7 October 2024

ESMA50-43599798-10379

ESMA Market Report

EU carbon markets 2024

ESMA Market Report on EU carbon markets 2024 2

ESMA Market Report on EU carbon markets 2024

© European Securities and Markets Authority, Paris, 2024. All rights reserved. Brief excerpts may be reproduced or translated provided
the source is cited adequately. The reporting period of this report is 1 January 2023 to 31 December 2023, unless indicated otherwise.
Legal reference of this report: Directive (EU) 2023/959 of the European Parliament and of the Council of 10 May 2023 amending Directive
2003/87/EC establishing a system for greenhouse gas emission allowance trading within the Union and Decision (EU) 2015/1814
concerning the establishment and operation of a market stability reserve for the Union greenhouse gas emission trading system ‘ESMA
shall regularly monitor the integrity and transparency of the European carbon market, in particular with regard to market volatility and price
evolution, the operation of the auctions, trading operations on the market for emission allowances and derivatives thereof, including over-
the-counter trading, liquidity and the volumes traded, and the categories and trading behaviour of market participants, including positions
of financial intermediaries. ESMA shall include the relevant findings and, where necessary, make recommendations in its assessments to
the European Parliament, to the Council, to the Commission and to the European Systemic Risk Board in accordance with Article 32(3) of
Regulation (EU) No 1095/2010 of the European Parliament and of the Council. For the purposes of the tasks referred to in the first sentence
of this paragraph, ESMA and the relevant competent authorities shall cooperate and exchange detailed information on all types of
transactions in accordance with Article 25 of Regulation (EU) No 596/2014 of the European Parliament and of the Council’.

The report and its contents do not prejudice or impair ESMA’s regulatory, supervisory or convergence activities, nor the obligations of
market participants thereunder. The information contained in this publication, including text, charts and data, exclusively serves analytical
purposes. It does not provide forecasts or investment advice, and does not prejudice, preclude or influence in any way past, present or
future regulatory or supervisory obligations on market participants. Some of the charts and analyses in this report are based on data not
proprietary to ESMA, including from commercial data providers and public authorities. ESMA uses these data in good faith and does not
take responsibility for their accuracy or completeness. ESMA is committed to constantly improving its data sources and reserves the right
to alter data sources at any time. The third-party data used in this publication may be subject to provider-specific disclaimers, especially
regarding its ownership, its reuse by non-customers and, in particular, the accuracy, completeness or timeliness of the data provided, and
the provider’s liability related thereto. Please consult the websites of the individual data providers, whose names are detailed throughout
this report, for more details on these disclaimers. Where third-party data are used to create any chart, table or analysis the third party is
identified and credited as the source. In each case, ESMA is cited by default as a source, reflecting any data management, cleaning,
processing, matching, analytical, editorial or other adjustments to raw data undertaken.

European Securities and Markets Authority (ESMA)

Economics, Financial Stability and Risk Department
201-203 Rue de Bercy
FR-75012 Paris
risk.analysis@esma.europa.eu

ESMA - 201-203 rue de Bercy - CS 80910 - 75589 Paris Cedex 12 - France - www.esma.europa.eu
ESMA Market Report on EU carbon markets 2024 3

Table of Contents
1. Executive Summary ...................................................................................................................... 4
2. Essential statistics ......................................................................................................................... 5
3. Prices and volatility ....................................................................................................................... 6
3.1. Prices decline, volatility contained ........................................................................................ 6
3.2. Higher supply coincided with lower demand ......................................................................... 6
3.3. Key indicators ........................................................................................................................ 7
4. Auctions ........................................................................................................................................ 8
4.1. Volumes increased................................................................................................................ 8
4.2. Oversubscribed auctions despite limited participation .......................................................... 8
4.3. Concentration remains high .................................................................................................. 8
4.4. Key indicators ........................................................................................................................ 9
5. Secondary markets – Trading ..................................................................................................... 10
5.1. Stable on-exchange trading ................................................................................................ 10
5.2. Off-exchange: Activity increased toward year-end ............................................................. 11
5.3. Key indicators ...................................................................................................................... 12
6. Positions in EUA derivatives ....................................................................................................... 14
6.1. Derivatives positions cycle .................................................................................................. 14
6.2. Position holders ................................................................................................................... 14
6.3. Key indicators ...................................................................................................................... 15
7. Conclusion .................................................................................................................................. 16
7.1. Monitoring............................................................................................................................ 16
7.2. Policy recommendations ..................................................................................................... 16
8. Annexes ...................................................................................................................................... 17
8.1. Data sources ....................................................................................................................... 17
8.2. Counterparty classification .................................................................................................. 17
8.3. Data handling ...................................................................................................................... 17
ESMA Market Report on EU carbon markets 2024 4

Executive Summary
The revision of the EU Directive establishing a system for greenhouse gas (GHG) emission allowance
trading within the Union (EU ETS Directive) requires ESMA to “monitor the integrity and transparency
of the European carbon market, in particular with regard to market volatility and price evolution, the
operation of the auctions, trading operations on the market for emission allowances and derivatives
thereof, including over-the-counter trading, liquidity and the volumes traded, and the categories and
trading behaviour of market participants, including positions of financial intermediaries.“
In response to this mandate, ESMA publishes an annual report on EU carbon markets, organised as
follows: Section 1 on prices and volatility, Section 2 on auctions, Section 3 on secondary markets
trading and Section 4 on derivatives market positions. For this, the report is exploiting a combination
of commercial and regulatory data sources, providing a unique level of detail and insights into the
functioning of the EU ETS market.
This first edition builds on the 2022 report ESMA published on the trading of EU emission allowances
(EUAs), mandated in the context of rising energy prices and a three-fold increase in EUA prices in
20211. Since the 2022 ESMA report, prices have significantly come down against a different economic,
geopolitical, and political backdrop. Prices in the EU ETS have declined since the beginning of 2023,
averaging EUR 83 per tonne of CO2-equivalent emissions during the year. This reflected a combination
of lower demand for EUAs from weak industrial activity, falling natural gas prices and decarbonisation
of the European energy sector, along with increased supply following the decision to auction additional
allowances to finance the REPowerEU plan. Intraday and historical volatility measures remained low
throughout the observation period (20232).
Nevertheless, as this report makes clear, some of the structural features of EU carbon markets remain
unchanged since the 2022 ESMA report. EUA primary markets remain significantly concentrated, with
around 10 participants buying 90% of auctioned volumes, reflecting a preference by most EU ETS
operators to source allowances from financial intermediaries. The vast majority of trading in secondary
markets is done through derivatives, reflecting the annual EU ETS compliance cycle where non-
financial sector firms hold long positions (for compliance purposes) while banks and investment firms
hold short positions.
The EU ETS Directive also mandates ESMA to make recommendations in its assessments, where
necessary. The analysis has not unveiled any significant issue in the functioning of EU carbon markets.
However, the reporting of prices for transactions combining the simultaneous purchase and sale of
financial instruments under MiFIR transaction reporting (RTS 22) could be improved, which would help
with the identification of trading strategies.

1
See ESMA (2022), Final Report: Emission allowances and associated derivatives.
2
In the section on prices and volatility the report covers developments through mid-2024. The other sections rely on 2023
regulatory data.
ESMA Market Report on EU carbon markets 2024 5

Essential statistics
Prices and volatility
2023 2022
Spot price (EUR/tCO2) 83 81
5Y forward price (EUR/tCO2) 105 103
Volatility (%)
Historical 1.9 3.3
Intraday 1.0 1.5
Total Number of Allowances in Circulation (MtCO2e) 1,112 1,135
Verified GHG emissions (MtCO2e) 1,127 1,313

Primary markets – Auctions

2023 2022
Number of auctions held 223 222
Number of allowances auctioned (MtCO2e) 523 491
Volumes of allowances auctioned (EUR bn) 43.6 38.8
Number of participants 44 N/A
Non-financials 30 N/A
Financials 14 N/A
Coverage ratio (%) 202 215

Secondary markets – Trading

tCO21 billion (2023) EUR billion (2023)
Trading volumes
On exchange 9.3 648
Futures 7.6 643
Options 1.7 0.9
Other contracts (including spot) 0.03 4.1
Off exchange 0.9 72.5
Share of volumes traded (%)
Compliance entities and other non-financials 31 26
Investment firms and credit institutions 56 63
Investment funds 12 10
Rest2 1 1

Positions in EUA derivatives

2023
Average daily number of position holders 783
Compliance entities and other non-financials 205
Credit institutions and investment firms 118
Investment funds 406
Rest* 55
Average daily net long positions (thousands)
Compliance entities and other non-financials +359
Credit institutions and investment firms -362
Investment funds -2
Rest2 +3
Note:1tCO 2Rest=
2= Tonnes of CO2-equivalent emissions. Other financials and unclassified entities (e.g. due to the absence of identifiers).
Sources: ICE Endex, European Energy Exchange, Nasdaq Oslo, Refinitiv Eikon, Union Registry, ESMA
ESMA Market Report on EU carbon markets 2024 6

Prices and volatility

Summary
EUA prices declined in 2023 after reaching 100 EUR/tCO2 for the first time in February. Price
developments were mainly driven by a weak economic activity weighing on demand, increased coal-to-
gas fuel switching and higher renewable energy production along with EU climate policies. The EUA
forward curve flattened amid a falling yield environment and volatility stayed below 2022 levels. Verified
GHG emissions of firms in EU ETS scope fell sharply while overall EUA supply temporarily increased
due to the front-loading of auctioned volumes. However, combined with the absorption of allowances by
the Market Stability Reserve, this resulted in a broadly stable number of allowances in circulation.

The most liquid front-year December future

Prices declined, volatility contract traded close to the EUA spot price
contained throughout 2023. Longer dated futures traded
above the spot price, as reflected in the upward-
The price of EUAs overall declined in 2023 after
sloping forward curve (CMR.3). However, due to
breaching the EUR 100 per tonne of CO2-
falling yields in 2023 (as main component of EUA
equivalent emissions (/tCO2) mark for the first
futures’ cost of carry 5 ) the forward curve also
time in February 2023. Prices ended the year
flattened.
below EUR 70/tCO2 before recovering partially in
1H24 (CMR.2). Historical volatility6 remained contained in 2023
(1.9%) and 1H24, markedly below its 2022 level
The decline was driven by three main factors.
(3.3%). Both, historical and intraday volatility
First, a wider economic slowdown across the EU
measures fell in 2023 (CMR.5 and CMR.6).
compared to 2022 and lower energy consumption
weighed on the demand for EUAs.
Second, amid falling natural gas prices, fuel
Higher supply coincided
switching started to play a role in the power with lower demand
generation sector again, leading to a reduction in
In 2023, 1,127mn tonnes of CO2 were offset
coal-based power generation. Together with a
under the EU ETS7. This was a decrease of 16%
significant increase in renewable energy
year-on-year primarily driven by a 24% reduction
production, this resulted in lower GHG emissions.
in verified GHG emissions from power
Third, the EU’s climate policy agenda affected generation8. There were 560mn EUAs allocated
EUA prices in two ways. The EU ETS reform – for free (-1%) and 523mn auctioned (+7%)9, an
including a faster reduction of the ETS cap 3 – overall increase of annual supply by 3%. Demand
helped lift EUA prices to their record high in thus exceeded supply by 43mn EUAs and the
February. On the other hand, the EU’s renewable total number of allowances in circulation
energy acceleration program (REPowerEU), (TNAC) decreased by 2% to 1.1bn. This
which led to front-loading auctioned volumes to compares to a 22% decrease of the TNAC in
finance the energy transition 4 , had a negative 2022 (CMR.1).
impact on prices.

3 6
Other elements of the reform included expansion of the Measured as annual standard deviation of daily returns.
ETS to further sectors, creation of a second ETS, the new 7
Preliminary numbers as of April 2024.
EU Carbon Border Adjustment Mechanism, and a
8
strengthening of the Market Stability Reserve. Total power generation fell by only 2.3% highlighting that
4 emission reductions mainly resulted from the switch to
See Revised 2023 auction calendar published.
less polluting energy sources, including renewables.
5
Futures’ costs of carry generally comprise the risk-free 9
The number of auctioned allowances is net of 323mn
interest rate and storage costs less a potential EUAs that were absorbed by the Market Stability Reserve
convenience yield. However, storage costs and
(369mn EUAs were absorbed in 2022) and contains 35mn
convenience yield for EUAs are negligible.
EUAs to finance the REPowerEU program.
ESMA Market Report on EU carbon markets 2024 7

Key indicators
CMR.1 CMR.2
Supply and demand Spot price
GHG emissions declined 16% in 2023 Spot prices averaged EUR 83/tCO2 in 2023
1,500 110

1,000 100

90
500
80
-
70
-500
60
-1,000
50

-1,500
40
2021 2022 2023 Jul-22 Jan-23 Jul-23 Jan-24 Jul-24
Auctions Free allocations GHG emissions TNAC
Spot price 3MMA
Note: Annual supply (free allocations and auctions) and demand (GHG Note: Daily spot price of EU emission allowances. 3MMA= three-month
emissions) of EUAs, in metric tonnes of CO2. TNAC=Total Number of moving average.
Allowances in Circulation. Sources: Refinitiv EIKON, ESMA.
Sources: European Commission, ESMA.

CMR.3 CMR.4
Forward curve Cost of carry
Forward curve flattened and shifted lower in 2023 Cost of carry declined
120 35 45%

40%
110 30
35%
25
100 30%
20 25%
90
15 20%

80 15%
10
10%
70 5
5%

60 0 0%
T T+1 T+2 T+3 T+4 T+5 Jul-22 Jan-23 Jul-23 Jan-24 Jul-24
Jul-22 Jul-23 Jul-24 5y forward spread (EUR) 5y forward spread (%)
Note: Forward curve of December futures contracts on EU emission Note: Absolute and relative 5-year forward spread of EU emission allowances,
allowances traded on ICE Endex. calculated as difference between front year and 5-year futures.
Sources: Refinitiv EIKON, ESMA. Sources: Refinitiv EIKON, ESMA.

CMR.5 CMR.6
Historical volatility Intraday volatility
Historical volatility averaged 2% in 2023 Intraday volatility remained low
8% 8%

7% 7%

6% 6%

5% 5%

4% 4%

3% 3%

2% 2%

1% 1%

0% 0%
Jul-22 Jan-23 Jul-23 Jan-24 Jul-24 Jul-22 Jan-23 Jul-23 Jan-24 Jul-24
Historical volatility 3MMA Intraday volatility 3MMA
Note: Historical volatility of EU emission allowance prices calculated as 20-day Note: Intraday volatility of EU emission allowance prices calculated following
standard deviation of daily returns. 3MMA= three-month moving average. the Parkinson method. 3MMA= three-month moving average.
Sources: Refinitiv EIKON, ESMA. Sources: Refinitiv EIKON, ESMA.
ESMA Market Report on EU carbon markets 2024 8

Auctions
Summary
In 2023, 523mn emission allowances (EUR 44bn) were auctioned, a 7% increase from 2022All auctions
were oversubscribed and the number of auction participants was around 20 per auction. Investment
firms and credit institutions along with non-financial sector firms without compliance obligations
represented the main actors in the primary market. The majority of EUAs were bought by entities
domiciled in Germany (57%). Auctioned volumes remained significantly concentrated across only a few
market participants, with 90% of EUAs acquired by the top 10 participants.

along with other non-financial entities, CMR.9).

Volumes increased However, this includes entities belonging to
In 2023, a total of 523mn10 emission allowances groups with other subsidiaries under compliance
were auctioned on the European Energy obligation. According to a survey, the low
Exchange (EEX), equivalent to an annual participation by compliance entities in auctions
volume of EUR 44bn11. This represents a year- was mainly driven by the convenience and cost-
on-year increase of 7% in the number of effectiveness offered by financial intermediaries
auctioned EUAs. The increase was anticipated (acquiring allowances on their behalf), low
under the EU’s response to the energy market volumes or frequency of EUA purchases, and
shortages caused by the Russian invasion of limited expertise in financial markets13.
Ukraine (REPowerEU) which is partially financed
More than half of auctioned allowances were
by the EU ETS. An additional EUR 20bn of
acquired by entities domiciled in Germany (57%),
auctioned EUAs are envisaged from 2023 to
followed by entities domiciled in the UK (17%)
2026, followed by a faster tightening of supply
part of large cross-border groups with
from 2026 onwards.
installations within the EU ETS scope (CMR.10).
A total of 223 auctions took place throughout
2023 with an average monthly turnover of
43mn EUAs (EUR 3.6bn). Reduced volumes
High concentration
were auctioned in August and December, The primary market remains considerably
reflecting the usually less active summer and concentrated with only 44 active participants –
holiday periods (CMR.7). compared with approximately 10,000 installations
with compliance obligations.

Oversubscribed auctions In 2023, ten participants alone purchased 90% of

auctioned EUAs (CMR.11). In each auction, the
despite limited participation top three buyers usually got allocated between
Auctions attracted 20 participants on average 50% and 80% of the total volume.
out of which 15 bidders were successful (CMR.8). The ESMA 2022 report highlighted that most
Around 40% of the bids were successful, 4pp auction participants acted as net sellers of
below the previous year. All auctions were emission allowances in the secondary market,
oversubscribed with an average cover ratio 12 of and some may purchase EUAs from auctions as
202%, 13pp less than in 2022 (CMR.12). brokers on behalf of their clients.
About 80% of EUAs were purchased by entities
not under direct compliance obligation in the EU
ETS (investment firms and credit institutions,

10 12
The number of auctioned allowances is net of 323mn The cover ratio is defined as aggregate volume of bids
EUAs absorbed by the Market Stability Reserve (vs. divided by the auction volume, in tCO2.
369mn EUAs absorbed in 2022) and includes 35mn EUAs 13
See Europe Economics, Participation in the EU ETS
to finance the REPowerEU program.
markets – A report for DG CLIMA.
11
Thereof 6mn EUAAs, equivalent to EUR 470mn.
 ESMA Market Report on EU carbon markets 2024 9

Key indicators
CMR.7 CMR.8
Monthly auctioned volumes Number of auction participants
44mn EUAs auctioned per month Around 20 participants per auction
70 30
Millions

60 25

50
20

40
15
30
10
20
5
10

- -
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan-23 Mar-23 May-23 Jul-23 Sep-23 Nov-23
Total bidders Unsuccessful bidders
EUAA EUA
Note: Number of auctioned European emission allowances (EUA) and Note: Total number of bidders and number of unsuccessful bidders in auctions
European aviation allowances (EUAA), in million. of European emission allowances (EUA) and 1-month moving averages.
Sources: Bafin, ESMA. Sources: EEX, ESMA.

CMR.9 CMR.10
Auction participants by sector Auction participants by domicile
Most EUAs purchased by banks and inv. firms German entities bought 57% of auctioned EUAs
100% 100%
90% 90%
80% 80%
70% 70%
60% 60%
50% 50%
40% 40%
30% 30%
20% 20%
10% 10%
0% 0%
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Inv. firms or credit institutions Other non-financials
DE GB SI CZ IE Others
Compliance entities
Note: Distribution of auctioned European emission allowances (EUA) by Note: Distribution of auctioned European emission allowances (EUA) by
classification of auction participants. domicile of auction participants.
Sources: Bafin, ESMA. Sources: Bafin, ESMA.

CMR.11 CMR.12
Share of top 10 auction participants Auction cover ratio
Top 10 participants bought 87% of EUAs All EUA auctions were oversubscribed
1 400%

350%
0.8
300%

0.6 250%

200%
0.4
150%

0.2 100%

50%
0
1 2 3 4 5 6 7 8 9 10 11 0%
Jan-23 Mar-23 May-23 Jul-23 Sep-23 Nov-23
Auction cover ratio
Note: Top-10 auction participants by share of annual auction volume of
European emission allowances (EUA). Note: Auction cover ratio for European emission allowances (EUA).
Sources: Bafin, ESMA. Sources: EEX, ESMA.
ESMA Market Report on EU carbon markets 2024 10

Secondary markets – Trading

Summary
Trading activity in EUAs was broadly stable in 2023, with cyclical peaks in March and December linked
to the rollover of future contracts on expiry. Overall, 9.3 bn tonnes of CO2-equivalent emissions (tCO2,
equivalent to EUR 648 bn) were exchanged on EU trading venues in 2023, through 3.2mn transactions.
Over-the-counter trading activity was much smaller in comparison, with 864mn tCO2 (EUR 72.5bn)
exchanged in total. Investment firms and credit institutions dominated both the on- and off-exchange
markets, accounting for 56% of total trading volumes, followed by other non-financials (25%) and
investment funds (12%). 68% of the volumes were traded by non-EEA entities (34% US and 24% UK),
while the most active EEA entities were domiciled in DE (14%) and NL (8%). The vast majority of
transactions involved futures contracts (99%), though options trade size (in terms of tCO2) tend to be
larger than other derivative types. Spot contracts saw a large increase in OTC trading volumes in
December.

Nonetheless, the daily number of transactions

Stable on-exchange (CMR.13) shows three main periods of increased
trading activity. One, in June, possibly relates to the
publication of the Green Finance Package by the
In 2023, a total of 9.3bn tonnes of CO2-
European Commission. The others were in
equivalent emissions (tCO2) in EUA contracts
March and December, when the most liquid
were bought on EU trading venues, worth
futures contracts expire. The increased trading
EUR 648bn. These originated from 3.2mn
activity was also reflected in the larger volumes
transactions. 14 Most of the on-venue trading
of tCO2, and monetary value exchanged.
occurred through futures (or mini-futures 15 )
derivatives contracts, which represented 99% of Entities with large compliance obligations often
the transactions and 81% of total trading volumes buy derivatives to lock in EUA prices and limit
(CMR.17). There were only few transactions in balance sheet exposure. This strategy helps
option contracts (8,707), which accounted for them control cash flow throughout the year.
almost 18% of total trading volumes in 2023 Compliance entities typically purchase December
(1.7bn tCO2 or EUR 0.9bn).16 futures. After buying, they have two main options.
They can hold them until expiry and take delivery
The main actors in EUA secondary markets were
of the physical underlying. Alternatively, they can
investment firms and credit institutions, involved
roll over their position to March (which coincides
in 56% (5.2bn tCO2 or EUR 408bn) of the total
with the annual publication of verified GHG
volumes exchanged. In line with the ESMA 2022
emissions by compliance entities), or to the
report, EUA trading was mainly concentrated
following December contract.17
within entities domiciled in the US (34% of the
volumes), followed by the UK (24%), DE (14%) Within the on-exchange trading segment of the
and NL (8%). market, a few particular trading strategies have
been identified. First, there is evidence of trading
On aggregate, trading in EUA derivatives was
activity from high-frequency trading (HFT) firms
stable in 2023, without any major movement.
and some financial intermediaries engaging in

14 16
On-exchange transactions and trading volumes refer, in Monetary volumes (in EUR) are calculated by the
this section, to the buy-side leg (since sell-side on multiplication of price, quantity and multiplier. The
exchange transactions mirror buy transactions and are multiplier is expressed in number of lots included in a
reported separately). Hence, figures should be read as transaction (1,000 for future and option contracts and 1
buy transactions and volumes bought. See Annex for the for spot derivatives). In case of options, this approach
methodology. might underestimate the total monetary value. The impact
15
For more information, see EUA Mini Futures (ICE on the overall volumes remains yet limited.
17
ENDEX). See Europe Economics, Participation in the EU ETS
markets – A report for DG CLIMA.
ESMA Market Report on EU carbon markets 2024 11

algorithmic trading. Based on number of that receive few or no freely allocated allowances
transactions, two of the three most active buyers tend to buy derivatives to hedge their future
in the market were HFT firms, including one exposure to carbon prices.
domiciled outside the EU. Second, 39% of the
total volumes traded on-exchange (3.6bn tCO2, Off-exchange: Activity
or EUR 198bn from 498,000 transactions)
originated from trades on spreads – which may
increased toward year-end
also involve strategies based on algorithmic Over-the-counter (OTC) trading only accounted
trading. These are transactions that combine the for a small share of total trading volumes in EUAs.
simultaneous purchase and sale of more than There were 524,000 OTC transactions in 2023
one financial instrument. The trades executed are through which 864mn tCO2 (or EUR 72.5bn) were
contingent on each other as a ‘package’ with the exchanged, i.e. less than one-tenth of the volume
objective to create a non-directional exposure to transacted on-exchange. A positive correlation
EUA maturity spreads. (0.51) between the number of on-exchange and
off-exchange transactions per day points to
These strategies can be undertaken by investors
moderate co-movement of market activity in the
with a low risk profile that seek exposures to the
two market segments.
spread between two contracts rather than to the
underlying instrument of the derivative; or when Trading in spot contracts drove an increase in
counterparties roll over their positions from one OTC trading activity in December (CMR.20), with
year to the next. These spreads are concentrated 44mn tCO2 exchanged compared to a monthly
on the most liquid end-of-year contracts. average of 9.5mn tCO2 for the rest of the year.
December-to-December spreads make up over One possible explanation is that compliance
80% of all traded strategies, with the 2023-to- entities with low GHG emissions and/or obtaining
2024 spread accounting for around 60% of the the majority of their allowances through free
total. The rest of the spread strategies are a mix allocation tend to buy spot allowances to make up
of month-ends to year-ends (e.g. Mar-2023 to the shortfall in emissions, usually close to the
Dec-2023), and spreads between the daily future expiry date of EUA derivatives contract.18
and the end of month future (mainly in
The majority of total trading (48%) occurred
December).
within investment firms or credit institutions or
Another type of strategy already identified in the between the latter and other non-financial sector
ESMA 2022 report relates to ‘buy-and-hold’ entities (19%) (CMR.21). Concerning options,
investors that are seeking long-term, directional there is evidence in the data that major credit
exposure. However, the assets under institutions purchase instruments from clearing
management of the funds tracking EUAs have members to sell to non-financial counterparties.
fallen significantly since 2022, in line with prices.
Finally, entities with larger compliance obligations

18
Extract also taken from Europe Economics, Participation
in the EU ETS markets – A report for DG CLIMA.
 ESMA Market Report on EU carbon markets 2024 12

Key indicators
CMR.13 CMR.14
Daily number of transactions on-exchange Daily trading volumes on-exchange
Increase in December Peaks in March and December
30,000 100

Millions
90
25,000
80
70
20,000
60

15,000 50
40
10,000 30
20
5,000
10
0
0 Jan-23 Mar-23 May-23 Jul-23 Sep-23 Nov-23
Jan-23 Mar-23 May-23 Jul-23 Sep-23 Nov-23

Note: Daily number of on-exchange buy transactions. 30/days moving Note: On-exchange daily trading volumes in EUA derivatives, in millions of
average in orange. tonnes of CO2-equivalent emissions.
Sources: MiFIR, ESMA. Sources: MiFIR, ESMA.

CMR.15 CMR.16
On-exchange volumes by counterparty sector On-exchange volumes by counterparty country
Mainly investment firms and credit institutions US and UK entities dominate the market
1,200 1200
Millions

1,000 1000

800 800

600 600

400
400
200
200
0
0 Jan-23 Mar-23 May-23 Jul-23 Sep-23 Nov-23
Jan-23 Mar-23 May-23 Jul-23 Sep-23 Nov-23
US GB DE
Other Funds NL FR AU
CH CZ SG
Compliance entities Other non-financials
SI Other EEA Other Non-EEA
Inv. firms or credit institutions None
Note: Monthly trading volumes by counterparty country, in million of tonnes of Note: Monthly trading volumes by counterparty country, in million of tonnes of
CO2-equivalent emissions CO2-equivalent emissions
Sources: MiFIR, ESMA. Sources: MiFIR, ESMA.

CMR.17 CMR.18
On-exchange volumes by instrument type Daily number of transactions off-exchange
Majority of futures contracts Cyclical increases in activity
1,200 4,500
Millions

4,000
1,000
3,500
800
3,000

600 2,500

400 2,000

1,500
200
1,000
0
Jan-23 Mar-23 May-23 Jul-23 Sep-23 Nov-23 500

Futures Options Spot 0

Jan-23 Mar-23 May-23 Jul-23 Sep-23 Nov-23
Note: Monthly trading volumes by instrument type, in million of tonnes of Note: Daily number of off-exchange buy transactions in EUA derivatives. 30-
CO2-equivalent emissions day moving average in green.
Sources: MiFIR, ESMA. Sources: MiFIR, ESMA.
 ESMA Market Report on EU carbon markets 2024 13

CMR.19 CMR.20
Daily volumes of transactions off-exchange Off-exchange volumes by instrument type
Peak in December Increase in spot trading in 2H23
25 160
Millions

140
20
120

15 100

80
10 60

40
5
20

0 0
Jan-23 Mar-23 May-23 Jul-23 Sep-23 Nov-23 Jan-23 Mar-23 May-23 Jul-23 Sep-23 Nov-23
Futures Spot Options Other
Note: Daily off-exchange trading volumes in EUA derivatives, in million of Note: Monthly off-exchange trading volumes by type of contracts, in million of
tonnes of CO2-equivalent emissions. 30-day moving average in orange. tonnes of CO2-equivalent emissions.
Sources: MiFIR, ESMA. Sources: MiFIR, ESMA.

CMR.21
Sankey chart
Main actors: Investment firms, credit institutions, other financial entities

Note: Trading activity by counterparty sector on and off-exchange. Flows are proportional to tonnes of CO2 equivalent emissions exchanged. Orange lines
represent off-exchange trading, while green lines are for on-exchange. _B indicates that the counterparty is in the buy leg of the transaction. _S indicates that the
counterparty is in the swll leg of the transaction.
Sources: MiFIR, ESMA.

CMR.22 CMR.23
Total notional outstanding by sector Notional amounts traded intragroup
Open interest drops when Dec contract expires Stable intragroup trading
160 16
Billions
Billions

140 14

120 12
100
10
80
8
60
6
40
4
20

0 2
Sep-22 Dec-22 Mar-23 Jul-23 Nov-23 Feb-24
0
Other non-financials Other financials Jan-21 Jul-21 Jan-22 Jul-22 Jan-23 Jul-23 Jan-24
Investment firms or credit institutions Funds
Compliance entities EEA30 Non-EEA30
Note: Monthly notional amounts traded intragroup by counterparty domicile, EUR
Note: Notional amounts outstanding by week and sector of the reporting
bn. Only client reports included.
counterparty, EUR bn. Intragroup trades are excluded.
Sources: TRs, ESMA.
Sources: EMIR, ESMA
ESMA Market Report on EU carbon markets 2024 14

Positions in EUA derivatives

Summary
Derivatives markets play an important function in the EU ETS by facilitating the acquisition of EUAs by
compliance entities from financial intermediaries. Reflecting this, positions in EUA derivatives follow a
regular pattern mirroring the annual compliance cycle of the EU ETS. The December contract remained
the most traded in 2023. There were on average 406 funds holding around 6% of all EUA positions, with
funds turning increasingly short through the year as EUA prices declined.

CMR.24
Derivatives positions cycle Share of derivatives positions by contract expiry month
Liquidity shifted away from March contract
Positions in EUA derivatives follow a regular
100%
pattern reflecting the annual compliance cycle
90%
of the EU ETS. Compliance entities and other
80%
non-financials enter into a growing number of
70% Dec Dec
long futures positions through the year in
60%
anticipation of the EUA surrender date the
50%
following year. These positions are matched by a
40%
corresponding number of short futures positions Jun
Aug
30%
held by investment firms and banks (CMR.29). Sep

20%
Mar Mar
The number of positions usually peaks by mid- 10%
December in line with trading activity (see 0% Jan
2023 2024
previous section) when the most traded futures
Note: Share of gross positions in EUA derivatives, by contract expiry date. 2023 positions as of 1
contract (the ‘next-Dec’) expires. In 2023, the January 2023, 2024 positions as of 31 December 2023.
Sources: ICE Endex, EEX, Nasdaq Oslo, ESMA.
number of EUA positions peaked at 1.7 million on
15 December (CMR.25), including 650,000
positions in the Dec-23 contract. Some positions
are rolled over upon expiry of the December
contract, leading to an increase in the number of
Position holders
positions in other contracts with later expiry dates Derivatives markets play an important function in
(CMR.26). Nonetheless, the total number of the EU ETS by facilitating the acquisition of EUAs
positions dropped to a low of 1.1 million end- by compliance entities from financial
December as many entities took delivery of the intermediaries. Investment funds tend to track
EUAs. more closely EUA price developments and turned
increasingly net short in 2023 as prices declined
Up until now, the March futures contracts was
(CMR.30). In 2023, on average 406 investment
typically used by compliance entities as a ‘top-
funds held daily positions, in line with the ESMA
up’. This allowed them to acquire extra EUAs
2022 report. This compared with 206 compliance
between the December contract expiry and the
entities and other non-financials, and 118
EUA surrender date in April to match their GHG
investment firms and banks (CMR.27).
emissions for the year just ended. However, with
the surrender date moving to September from Within non-financials, German entities held 39%
2024, some of the liquidity appears to be shifting of positions. Funds held on average much
away: while the Mar-23 contract accounted for smaller positions and accounted for only 6% of all
42% of all derivatives positions on 1 January positions held, compared with 53% for
2023, the Mar-24 contract accounted for only investment firms and banks (CMR.28). Around
24% on 29 December 2023. This is leading to 75% of fund positions were held by managers
higher concentration in the next-Dec contract but domiciled in the Cayman Islands and Bermuda,
also to new positions in contracts due to expire in while the US and UK accounted for 52% of
June, August and September (CMR.24). positions held by investment firms and banks.
ESMA Market Report on EU carbon markets 2024 15

Key indicators
CMR.25 CMR.26
Number of derivatives positions Number of positions in most liquid futures contracts
Positions increase until December contract expiry Next-December contract most traded
1,800,000 800,000

1,700,000
700,000
Dec-23
1,600,000
600,000
1,500,000
500,000
1,400,000

1,300,000 400,000
Mar-23 Dec-24
1,200,000
300,000
1,100,000
200,000 Mar-24
1,000,000

900,000 100,000 Dec-25

800,000 0
Jan-23 Mar-23 May-23 Jul-23 Sep-23 Nov-23 Jan-23 Mar-23 May-23 Jul-23 Sep-23 Nov-23
Note: Daily number of positions in EUA derivatives in lots (1,000 allowances). Note: Number of gross positions in EUA derivatives in lots (1,000 allowances), by contract
Sources: ICE Endex, EEX, Nasdaq Oslo, ESMA. expiry date.
Sources: ICE Endex, EEX, Nasdaq Oslo, ESMA.

CMR.27 CMR.28
Derivatives position holders by sector Share of derivatives positions by sector
Large number of funds hold EUA positions Majority of positions held by banks and inv. firms
500 100%

450 90% 16% 15% 15% 15% 16% 16% 15% 15% 15% 16% 15% 15%

400 80%

350 70%

300 60% 50% 52% 52%

56% 54% 54% 54% 51% 53% 54% 53% 52%
250 50%

200 40%

150 30%

100 20% 25% 27% 25% 25% 26% 26% 28% 27% 26%
24% 26% 26%
50 10%

0 0% 4% 5% 5% 6% 6% 6% 5% 6% 6% 6% 6% 7%
Jan-23 Mar-23 May-23 Jul-23 Sep-23 Nov-23 Jan-23 Mar-23 May-23 Jul-23 Sep-23 Nov-23
Inv. Funds Other non-financials
Compliance entities Inv. firms or credit institutions
Other financials Inv. firms or credit institutions
Other non-financials Funds
Compliance entities
Note: Share of gross positions in EUA derivatives by counterparty sector.
Note: Number of position holders in EUA derivatives, by counterparty sector.
Sources: ICE Endex, EEX, Nasdaq Oslo, ESMA.
Source: ICE Endex, EEX, Nasdaq Oslo, ESMA.

CMR.29 CMR.30
Net derivatives positions by sector Net derivatives positions of investment funds
Non-financials long, banks and inv. firms short Funds turned net short in 2023
600,000 60,000

400,000 Net long 40,000

200,000
20,000

0
0

-200,000
-20,000
-400,000
Net short -40,000
-600,000
Jan-23 Mar-23 May-23 Jul-23 Sep-23 Nov-23
Funds Other non-financials -60,000
Compliance entities Inv. firms or credit institutions Jan-23 Mar-23 May-23 Jul-23 Sep-23 Nov-23

Note: Number of net positions in EUA derivatives held by counterparty sector, in Note: Number of position in EUA derivatives held by funds, in lots (1,000
lots (1,000 allowances). allowances).
Sources: ICE Endex, EEX, Nasdaq Oslo, ESMA. Sources: ICE Endex, EEX, Nasdaq Oslo, ESMA.
ESMA Market Report on EU carbon markets 2024 16

Conclusion
options trading. The elevated correlation between
Monitoring the number of OTC and on-venue transactions
Overall, in line with the ESMA 2022 report, the suggests some interconnection between on- and
analysis has not unveiled any significant issue in off-exchange markets.
the functioning of EU carbon markets.
Prices in the EU ETS have declined since the
Policy recommendations
beginning of 2023, averaging EUR 83/tCO2 The ESMA 2022 report included a list of policy
during the year. This reflected a combination of recommendations to contribute to improving the
lower demand for EUAs from weak industrial transparency and monitoring of the EU carbon
activity, falling natural gas prices and market. Most of these recommendations have
decarbonisation of the European energy sector, been (either fully or partially) implemented.
and increased supply following the decision to However, the availability of LEIs in the Union
auction new allowances to finance the Registry to identify account holders remains quite
REPowerEU plan. Intraday and historical limited, pointing to the need for additional efforts
volatility measures remained low throughout the by national administrators to ensure the timely
observation period. implementation of the LEI registration
requirement. This is particularly relevant in 2024
The findings with respect to the organisation of
as the number of account holders will increase
the EU ETS market are also in line with ESMA’s
due to the expansion of the EU ETS to additional
2022 report. EUA primary markets remain
sectors.
significantly concentrated, with around 10
participants buying 90% of auctioned volumes, Overall, no major new issues have been raised
reflecting a preference by most EU ETS from a policy perspective when preparing this
operators to source allowances from financial report, although further analysis on additional
intermediaries. The vast majority of trading in aspects may be warranted in the future as ESMA
secondary markets is done through derivatives, plans to continue monitoring the carbon market
reflecting the annual EU ETS compliance cycle developments. In the context of the MiFIR review,
where non-financial sector firms hold long ESMA will publicly consult on the revision of RTS
positions (for compliance purposes) while banks 22 for improving the reporting of transaction data.
and investment firms hold short positions. As outlined in the data handling section (see next
Reflecting this set up, most transactions are page), the identification of transaction chains
executed by banks or investment firms using remains problematic, and the trading strategies
standardised on-exchange futures, with financial were subject to price adjustments to perform
sector trading in derivatives mainly undertaken by more accurate analysis. Therefore, the
firms domiciled in the US and UK. The next consultation will also seek advice from the
December futures contract remains the most industry whether there is the need to further
traded by far, with other traded maturities and clarify the reporting of the strategies and
spot trading typically used by non-financial sector transaction chains. Following this revision, ESMA
entities to ‘top up’ EUA needs. Overall trading invites the Commission to duly consider the
volumes increased around the expiry date of the aspect of transaction chains when adopting the
most liquid contracts (in March and December), revised RTS 22 to be submitted by ESMA, given
with the volumes of OTC transactions growing
the implication it will have also for Carbon
too, including increased activity in spot and
Markets.
ESMA Market Report on EU carbon markets 2024 17

Annexes
— Other financials;
Data sources
— Funds; or
To provide a comprehensive picture of carbon
markets in the EU, this report makes use of — Unclassified.
multiple data sources. The first section on price Compliance entities thereby represent firms with
and volatility makes use of public and commercial compliance obligations under the EU ETS and
data. The second section use auctions data from investment firms and credit institutions must be
the European Energy Exchange and collected by authorised as such and are identified through
BaFin in accordance with Article 34 of the public registers.
Auctioning Regulation19.
It is important to note that the classification is
The sections on trading and on derivatives performed on a legal entity level and corporate
positions leverage (1) regulatory position data groups can comprise multiple differently
reported by EU trading venues under Article 58 of classified entities. For example, “other non-
the Markets in Financial Instruments Directive financials” that are active in the carbon market
(MiFID II) (2) regulatory transaction data reported are often part of a larger corporate group with
under Article 26 of the Markets in Financial compliance obligations, and usually represent
Instruments Regulation (MiFIR) and (3) their dedicated trading arms. However, the
regulatory transactions data reported by category of “other non-financials” also includes
derivatives market participants under the commodity trading firms that do not qualify as
European Market Infrastructure Regulation financial firms and without compliance obligations
(EMIR). The scope, objectives and structure of of associated entities.
the information reported under these regulatory
reporting regimes differ, and the indicators
featured in the report have been selected to
Data handling
provide readers with the most accurate depiction ESMA screened and cleaned the data to ensure
of secondary markets. its accuracy for analysis. Firstly, ESMA identified
and removed cancelled and duplicated
Where relevant, regulatory data have been
transactions, retaining only pertinent data.
enriched with external information, e.g. Legal
Additionally, outliers identified in the “quantity”
Entity Identifiers (LEIs) from the Global LEI
and “price” fields, caused by misreporting, were
foundation.
corrected to enhance the overall quality of the
dataset.
Counterparty classification
Secondly, to perform more accurate monetary
Due to the multitude of datasets with different values for the trading strategies reported with the
reporting scopes and contents used for this delta prices, ESMA adjusted the strategy prices
report, ESMA has developed a unique based on the most recent transactions involving
counterparty classification system. The the same instrument.
classification builds on the one used in the MiFID
II weekly derivative position reports and was Lastly, ESMA mapped the Classification of
further refined through consistency checks Financial Instruments (CFI) using either the code
between datasets and manual look ups. Each reported in the Financial Instruments Reference
counterparty is identified by its LEI and allocated Data System reference data or in MiFIR
to one of the following categories: transactions data. This mapping facilitated further
analysis and classification of the different
— Compliance entities; categories of instruments in compliance with the
— Other non-financials; CFI ISO 10962.

— Investment firms or credit institutions; OTC trading is identified through the 'Venue' and
'Transmission of Order Indicator' fields.

19 the timing, administration and other aspects of auctioning of

Commission Delegated Regulation (EU) 2023/2830 of 17
October 2023 supplementing Directive 2003/87/EC of the greenhouse gas emission allowances.
European Parliament and of the Council by laying down rules on
ESMA Market Report on EU carbon markets 2024 18

Subsequently OTC transactions are deduplicated

by buyer ID, seller ID and timestamp. This
approach is also intended to partially remove the
duplicate reports originating from transaction
chains which could be identified (for further
details on the issue of transaction chain
identification, see the ESMA 2022 report). Total
OTC trading activity is then calculated as the
aggregate volumes of the corresponding
transactions.