The European Securities and Markets Authority (ESMA), the EU financial market regulator and supervisor, recently published its third annual market report on European carbon markets.

The report identifies financial intermediaries as being central to the functioning of the EU carbon market, providing essential liquidity and acting as counterparties to non-financial firms.

These entities, which include investment firms and credit institutions, allow compliance-obligated companies to access emission allowances and effectively manage their price risks.

According to the data, these financial institutions accounted for approximately 62 per cent of overall trading volumes during 2025.

The total value of EU carbon markets climbed to €777 billion in 2025, a result driven by robust trading activity and an increase in market prices.

However, the market environment shifted in early 2026, when prices experienced a 29 per cent decline over a three-month period.

During the same timeframe, market volatility reached a two-year high, a development the regulator attributes to differing expectations regarding future EU Emission Trading System rules, fluctuating energy costs, and broader macroeconomic conditions.

Despite these fluctuations, the authority concludes that the market remains resilient, identifying no major concerns regarding market integrity or transparency.

The report also highlights that the annual average price of EU emission allowances increased by 13 per cent compared to 2024 levels.

Additionally, auction revenues grew by 11 per cent, even though there was a marginal decrease in the total volume of allowances offered at auction.

Looking toward future oversight, the regulator expressed concern regarding the limited progress in the adoption of Legal Entity Identifiers, which are unique codes used to track and identify parties to financial transactions, within the Union Registry.

To address this, the authority recommends making these identifiers mandatory for all trading accounts, a requirement it suggests should also extend to the upcoming ETS2 system.