From the systemic point of view there is no reason, why gas would be treated differently, for the purposes of establishing a coherent regulatory regime for the integrity and transparency of the wholesale energy products, than other fuels for the production of the electricity - like coal, oil and even biomass.



The next object for possible consideration as regards the future scope of the draft REMIT (Proposal for a REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL on energy market integrity and transparency {SEC(2010) 1510} {SEC(2010) 1511}) are EUAs. They obviously can’t be classified as strictly fuels for the production of electricity, but their role as an important (and sometimes crucial) input for electricity generation is unquestionable.


According to the Article 2(4) of the draft REMIT "wholesale energy products" means the following contracts and derivatives, irrespective of where and how they are traded:

(a) contracts for the supply of natural gas or electricity;

(b) derivatives relating to natural gas or electricity;

(c) contracts relating to the transportation of natural gas or electricity;

(d) derivatives relating to the transportation of natural gas or electricity.

Contracts for the supply of natural gas or electricity for the use of final consumers are not wholesale energy products.

Some citations

In the present post it is useful to make some extensive quotations, but the reasons for doing so and the conclusions will come at the end.

So, in the discussion paper for draft REMIT (Draft discussion paper by DG TREN on transparency and integrity of traded wholesale markets in electricity and gas published on 9 December 2009) EUAs are numerously mentioned as object of potential interest for inclusion into the category of “wholesale energy products”.

The instances are:


1. On page 5 (point 3.2 “Commodity scope”):


“The appropriate commodity coverage of a market integrity initiative needs to be assessed. It remains to be seen whether it is at this stage desirable to go beyond electricity and gas.

Limiting the scope to these two would facilitate the legal and institutional design of the market integrity initiative. At the same time the strong cross-commodity inter-linkages would suggest that at least carbon markets needed to be captured. As regional markets, electricity, gas and carbon would clearly be within EU jurisdictional reach. However the legal and institutional design of the new initiative would become more complex. Also new entities such as emitting industrials might need to be covered, at least as regards basic requirements such as record-keeping based e.g. on the advice of CESR and ERGEG, derived from requirements under MiFID. The cross-commodity interconnectedness would even suggest the broadening of the regime towards globally traded commodities such as coal and oil. Such level of ambition would however require a strategy for international regulatory cooperation in order to address the risk of regulatory arbitrage. Moreover it would seem obvious that the broader the commodity scope of the initiative is designed the heavier the transactional reporting burden would become for the undertakings concerned.”


2. On page 2 and 3 (point 1 “The policy case for a regulatory initiative”):


“The coincidence of the ongoing financial market regulatory reform debate, and preparations for the implementation of the 3rd IEM Package and revised EU ETS provide a good window of opportunity for the Commission to come forward with a legislative initiative covering traded wholesale markets for electricity and gas with the option to also include the EU ETS carbon market. To this end, the Commission is currently exploring possible design options for a tailor made market transparency & integrity regime which should improve confidence in traded energy markets by closing the existing regulatory gaps and leading to higher levels of liquidity and further integration of European energy markets.”



Also the document “Public Consultation by the Directorate General for Energy on measures to ensure transparency and integrity of wholesale markets in electricity and gas” of 31 May 2010 contains an extensive considerations in respect of the possible scope of the future REMIT Regulation:


1. On page 11, point 4.3. “Which markets are covered?”:


“The impetus for action arises because of the recognition of particular issues in the electricity and gas markets. Limiting the scope to these two commodities brings practical advantages. For example the existing legal and institutional framework applicable to the electricity and gas markets can more easily be adapted to address issues relating to market integrity.

However, electricity and gas markets are clearly interlinked with other commodity markets, in particular with markets for primary energy products. In the case of oil and coal these markets are to a significant degree global. This means that designing a regime which encompasses oversight of such markets would require a strategy for international regulatory cooperation to provide real benefits to Europe. There is not yet an international consensus about the appropriate regulatory regime for such markets. It is not appropriate to delay steps to ensure the integrity of wholesale electricity and gas markets until such consensus is reached on how to cover these markets. If necessary a specific EU regime covering oil and coal can be developed in the future.

However the strong cross-commodity inter-linkages suggest that carbon market should be taken into account when assessing market misconduct on markets within the framework of a market integrity regime for electricity and gas markets. The power sector is the largest single user of allowances within the EU Emissions Trading System (EU ETS), although it is not the only user with industrial companies who are customers of the power sector making up the remainder. Although the aim is to see the EU ETS linked up with compatible emission trading systems in other parts of the world, notably in the USA, the EU ETS is currently limited to the European Economic Area. Consequently, price formation on the energy market is driven by the actions of EU ETS actors based in Europe.

By and large the carbon market is an exchange based market with the bulk of transactions in carbon allowances taking place either on power exchanges or on dedicated carbon exchanges that are either regulated markets or multilateral trading facilities within the meaning of MiFID.

As such they are either regulated by the market abuse rules provided for in MAD or these rules are applied by the carbon or power exchange to the participants in the exchange on a contractual basis under their market conduct rules.”;


2. In remarks on fundamental data on page 13:

“In relation to data on physical production, transmission and consumption of gas and electricity the third package allows for the adoption of legally binding guidelines. Therefore it is not necessary to address fundamental data disclosure obligations in relation to electricity and gas in any proposals designed to ensure the integrity of wholesale markets. Any specific proposals in this regard will follow the procedure for developing network codes set out in the third package,.

This would not be the case if the regulatory initiative on market integrity were to capture commodities beyond electricity and gas, in particular the carbon market. The revised EU ETS provides for clear rules for the publication of fundamental data regarding the annual cap on allowances issued, the number of allowances to be allocated for free, the annual volume of auctioned allowances, the results of individual auctions as well as the volume of verified emissions from an installation during the preceding calendar year. It should be possible for an authority responsible for the oversight of the energy market to access data relating to the amount of credits held, the volume of emissions and all other fundamental data.

In the context of the forthcoming review of the level of protection of the carbon market from market abuse as well as the review of the auctions foreseen under the Auctioning Regulation, the Commission will consider whether a greater level of transparency (e.g. publication) is appropriate or desirable for market predictability.”

Some assessments

The separate issue is that the definition of “market manipulation” (which is in the core of the REMIT) seems to be quite useless without the notions for ‘accepted market practices’ and ‘legitimate reasons’ (Article 2(2)(a) of the REMIT) being specified. This difficult task was assigned to the delegated acts of the European Commission, however, it seems quite impossible to design uniform abovementioned definitions for all relevant – really differentiated – commodities and markets. This is the pivotal differential of commodities markets against, so often recalled in this context, the MAD (Market Abuse Directive) regime, where as regards financial instruments marketplaces, although also fragmented, ‘accepted market practices’ and ‘legitimate reasons’ seem to be already to a greater extent identified.


The most prominent feature of gas as a fuel for the generation of the electricity that first comes to mind, is the dominant way of transportation (that is through the pipelines), as opposite to the coal or biomass for instance. But obviously it can’t be the main reason for including gas – in contrast to the coal, oil, biomass and EUAs – into the scope of REMIT. What are the other reasons? Notwithstanding the Commission's efforts to explain the issue, I really still don't know.

In responses to different consultations conducted recently, inter alia on carbon market oversight, many stakeholders were supportive of the view that appropriate regulatory measure in that regard would be to include the activity in emissions trading into the scope of the future REMIT Regulation.

We will see what will be the ultimate scope of the REMIT Regulation then.


Presumably, the electricity and gas markets are covered by REMIT as a first stage of the wider commodities market transparency regime as was the case with the emission trading concept where first captured were mainly CO2 and power plants – due to, among others, the level of the complexity of the regulation.


After all, all above considerations lead to the conclusion that regardless of the current shape of the draft REMIT Regulation there could be expected a regulatory bias towards creating - for other fuels and inputs for the production of electricity - regulatory frameworks at an European level for market integrity and transparency, similar to REMIT (and consequently - to MAD). The logic of the inherent mechanisms for the common internal market for electricity speaks for such a supposition. On the other hand, without doing this, European internal market for electricity would still preserve regulatory gaps and opportunities for manipulative gaming.


Such a conclusion is also supported by the regulatory considerations on the general interlinkages between the markets for commodity derivatives and for underlying physical commodities contained in the Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions tackling the challenges in commodity markets and on raw materials of 2 February 2011 (COM(2011) 25 final).

As regards EUAs, so far ERGEG Advice Comitology Guidelines on Fundamental Electricity Data Transparency Ref: E10-ENM-27-03 7 December 2010 didn’t mention data on emissions in its requirements for information to be published on a common European website provided by ENTSO-E.


Editorial note: an update of the information on the legislative process for REMIT can be found in:

1) Provisions on companies affiliations added to REMIT by the European Parliament on 14 September 2011

2) Divergent opinions on the scope and functions of the transparency regime for the wholesale energy market - the review of the contributions to the recently-closed public consultation


3) Objective responsibility of insiders extends to the primary market in emission allowances and to the commodities physical market in electricity and gas;


4) The definition of ‘inside information’ under REMIT – dubious without the EC and market input (I);


5) The definition of ‘inside information’ under REMIT – dubious without the EC and market input (II);


6) Europe-wide passport for wholesale trading in electricity and gas – still fragmentary perception of the production chain