ETS2: Council signs off on rules strengthening the market stability reserve
Today, the Council formally adopted the targeted amendment to the market stability reserve (MSR) under the EU’s emissions trading system for the buildings, road transport and additional sectors (ETS2), with a view to further ensuring a smooth and stable launch of the system.
The market stability reserve balances supply and demand in ETS2 by automatically adjusting the number of emission allowances available in circulation.
This targeted amendment strengthens the market stability reserve and further ensures a stable and predictable market for allowances ahead of the full launch of ETS2 in 2028 by improving market liquidity, reducing volatility and strengthening the market stability reserve’s ability to address excessive price increases.
The amended rules:
- extend the lifetime of the market stability reserve beyond 2030 to maintain price stability over time
- double, from 20 million to 40 million, the number of allowances to be released when the cost of carbon exceeds €45 per tonne of CO2 equivalent (in 2020 prices), to further improve market confidence
- ensure a more gradual and responsive release of allowances when the number in circulation falls below 260 million to help prevent market uncertainty caused by a ‘threshold effect’
Next steps
The decision on the market stability reserve for the buildings, road transport and additional sectors will now be signed and published in the Official Journal of the EU. It will enter into force on the 20th day following publication.
The amended MSR rules will be fully operational in time for the launch of the ETS2, planned in 2028, as agreed during negotiations on the European Climate Law.
Background
Established as part of the ‘Fit for 55’ package in 2023, ETS2 aims to reduce emissions from buildings, road transport and smaller industrial sectors by 42% by 2030, compared to 2005 levels.
Unlike the original ETS1 (covering heavy industry, aviation, etc.), the ETS2 applies upstream to fuel distributors. These distributors must monitor and report emissions from the fuels they sell and surrender carbon allowances equivalent to those emissions; the total number of allowances available within the EU decreases each year to incentivise decarbonisation.
This targeted amendment follows an initiative in July 2025, supported by 19 member states, calling for a smooth start to ETS2. Separate discussions on the review of the emissions trading system (ETS1) to drive competitiveness and cost-effective decarbonisation are ongoing within the Council.
