Financial intermediaries have cemented their position at the heart of the EU carbon market, driving liquidity and managing price risks for compliance entities, according to the third annual market report published by the European Securities and Markets Authority (ESMA).
The EU financial market regulator highlighted that investment firms and credit institutions accounted for approximately 62% of overall trading volumes in 2025. These entities act as vital counterparties for non-financial firms, allowing compliance participants to access allowances and hedge against market fluctuations.
Boosted by robust trading activity and elevated pricing, the total value of EU carbon markets rose to €777 billion across 2025. The annual average price of EU emission allowances climbed 13% compared to 2024. This pricing strength, combined with steady trading, helped drive an 11% increase in auction revenues for member states, even though the total volume of auctioned allowances fell slightly.
However, the opening months of 2026 brought shifting dynamics. Carbon prices experienced a sharp 29% decline over a three-month period, pushing volatility to a two-year high. ESMA attributed this turbulence to conflicting market expectations regarding future EU Emissions Trading System (ETS) regulations, fluctuating energy costs, and broader macroeconomic conditions.
Despite the recent price drop, the watchdog confirmed that the market structure remains highly resilient, noting that no major concerns were identified regarding market transparency or overall integrity.
The report did, however, flag persistent challenges regarding data tracking. Progress on the adoption of Legal Entity Identifiers (LEIs) within the Union Registry remains limited. To rectify this, ESMA has recommended that LEIs be made strictly mandatory for all trading accounts, a rule it argues should also extend to the upcoming ETS2 framework.
ESMA stated it will maintain its ongoing monitoring of the carbon markets and remains prepared to provide analytical support to European legislators moving forward.
