Emission allowances issued under the EU Emission Trading System are classified as financial instruments in the Markets in Financial Instruments Directive 2014/65/EU (MiFID II) since 2018. The classification as financial instruments means that a number of financial market rules also apply to the carbon market.
The Commission is currently assessing the Financial Collateral Directive (FCD, 2002/47/EC) which provides a legal framework for the receipt and enforcement of financial collateral provided under a financial collateral arrangement. In this context, the Commission is conducting a public consultation. The consultation closes on 7 May 2021.
Financial collateral is an asset provided by a borrower to a lender. It minimises the risk of financial loss to the lender if the borrower fails to meet their obligations. Collateral is used throughout the EU to support all kinds of financial transactions, from derivatives to general bank lending.
Carbon market participants are invited to share their experience since one of the questions put forward in the consultation concerns emission allowances. Although emission allowances are classified as financial instruments in MiFID II, they are currently not under the scope of the Financial Collateral Directive.