The EU carbon market saw financial firms drive the majority of activity in 2025, as highlighted in the European Securities and Markets Authority’s (ESMA) latest annual report.
- The EU carbon market saw financial firms drive the majority of activity in 2025, as highlighted in the European Securities and Markets Authority's (ESMA) latest annual report.
According to the report, these financial intermediaries played a crucial role, providing essential liquidity and serving as counterparties for non-financial companies. This includes a range of entities such as investment firms and credit institutions, which facilitated compliance-obligated firms in accessing emission allowances and managing their price risks effectively.
Eu carbon: Significant Trading Volume and Market Value
Data from the report reveals that financial institutions accounted for around 62 per cent of the total trading volumes within the EU carbon market. The market’s total value surged to €777 billion in 2025, largely driven by robust trading activity and rising market prices.
Market Fluctuations in Early 2026
The landscape shifted in early 2026, with prices experiencing a notable 29 per cent decline over a three-month span. This period also marked heightened market volatility, reaching its peak in two years. ESMA attributes these fluctuations to contrasting expectations around future EU Emission Trading System (ETS) rules, varying energy costs, and broader macroeconomic factors.
Price Trends and Auction Revenues
Despite these challenges, the report indicates that the carbon market has demonstrated resilience, with no significant concerns raised about market integrity or transparency. The average annual price for EU emission allowances increased by 13 per cent compared to 2024, and auction revenues grew by 11 per cent, despite a slight decrease in the overall volume of allowances offered at auction.
Future Oversight and Recommendations
Looking ahead, ESMA raised concerns regarding the slow adoption of Legal Entity Identifiers (LEIs) within the Union Registry. These unique codes are essential for tracking and identifying parties involved in financial transactions. The authority recommends making LEIs mandatory for all trading accounts, a requirement it suggests should extend to the upcoming ETS2 system, to enhance transparency and regulatory oversight in the carbon market.
