the European Agency of Regulators (ACER) -as advanced by elEconomista- it does not reflect the arguments put forward by Spain to defend the need to take urgent measures against speculation in the market for emission rights.

In this document, to which elEconomista had access, the organization presents an overview of the financial regulatory environment of the carbon market, as well as the tools available to supervisors to fulfill their responsibilities.

The Report, based on commercial data, offers an analysis of the evolution and volatility of the prices of emission rights (EUA) and derivatives on EUAs. For the initial evaluation of the active counterparties, the weekly position reports with respect to the derivatives were used.

The ESMA, in its preliminary analysis, has identified that the number of counterparties that maintain a position in rights futures has tended to increase since 2018 in all categories of counterparties, in relatively homogeneous proportions in line with the observed expansion of the Sistema market. of Emissions Trading of the EU.

Open positions are largely, and almost uniformly, in the hands of investment firms and credit institutions, on the one hand, and non-financial counterparties, on the other, while the remaining percentage of open positions is held by investment funds and other financial counterparties, but it is still relatively low.

Esma rules out speculation by ensuring that the breakdown of open positions between the different categories of counterparties does not seem to have changed significantly since 2018 and, in general, is in line with the expected functioning of the market, in which non-financial entities buy rights futures to hedge their carbon price exposure, while financial counterparties act as intermediaries to facilitate trading and provide liquidity to the market. Esma concludes that emission rights are more linked to energy products than to financial ones.

The body will present its final report in early 2022

ESMA will present, like ACER, its final report on the functioning of carbon markets in Europe at the beginning of 2022. The intention of the institution is to work predictably until April in order to facilitate a concrete analysis of the situation and recommend -if deemed necessary- the changes that could be made. The ESMA warns that it has worked with restricted access to data and warns of the problems generated by Brexit and the quality of some of them to prepare their reports.

Source: The Economist