The financial regulation of energy and environmental markets

An often cited critique of financial regulation is that it is a patchwork of legislation addressing past crises. This paper provides a forward looking account as to the financial risks that European wholesale energy and environmental markets (EEM) may pose and to what extent current regulatory regimes and legislative developments address these risks. In the first part of the paper we explore the nature of these risks within the context of past academic research on financial crises and financial regulation leading to a theoretical justification for the risk based financial regulation of EEM. The second part of the paper provides a summary of a legislative analysis of the evolving approach to the financial regulation of EEM conducted in a related paper. We discuss some of the likely impacts of these reform initiatives and make suggestions for further research.