EU-ETS: the Commission amends the Market Stability Reserve to respond to "potential tightness in supply"
The European Commission issued a decision to amend the Market Stability Reserve (MSR), which is used to adjust the supply of allowances in the EU ETS, on 01/04/2026. The changes propose to "stop the invalidation mechanism" of allowances above 400 million in the MSR, so they can be used as a buffer to "support market stability".
The current MSR, which has been operational since 2019, acts as a mechanism to adjust the supply of allowances in the EU ETS to ensure a well-functioning carbon market by "preventing large imbalances between supply and demand", declares a senior EU official.
The Commission plans to increase the number of allowances that are kept in the MSR, as a scarcity of supply is expected in the next decade, explains the EU official. Concretely, it means that instead of cancelling allowances above the current MSR threshold fixed at 400 million allowances, these allowances will now be retained in the Reserve, if the proposal is agreed upon by the European Parliament and Council.
By the end of 2024, 3.2 billion allowances had been invalidated since the inception of the EU ETS, says the Commission.
"The proposed change does not have an immediate impact on the market balance", outlines the European Commission. "Under the proposal, allowances in the MSR would only be released into the market at times of market tightness or excessive price increases."
"This marks an important first step in modernising our carbon market", declares Wopke Hoekstra, Commissioner for Climate, Net Zero and Clean Growth. "By strengthening the Market Stability Reserve, we enhance EU ETS' resilience to volatility and ensure that it continues to drive decarbonisation, support competitiveness and foster clean investment."
"The invalidation provision should cease to apply from the date of entry into force of this amendment", explains the Commission. It still needs to be agreed upon by the co-legislators.
A further review of the EU ETS is planned for July 2026. According to the Commission, it "will include any relevant adjustment to keep the MSR fit for purpose in the next decade."
EU ETS in a nutshell
The EU ETS, the mechanism for carbon pricing in the EU, was adopted in 2005. It has evolved since its creation to include the 2030 emission reduction target of 55% and will be revised again this year to include the latest adoption of a 90% GHG emissions reduction target in 2040, as agreed in the European Climate Law.
Domestic emissions in the EU dropped by 39% between 1990 and 2024, with the ETS playing an active role in this downward trend. Indeed, the progressive decrease of yearly allowances emission under the ETS drives the effort of industries and sectors to decarbonize their activities.
From 2005 until early 2026, the EU ETS has generated over 260 billion of revenue. Two-thirds of these revenues go back to Member States, who have an obligation to reinvest them in clean energy and climate transition. According to a senior EU official, Member States reinvest 5% of these revenues to support industrial decarbonisation.
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