ESMA EU carbon markets report 2025

Price dynamics and market drivers

• The average price of EU emission allowances (EUAs) fell by about 22 % in 2024 versus 2023, largely driven by weaker demand (especially from the power sector) and increased auction supply due to REfuel front loading.
• After a volatile first quarter, EUA prices stabilized and became more tightly correlated with natural gas prices.
• The weak demand trend stemmed from continued decarbonisation in power generation.

Auctions still concentrated, albeit oversubscribed

• About 599 million allowances were auctioned in 2024 (≈ +15 % from 2023), raising ~€39 billion (–11 % year-on-year, reflecting lower prices).
• All auctions were oversubscribed, but the cover ratio (i.e. the ratio of bids to supply) dropped about 30 percentage points to ~172 %.
• The distribution of auction participation remains highly skewed: nearly 90 % of allowances went to only 10 bidders.
• Growth in trading, dominance of financial intermediaries
  Trading volume rose 35 % to ~13.7 billion tonnes CO₂ equivalent, across about 4.7 million transactions.
• The increase was driven mainly by on-venue trading; over-the-counter (OTC) trading remained roughly flat.
  Investment firms and credit institutions accounted for 63 % of total trading – up ~7 points from 2023.
• Derivatives remain central: futures accounted for ~75 % of the derivative volume, options increased modestly.
• The number of daily derivative position holders averaged 909 (vs ~783 in 2023). Investment funds held ~6 % of positions, whereas investment firms and credit institutions held ~51 %.

No “red flags,” but structural gaps persist

• ESMA reports it did not identify any “significant issue” threatening market integrity or transparency under its mandate.
• The design of the market continues to channel EUAs from financial intermediaries to non-financial firms with compliance obligations, suggesting the system is functioning as intended.
  However, ESMA flags the absence of uniform identifiers (like LEIs) for ETS account holders as an obstacle. Better adoption of such identifiers in the Union Registry would enhance ESMA’s ability to monitor and classify participants.

On non-financial counterparties’ trading strategies

• ESMA delves into how non-financial (i.e. compliance) participants choose and vary their acquisition strategies, depending on their needs, capacities and risk appetite.
• The heterogeneity of strategies suggests the market is accommodating different business models and operational constraints across sectors.

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