The Commission has today announced a first concrete measure to reinforce the European Union Emissions Trading System (EU ETS). Today's proposal, which follows President von der Leyen's announcement at the March European Council, adapts the ETS's Market Stability Reserve (MSR) enhancing stability and predictability.
The Commission has proposed an amendment to the Market Stability Reserve Decision to strengthen the instrument that ensures a stable, well-functioning carbon market. Under the current system, all allowances in the reserve above 400 million are invalidated. The proposed amendment will stop the invalidation mechanism, allowing these allowances to be kept as a buffer that can support market stability. The MSR reduces the supply of allowances to the market when there are too many in circulation and injects allowances when there is market scarcity.
The EU ETS is a key driver for decarbonisation. It has massively reduced fossil fuel consumption, lowering the Union's dependence on imports and strengthening its resilience. In addition, it has driven major investments in the clean energy transition in renewables and low-carbon energy sources. These are homegrown and enhance our energy independence. However, in light of recent challenges, the EU ETS needs to be modernised and made more agile.
Mainly thanks to the ETS, domestic emissions in the EU dropped by 39%, while the economy grew by 71% between 1990 and 2024. In a context of heightened energy price volatility and geopolitical tensions, the Commission is working with Member States to ensure the ETS is a stable tool that continues to deliver these benefits while remaining robust, predictable and fit for purpose.
The proposed change will better equip the MSR to respond to future market developments, including potential tightness in supply in the coming decades. The proposal preserves the fundamental rules-based design of the MSR and the integrity of the EU ETS as a market-based instrument, while strengthening the system's ability to ensure both stability and predictability.
Background
The MSR has been operational since 2019 as a rules-based mechanism to adjust the supply of allowances in the EU ETS. It successfully addressed the structural surplus of allowances that built up after the 2008 financial crisis and has since helped restore confidence in the carbon market. By the end of 2024, 3.2 billion allowances had been invalidated.
Next steps
The proposal to amend the Market Stability Reserve (MSR) Decision will now be submitted to the European Parliament and the Council and would need to follow the ordinary legislative procedure (co-decision) for adoption.
A comprehensive review of the EU ETS will follow in July 2026. This will include any relevant adjustment to keep the MSR fit for purpose in the next decade.
