The view that it is neither suitable nor proportional to consider emission allowances as financial instruments and making them an integral part of the MiFID framework GDF SUEZ supported with additional arguments. According to its response, energy companies, especially those that are active in generating electricity, increasingly consider emission allowances as an integral part of their production ‘inputs’, next to the “real” fuels used in the electricity generation process. Such purchases or sales are part of the industrial activity of such companies, and these are not at all intended as speculative activity.

Their classification as financial instruments would also imply significant additional capital requirement costs for an energy companies and even more for smaller companies which could significantly reduce their activities in emissions markets.


GDF SUEZ also observed that emission allowances were hybrid instruments that consisted both in an administrative authorization (to emit carbon dioxide) and a commercially exchangeable commodity. Irrespective of the classification of some derivative contracts on emission allowances as financial instruments under MiFID (section C (10) of Annex I), there was no consensus at European (and international) level on the legal qualification of such instruments.


UK HM Treasury and FSA raised the same issue as ISDA that a benefit of classifying emissions allowances as financial instruments would be the resulting unified treatment of the entire emissions market (i.e. spot and derivative), although there would be a corresponding divergence in treatment to the closely linked markets just mentioned. This could pose difficulties for participants active in all of these markets because of the differing approaches.


UK HM Treasury and FSA were also mindful of the problem of SMEs participants in the emissions spot market which had the nature of “compliance only” participants, i.e. they had no financial services motive associated with their participation.


These types of participant are likely to find the burdens of financial regulation onerous, yet the UK considers them unlikely to pose significant systemic risk as a group. In view of the wider agenda to minimise administrative burdens on SMEs and facilitate their growth, the UK emphasises therefore that if it is decided to classify emissions allowances as financial instruments it would be essential to craft an appropriate regulatory treatment for this type of participant. This could be achieved either by exemptions or by integrating within financial services legislation an appropriate bespoke approach.


Also IETA - International Emissions Trading Association –  considers as a more appropriate option to enhance oversight of EUA markets through REMIT or a specific market integrity regime for EUA markets, “although caution must be taken to ensure there is no regulatory overlap”.


The opposite view presented the Deutsche Borse. It reminded that emission allowances had aspects of both administrative grants or licences and of private property, and different conclusions as to their legal classification were reached in a number of Member States.


Deutsche Borse was of the view that the integrity of the European carbon market would benefit from a legislative recognition of the fact that emission allowances are handled as financial instruments and that carbon market participants could expect their holding to be afforded the same level of organisational safeguards and investor protection on their emission allowances transactions and holding as they enjoy on their emission derivatives. Further to these benefits, classifying emission allowances as financial instruments would lead to avoiding issues like tax fraud (tax carousel) and VAT differences between Member States. Also the uncertainty of regulation of emission allowances still leads to missed opportunities in the EU ETS as potential traders, especially from the US, are not sure if they are legally enabled to trade emissions allowances. Finally, as a financial instrument emissions allowances would be regulated under the financial directive for collaterals, which would enable clearing houses to offer using emission rights as collateral.