2021年欧盟碳交易报告（英）-68页_1mb

Summary of Carbon Trading in the European Union: An Economic Assessment of Market Functioning in 2021

Core Content

The European Union Emissions Trading Scheme (EU ETS) is the world's largest and most developed carbon market, playing a central role in the EU's climate policy. The scheme is designed to reduce greenhouse gas (GHG) emissions by setting a cap on emissions and allowing companies to trade emission allowances (EUAs). The EU has set ambitious climate targets, including a 55% reduction in GHG emissions by 2030 and climate neutrality by 2050. These goals are supported by market mechanisms that help drive down emissions through cost-effective price signals.

The EU ETS operates as a cap-and-trade system, where a limit is set on annual emissions, and the number of allowances is gradually reduced over time. Companies can either receive EUAs for free or purchase them through auctions. The scarcity of EUAs gives them value, and companies are incentivized to reduce emissions and trade allowances accordingly. Compliance entities must surrender sufficient EUAs to cover their emissions, and those that emit more than allowed face fines and the need to purchase additional allowances.

Main Views

• Market Functioning: The EU carbon market has shown resilience and is responding to market fundamentals such as policy targets, abatement costs, and commodity prices. The carbon price is not deviating significantly from these fundamentals, indicating a well-functioning market.

• Role of Derivatives: EUA futures and other derivatives have evolved from over-the-counter to exchange-traded markets, improving liquidity and market efficiency. Financial institutions play a key role in providing liquidity and enabling price formation by taking opposing positions to compliance entities.

• Financial Institutions: Investment firms account for a significant share of short positions, while compliance entities and non-financial firms hold a large portion of long positions. Despite their involvement, the overall size of their positions remains relatively small, suggesting that they are not the primary drivers of price changes.

• Market Resilience and Liquidity: The market has improved in terms of resilience, liquidity, and price formation. Exchanges like ICE have attracted a more diverse set of participants, enhancing the market's ability to function efficiently.

• Price Drivers: The recent increase in carbon prices is attributed to policy reforms, such as the Fit for 55 package, and the reduction of surplus allowances through the Market Stability Reserve (MSR). The MSR has been instrumental in reducing the supply of EUAs, thereby increasing their value and contributing to the rise in carbon prices.

• Speculative Trading: While some argue that financial speculation has led to a 'carbon price bubble', the report suggests that speculation is an integral part of a well-functioning market, as it helps in price formation and liquidity. There is no clear evidence that speculation has distorted the market significantly.

• Policy Implications: The report advises against imposing rigid position limits on EUA futures unless there is a clear market failure. Such measures could be counterproductive and potentially undermine the effectiveness of the EU ETS. Instead, it recommends that exchanges and national competent authorities (NCAs) monitor the market closely and respond to developments in real time.

Key Information

• EU ETS Overview:

  • The EU ETS covers around 41% of emissions from 10,000 energy-intensive installations across 27 EU member states, plus Iceland, Liechtenstein, and Norway.
  • It has gone through four phases, with each phase introducing changes aimed at improving efficiency and reducing emissions.
  • The MSR was introduced in 2019 to address the surplus of allowances and is expected to continue reducing the supply of EUAs until 2030 under the Fit for 55 proposals.

• EUA Mechanics:

  • EUAs are entitlements to emit 1 tonne of CO₂e and are used in the EU ETS.
  • The compliance year runs from 1 January to 31 December, with companies required to surrender EUAs by 30 April of the following year for emissions from the previous year.
  • Companies that emit more than their allocated EUAs must pay fines and purchase additional allowances.

• Auction Process:

  • The primary market for EUAs is conducted through auctions.
  • EEX currently runs the auctions, and they occur daily according to a predetermined calendar.
  • Auction revenues are used for climate- and energy-related purposes, with at least 50% required to be allocated to such uses.

• Market Trends:

  • EUA prices have increased by over 123% since 2018, reflecting the impact of policy reforms and market dynamics.
  • Natural gas costs are the main driver of rising energy prices in Europe, with carbon costs playing a smaller role.
  • The number of futures position holders has increased significantly, with investment firms and compliance entities being the primary participants.

• Derivatives and Exchanges:

  • Derivatives exchanges like ICE have improved the functioning of the carbon market by enhancing liquidity and resilience.
  • Derivatives, including futures and options, are essential for price formation and risk management.

• Conclusion:

  • The EU carbon market is functioning well and is aligned with the EU's climate objectives.
  • The market is responding to supply and demand conditions and is not significantly deviating from its fundamentals.
  • Financial institutions are important contributors to market liquidity and price formation.

Policy Recommendations

• Avoid Position Limits: Unless there is clear evidence of market failure or manipulation, imposing position limits on EUA futures may distort the market and reduce its efficiency.
• Enhance Market Surveillance: Exchanges should continue to monitor trading activity and ensure market integrity.
• Improve Reporting Consistency: ESMA should enhance its ability to monitor market developments by improving the consistency of position reporting across the EU.
• Support Risk Management: Encourage the use of hedging instruments among firms exposed to carbon price volatility to ensure stability during the transition to a low-carbon economy.

References

• The European Commission has asked ESMA to assess the functioning of the EU carbon market, and this report provides insights to support that assessment.
• The report draws on market microstructure, environmental economics literature, and empirical analysis based on market data.
• Interviews with market participants were also conducted to gather insights on trading strategies and market dynamics.