EU reaches compromise on carbon market reserve to broaden flexibility

On a recent session, the European Parliament and the Council of EU member-state governments reached a provisional political agreement to amend the Market Stability Reserve (MSR) of the EU Emissions Trading System. The deal departs from the European Commission’s proposal to end the cancellation of surplus emission allowances, opting instead to retain the cancellation tool but with a higher trigger level. This adjustment is intended to provide a larger buffer for handling market disturbances without making the carbon-pricing system unpredictable or overly costly for industry.

The MSR, created in 2019, removes excess allowances from circulation and can re-inject them when needed. Since its activation in 2023, more than three billion allowances have been permanently withdrawn. The compromise does not close the broader ETS reform, which remains under review, and the institutions will still need to formally adopt the amendment after legal checks. The new rules will take effect three days after publication in the Official Journal.