The Commission adopted a proposal to amend the Market Stability Reserve Decision in connection with the new Emissions Trading System for the road transport and buildings sectors (ETS2). This represents a key step toward the rapid implementation of the measures announced by Commissioner Wopke Hoekstra at the latest Environment Council, aiming to ensure a gradual and smooth introduction of ETS2 and to accelerate early investments.
The MSR is a long-term solution to the surplus of carbon allowances in the EU market. Its goal is to restore the balance between supply and demand and to make the carbon market more resilient to future shocks. The proposal to amend the MSR for ETS2 responds to the requests of the broad majority of Member States and many Members of the European Parliament and could be applied before the launch of the ETS2 market
This proposal will ensure stronger intervention if prices exceed a certain level, strengthen the MSR’s capacity to function in the long term, and provide earlier and smoother intervention to stabilize the supply of ETS2 allowances.
First, the MSR proposal introduces a mechanism for additional increase, under which the number of allowances released into circulation is doubled if the carbon price exceeds €45 per ton (2020 prices), thus ensuring stronger intervention if this threshold is surpassed. With this additional increase, up to 80 million allowances could be released annually from the start of auctions until the end of 2029. This exceeds the required annual reduction of 60 million tCO₂ under ETS2.
Second, the proposal strengthens the MSR’s long-term capacity by extending the validity of ETS2 allowances in the reserve beyond 2030. With this adjustment, all 600 million allowances will be available for release onto the market if necessary to stabilize prices. This amount is equivalent to ten years of emission reductions under ETS2.
Third, an additional buffer is proposed to ensure earlier and smoother intervention to stabilize the supply of ETS2 allowances on the market above certain price levels.
In addition to the proposed MSR changes, the European Commission will continue to work on the rapid implementation of the remaining measures under the ETS2 implementation framework.
The Commission proposes an earlier start of ETS2 auctions, which will make revenues available already in 2027 for early investments and provide an early price signal. Expert-level consultations on draft amendments to the auction regulation have already begun, with a view to adoption by the Commission in early 2026.
The Commission and the European Investment Bank are exploring a new mechanism for the advance allocation of ETS2 allowances to Member States, which is expected to be implemented shortly. Advance allocation of ETS2 revenues could provide up to €6 billion for the 2026–2027 period.
Background
The proposed measure can be implemented without amending the ETS Directive. Following today’s adoption, EU Member States and the European Parliament will need to agree on it before it can enter into force. Separately, regarding the system’s launch, the two co-legislators have each introduced a one-year postponement of ETS2 to 2028 in their respective positions on the 2040 climate target proposal.
The new ETS2 system aims to reduce emissions from the buildings and road transport sectors in a technology-neutral way that supports competitiveness. It will make an important contribution to achieving the EU’s climate neutrality goal by 2050.
Source: EC
