ESMA Says Financial Firms Keep EU Carbon Markets Liquid

The European Securities and Markets Authority said financial intermediaries remain central to the EU carbon market, providing liquidity, acting as counterparties to non-financial firms and helping compliance entities manage allowance price risk.

In its third annual market report on EU carbon markets, ESMA said investment firms and credit institutions accounted for around 62% of overall trading volumes in 2025. The regulator said EU carbon markets rose to EUR777 billion in 2025, supported by higher prices and strong trading activity.

ESMA also highlighted a sharp move in early 2026, when prices fell 29% over three months and volatility reached a two-year high. The regulator linked that backdrop to different expectations around future EU Emissions Trading System rules, energy costs and wider market conditions.

Despite the volatility, ESMA said the market remained resilient and that it had not identified major concerns on transparency or market integrity. The regulator also recommended making Legal Entity Identifiers mandatory for all trading accounts, including for the upcoming ETS2.

Why it matters

Carbon allowances are a policy-driven market, but liquidity and volatility increasingly matter for derivatives traders, commodity desks and platforms offering access to environmental products. ESMA’s findings show that financial firms are not peripheral participants; they are core providers of market access and risk transfer.

The LEI recommendation is also worth tracking because it could tighten account-level identification requirements for firms active in emissions products.

What to watch next

Watch whether EU legislators act on ESMA’s LEI recommendation and how ETS2 onboarding affects broker and clearing workflows. Traders should also monitor whether energy-price volatility continues to feed into carbon allowance swings.