The financial regulation of energy and environmental markets

Abstract

Purpose

The purpose of this paper is to examine the financial risks posed by energy and environmental markets and how these risks are addressed by current regulatory regimes and legislation. This assessment should be of interest to academics, practitioners, regulators and policymakers.

Design/methodology/approach

The first half of the paper provides a theoretical conceptualisation of the financial risks energy and environmental markets pose by drawing on established academic literatures on financial regulation and energy markets. The second half of the study provides a legislative analysis of the evolving approach to the financial regulation of energy and environmental markets. Drawing on “grey” literatures, this assessment critically appraises the array of current policy initiatives that have the potential to affect the financial regulation and operation of energy and environmental markets.

Findings

The theoretical conceptualisation of financial risks identified macroeconomic and energy systemic as the principal risks posed by energy and environmental markets. The legislative analysis contains various conclusions, prominent amongst which are: that the EU will play an increasingly important role in the financial regulation of energy and environmental markets through bodies such as ACER and ESMA; and that it is essential the boundaries of regulatory responsibility between energy and financial regulators are assessed to ensure activities leading to risk do not fall between the remits of responsibility.

Originality/value

There is a dearth of academic work on the financial regulation of energy and environmental markets, while prior policy and regulatory analyses have focussed on specific markets or products. This belies the interrelationships and, in some cases, the integration of these risks and the nature of financial crises. To amend for this omission we provide a holistic assessment of these legislative and policy developments.

Citation

Diaz‐Rainey, I., Siems, M. and Ashton, J.K. (2011), "The financial regulation of energy and environmental markets", Journal of Financial Regulation and Compliance, Vol. 19 No. 4, pp. 355-369. https://doi.org/10.1108/13581981111182956