EU member states have agreed a negotiating position on changes to the market stability reserve, a mechanism designed to balance supply and demand in the EU’s carbon market.
The position was adopted at EU ambassadors’ level and will be used in talks with the European Parliament on amending the reserve, which operates within the EU Emissions Trading System (ETS), the Council of the European Union informed on Wednesday.
The ETS is the bloc’s cap-and-trade scheme, where companies must hold “allowances” for the greenhouse gases they emit, with allowances bought and sold in a market.
The market stability reserve adjusts how many allowances are auctioned each year by absorbing surplus allowances or releasing them when supply is tight, based on predefined thresholds for the total number of allowances in circulation.
Darragh O’Brien, Ireland’s Minister for Climate, Energy and the Environment, said agreement had been reached “through cooperation and compromise” and that the deal would provide businesses with predictability.
Changes to allowance cancellations
Since an “invalidation mechanism” began in 2023, more than 3 billion allowances have been removed from the market, restoring balance between supply and demand, the Council said.
Under the Council’s position, the cancellation of allowances above the current invalidation threshold of 400 million would be suspended until the end of 2030, meaning those allowances would not be cancelled during that period and would remain in the system.
From 1 January 2031, the Council’s mandate would raise the invalidation threshold to 800 million allowances, doubling the existing level.
The Council said it plans to start negotiations with the European Parliament to agree a final text, with an aim of concluding talks by the end of 2026.
The targeted change would not alter the overall design of the reserve, while a broader review of the ETS — including the rules governing the market stability reserve — was proposed by the European Commission in July 2026 and is being examined by the Council.
