The European Union has said there are no major abnormalities in the growing carbon market of the 27-member bloc, but Brexit and transparency issues are a problematic, the EU’s Securities Watchdog reported on March 28, Reuters reported.

Made up of a primary market of allowances and secondary market of derivatives based on permitted allowances, the EU’s programme for reducing carbon emissions is quickly becoming a hot investment area, causing some concern by connected stakeholders.

Accordingly, permits in the European Union carbon market hit a record high of €98.49 in February’s spot price indicating a 150% increase on 2021 price. This has prompted some EU nations, namely Poland to ban speculation in the market as it is detrimental to development.

In response, the EU’s Securities and Markets Authority (ESMA), on Monday found no major issues, repeating conclusions from another assessment back in November of the market which accounted for some 90% of the global carbon market value in 2020, the Reuters report noted.

“Based on the data set that we have available, we cannot certainly claim that we did see any cornering of the market,” Carsten Ostermann, head of ESMA’s trading unit, told a media call.

Long positions in carbon derivatives are mainly held by non-financial entities for hedging purposes, with short positions mainly held by banks and investment firms providing liquidity and carbon financing, the report said.

Positions by investment funds remain limited, and principally held by funds based outside the bloc, it said.

High-frequency trading firms and market makers engaging in algorithmic trading, often from Britain and the United States, hold only small net positions.

The watchdog proposed extending controls for managing positions to platforms trading emissions derivatives, and publishing weekly reports on open positions in futures.

ESMA said it will consider whether to tighten transparency requirements for emission allowances and their derivatives need tightening.

EU policymakers could go further and consider limits on positions that can be held in carbon derivatives, a measure already in place for some commodities, along with centralised market monitoring of the carbon market at the EU level, it added.

ICE Endex, which dominates open positions in secondary trading with an 85% market share, moved from London to the Netherlands in 2021 due to Brexit, making it harder for ESMA to track users in Britain.

“These challenges make it very complex to obtain a clear picture of who trades and from where and need to be addressed in order to improve future monitoring of EU carbon markets,” ESMA said.