The European Commission has proposed changing a key safeguard in the EU’s carbon market by ending the automatic cancellation of emissions allowances held in its reserve.
The plan would amend rules for the EU Emissions Trading System (EU ETS) Market Stability Reserve (MSR), a mechanism that adjusts the supply of allowances — permits to emit a tonne of CO₂ — to help balance the market, the Commission announced on Wednesday.
Under current rules, allowances held in the reserve above 400 million are invalidated, but the Commission said it wants to stop that invalidation so the surplus can be retained as a buffer.
The MSR is designed to reduce the number of allowances available when too many are in circulation and release allowances when there is scarcity.
Domestic EU emissions fell by 39% while the economy grew by 71% between 1990 and 2024, mainly thanks to the ETS, the Commission said.
How the reserve works and what happens next
The MSR has operated since 2019 and was introduced after a surplus of allowances built up following the 2008 financial crisis, the Commission said.
A total of 3.2 billion allowances had been invalidated by the end of 2024 under the current system.
The proposed amendment will now go to the European Parliament and the Council for negotiation and adoption through the EU’s ordinary legislative procedure.
A broader review of the EU ETS is due in July 2026 and will consider any further changes needed to keep the reserve fit for the following decade.
