European Commission Releases Communication on Carbon Market Oversight

21 December 2010: The European Communication has released a communication on carbon market oversight, as a first step towards the possible formulation of a legislative proposal in 2011.

The communication takes stock of the level of oversight in the European carbon market, describes ongoing developments in the field of energy markets and financial markets with a bearing on the carbon market, and lists options to safeguard the continued integrity of the growing market. It concludes that the majority of the carbon market is subject to appropriate oversight, but that more may be needed in the spot market.

According to the communication, an oversight framework is expected to secure fair and efficient trading conditions for all market participants through transparency requirements, preventing and sanctioning market misconduct, in particular insider dealing and market manipulation, as well as providing safeguards to minimize the risk that the carbon market is used as a vehicle for other illegal activities, such as money laundering or VAT fraud.

As a next step, the Commission is expected to: examine in greater detail the structure of the carbon market, the level of market oversight, and possible options including the classification of allowances as a financial instrument; and launch an Internet-based stakeholder consultation in the first half of 2011. [EU Press Release] [The Communication]