It is apparent that market participants are often active in each of the markets which are mutually interdependent - coal, gas, oil, biomass, emission allowances (sometimes also green, red, yellow and other colours certificates), eventually electricity (or heat) and derivatives relating to these underlying assets are all elements of the single production chain. The question arises whether a European single market will be perceived as a real creation if differing national regulatory regimes apply in relation to each of these links.
The same European Energy Regulators in theirs response to the European Commission’s public consultation on “Review of the Markets in Financial Instruments Directive (MiFID)” of 2 February 2011 noticed that:
“From the European Energy Regulators’ point of view, the CO2 market is closely linked with the gas and electricity markets. They share in common several fundamentals such as the level of electricity demand, coal and gas prices, economic activity, etc. CO2 and wholesale energy prices are interdependent and thus the CO2 prices have an impact on the energy prices. In addition, a significant share of participants to carbon markets participates in the wholesale energy markets, in particular, electricity utilities.”
It is worth considering that the report scanning different national legal orders as regards requirements for trading on a cross-border basis (similar to that prepared by the Brattle Group for wholesale electricity trading) be commissioned for each of the links of the production chain at issue. Such a complex perspective would be very useful even if it wouldn’t finally lead to the Europe-wide passport for the trading in emission allowances, coal, biomass etc.
The report Wholesale Energy Trading Licenses in the EU of 21 October 2010 prepared by The Brattle Group mentions:
“Our terms of reference focus on trading electricity and gas. Carbon trading is growing in importance. The European Commission has recently launched a major study to assess whether the market for emission allowances is sufficiently protected against market manipulation and insider dealing. After the study’s completion we would recommend reviewing its results to assess whether our recommendations for electricity and gas trading should extend to the carbon market”.
It is questionable whether such an step-by-step approach is justified at the current stage of the integration of the Union economy. Regardless thereof the question arises, what can be expected at the end of this process. The can be observed yet a growing tendency leading to the overlapping of physical and financial markets, particularly in the emissions part thereof (a legislative concept to qualify emissions allowances as financial instruments serves as a good example).
The borders between commodities and financial markets in some particular situations are vague and the clear distinction in that area still remains a focus of extensive research. In any case – as is proved by the recent consultations on MiFID review - these distinctions (in particular the extent of the exemptions from MiFID) have only temporary character.
The opinions are voiced that traders from US refrain from trading in emission allowances in the EU, because they are uncertain whether they are legally enabled to trade emissions allowances (see Deutsche Borse response to the MiFID review consultation).
There are many arguments that a more complex approach for a Europe-wide passport – than the one restricted only to the financial instruments and certain commodities like electricity and gas markets - is justified. The limitations on the competences of national and Union regulators like ACER or ESMA shouldn’t be an obstacle for it.
Nowadays we have MiFID Europe-wide passport encompassing trading in financial instruments and – possibly, if CEER proposals materialize – Europe-wide passport for wholesale trading in electricity and gas. What about all cross-border issues relating to the other remaining commodities (in particular other fuels and EUAs) taking part in the production of electricity? It remains unclear.