The European Commission has proposed a revision to the rules governing the Market Stability Reserve (MSR) under the EU Emissions Trading System for buildings, road transport, and other sectors (EU ETS2). The aim is to prevent excessive carbon price increases by reinforcing the reserve's capacity to intervene when necessary.
The proposal includes three key changes to Decision (EU) 2015/1814. First, it would eliminate the rule invalidating unused allowances in the MSR2 from 2031, potentially allowing more allowances to re-enter the market. Second, it introduces an additional buffer mechanism to release allowances when the total number in circulation is between 210 and 260 million. Third, the proposal would double the number of allowances released when auction prices exceed €45 (in 2020 prices), from 20 million to 40 million, with the potential for two such releases annually.
These amendments are part of a broader response to concerns raised by 19 Member States and several Members of the European Parliament in 2025 regarding the social and economic impacts of high carbon prices under the EU ETS2. The reserve is intended to maintain market stability by adjusting the supply of allowances based on predefined thresholds.
The EU ETS2, originally planned for 2027, has been postponed to 2028 to ensure a smoother implementation. It will cover emissions from fuel suppliers for buildings and transport, and is expected to influence energy prices for consumers. To address potential social impacts, the EU has established a Social Climate Fund with up to €65 billion in support from 2026 to 2032.
The Commission’s proposal has received mixed reactions. Some organisations, such as EPICO KlimaInnovation, support the changes. Others, including Carbon Market Watch and Transport and Environment, warn that increasing the supply of allowances may raise overall emissions and weaken climate targets.
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