Czech OTE joins open letter via EUROPEX against interventions in EU ETS

The EUROPEX association, of which Czech market operator OTE, a.s. is also a member, together with other organisations called for no intervention in the European emissions allowance market. The tendency to regulate high allowance prices has become increasingly frequent recently, primarily because of their contribution to high energy prices and their impact on end consumers. 

Although energy commodity prices in the EU have gradually declined in response to significantly warmer weather in recent days and weeks and increased LNG imports, which has led to lower withdrawals from gas storage facilities, they remain exceptionally high compared with the beginning of last year.

Steps to mitigate the impact of energy prices on households therefore continue to be an attractive political issue. The European emissions allowance market (EU ETS) has proven to be a useful target of these efforts.

Poland, the member state with the highest share of coal-fired electricity generation, has long been particularly opposed to the emissions market. In particular, it warns against the participation of financial institutions, which may misuse the market for speculation, thereby influencing the price of emission allowances.

On the other hand, EUROPEX, of which OTE, a.s. is also a member, warns against hasty intervention in the EU ETS. It notes that the functioning of the EU ETS is currently being examined by the European Securities and Markets Authority (ESMA), and that any intervention in the market before the outcome of the investigation would be premature. ESMA launched its inquiry last year and reached a preliminary conclusion in November that market manipulation was not taking place.

“An increase in the number of market participants cannot in itself be taken as evidence of any form of disorderly trading or unfair market practices,” the European regulator said in its November report.

According to EUROPEX, before any intervention in the EU ETS it must be proven that market manipulation is taking place. Otherwise, it would be a response to a problem that may or may not exist.

The participation of financial institutions and so-called speculators also brings a number of benefits to the allowance market. Their participation increases market liquidity and reduces transaction costs. As a result, the market is more resilient to price declines or, conversely, steep increases.

“The introduction of position limits or restrictions on market participation by financial and non-financial actors could bring a risk of weakening the market. For entities obliged to surrender allowances, this would mean more costly and complex hedging and planning of investments in low-carbon technologies,” the group of associations led by EUROPEX said.

The organisations attribute the latest increase in emission allowance prices primarily to market conditions and the European Union’s increased climate targets. With high gas prices, coal-fired power plants were used more extensively, and they consume up to twice as many emission allowances to generate the same amount of electricity. According to the organisations, the increased demand then pushed the price higher.