EU watchdog backs financial traders in carbon market ahead of Commission update
ESMA's annual ETS report endorses speculative participation as central to market function, arriving as the European Commission prepares regulatory changes to the scheme.
Financial firms trading in the EU emissions trading system provide services essential to the market's function, the EU's financial watchdog said on Thursday (2026-07-10), publishing the finding in its annual carbon market report timed ahead of expected European Commission regulatory changes to the scheme.4
The European Securities and Markets Authority's assessment directly addresses a political argument that resurfaces periodically in Brussels: that speculative activity in carbon allowances inflates prices or creates volatility damaging to industrial buyers. ESMA's report, backed by the authority's own market surveillance data, positions financial intermediaries as contributors to market depth rather than disruptive forces.4
ICE EUA Dec-rolling was at €79.88 on Monday (2026-07-13). ICE Endex TTF front-month held at €52.94 on Tuesday (2026-07-14). Carbon at those levels is active in European power dispatch economics, giving the regulatory debate concrete stakes for utilities, steelmakers and cement producers that need to manage allowance exposure months or years forward. [live prices]
ESMA published the report before Commission proposals are finalized, staking an official position that financial intermediaries improve price formation and provide the secondary market liquidity that compliance entities depend on. Without that secondary market depth, hedging costs rise and forward price signals become less reliable for industrial buyers.4
European carbon prices recovered from an initial decline driven by geopolitical news and made strong gains as positive fundamental sentiment spread among traders on Wednesday (2026-05-20), Carbon Pulse reported. UK allowances reached a three-month high in the same session. The episode illustrates the market responsiveness that ESMA attributes to active financial participation.3
On a parallel regulatory track, the EU Parliament's environment committee backed nearly all of the European Commission's proposals to ensure stable prices in the planned ETS2 scheme for buildings and transport, Montel reported on Thursday (2026-05-21). ETS2 is a separate scheme and not yet operational, but the political preference for managed price stability embedded in those proposals will weigh on Commission decisions about market structure across both systems.1
Spanish utility Iberdrola described the EU ETS as a "key" driver of European energy independence and industrial decarbonisation on Wednesday (2026-05-20), calling electrification the "best route" to strengthening energy security, Montel reported. The position from a major compliance buyer reinforces ESMA's case: liquid secondary markets with active financial participation are what allow industrial hedgers to access depth when they need it.2
ESMA can recommend; it cannot legislate. The Commission will draw its own conclusions, and political appetite for some form of market intervention is not spent, as the ETS2 price stability provisions show. Whether the proposals that emerge target position limits, reporting requirements or market access criteria will determine how much practical protection ESMA's endorsement provides to financial traders in the scheme.4,1