On 2 November, the Association for Financial Markets in Europe (AFME) and the International Swaps and Derivatives Association (ISDA) submitted a joint statement to the European Commission in response to the EU executive’s call for feedback on the review of the EU Emissions Trading System (EU ETS).

According to AFME and ISDA, financial intermediaries play a key role in keeping the carbon market accessible and efficient by facilitating allowance purchases for smaller emitters that cannot participate directly in auctions, supporting competitive pricing and helping lower compliance costs.

On 15 September, the European Parliament adopted its negotiating mandate on the Temporary Decarbonisation Fund. Among other provisions, the document includes a review clause allowing the European Commission to assess the possibility of introducing a transaction fee on the EU ETS secondary market, a proposal that is now drawing criticism from financial industry associations.

Both organizations warn against measures that could restrict market participation, particularly the “proposed transaction fee on secondary market activity, which would ultimately raise costs for compliance entities.”

According to the associations, introducing such a fee could undermine market liquidity, make it more difficult for companies to find trading counterparties and increase hedging costs and operational complexity for entities required to comply with the EU ETS.

“These additional costs would inevitably be passed through the value chain, ultimately leading to higher costs for European businesses and consumers alike,” the two associations caution, warning of the broader economic implications of restricting carbon market activity.