BARCELONA – Despite concerns that speculation could jeopardize the emissions trading system, the use of risk management must be included for the carbon market to function properly, according to speakers at the European climate summit on Tuesday.
With the rapid rise in carbon prices, policy makers have turned their attention to the role of financial institutions in ETS.
Policymakers argue that the sharp increase in the market value of European perks – credits that allow emissions of the equivalent of one metric ton of carbon dioxide over a specified period – reflects changing market fundamentals and speculative activity by financial institutions.
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The European Securities and Markets Authority is to investigate further.
“Speculators can push up carbon prices, but if financial institutions are going to exit ETS, we will see an entirely different ETS,” said Guy Turner, CEO of London-based advisory firm Trove Research. “This is an amendment currently under discussion in the European Parliament, and it could change the name of the game.”
In March, the ESMA published a report stating that it found no current major shortfalls in the functioning of the EU carbon market, based on available data. However, the authority also laid down policy recommendations to improve market transparency and monitoring.
“Transparency and good-quality data on carbon allowances, as well as tighter controls on the spending of member states’ auction revenues, would be welcome,” said Bernadette Papp, head of research at environmental commodity trading house Vertis Environmental Finance.
“The ESMA report is indeed very important but it also mentions that the analysis was not based on a complete set of data. The EU ETS is transparent compared to other carbon markets, but there is room for improvement,” Papp said. .
The European Climate Summit, organized by the International Emissions Trading Association, runs from 23-25 May in Barcelona.
Credit: www.marketwatch.com /