The Impact of the New Wave of Financial Regulation for European Energy Markets

10246 Words Apr 16th, 2013 41 Pages
Energy Policy 47 (2012) 468–477

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The impact of the new wave of financial regulation for European energy markets
Luuk Nijman n
School of Public Policy, University College London, London, WC1H 9QU, UK

H I G H L I G H T S c c c c c

The European Commission has put forward a set of financial legislation to stabilize both financial markets and energy prices. This article assesses the impact of this financial regulation on energy markets. It shows that the theoretical and empirical effects of key elements in this legislation are ambiguous. It argues that, if enacted, particular market parties such as energy companies
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This article addresses the question whether, in light of the potential implications for energy markets, the proposed changes to financial legislation will have the effects the European Commission desires.

L. Nijman / Energy Policy 47 (2012) 468–477

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This question derives its relevance from three aspects. First, the academic literature has generally focussed on the appropriate regulatory design for specific markets, for instance in relation to the liberalization of European energy markets or the stability of financial markets. As also noted by Diaz-Rainey et al. (2011), little research has been done regarding cross-market effects of financial regulation on energy markets. Now that the line between the traditional financial and energy markets has become blurred, the link between the two deserves more attention. Second, it may prove useful not just to point out which aspects of energy trading may come under financial regulation, but to take the analysis one step further and examine how participants in the energy markets are likely to react to the incentives this new legislation offers them. The success of regulation hinges on how market participants adapt their behaviour to it, not just the substance of the legislation itself. Third, to the extent that these proposals are motivated by electoral calls for a strong response to financial instability and
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