Further to WQ86480, what steps is the Welsh Government taking to ensure financial speculators adopting hedging positions in the UK emissions trading system allowance market do not create negative impacts to UK emissions trading system liquidity that increase costs for industrial emitters in Wales?
Hedging is a practice undertaken by compliance entities, helping them to reduce the risk of carbon price movements undermining the profitability of their activity. While financial speculators do not hedge themselves, by participating in auctions and secondary markets they can provide useful liquidity in the UK ETS, supporting effective price discovery and market functioning.
The UK ETS Authority, which the Welsh Government is a joint member of, recognise that protecting market integrity is crucial. The UK ETS has market oversight rules in place to guard against market abuse through the UK Market Abuse Regulation, which we continue to develop and improve. The “Developing the UK ETS” consultation earlier this year proposed an ongoing objective for UK ETS markets policy to guard against market abuse and activity that could significantly destabilise UK ETS markets. The UK ETS Authority intends to set out detailed markets policy proposals, subject to responses, in due course.