EU reinforces the stability and predictability of its carbon market
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.
Commissioner for Climate, Net Zero and Clean Growth, Wopke Hoekstra, said: “Today, we are delivering on the one of the commitments made by our leaders. This marks an important first step in modernising our carbon market. 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 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. 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.
