EU countries and the European Parliament have reached a provisional agreement to amend rules governing how carbon permits are cancelled in a stabilising tool within the EU Emissions Trading System.
The deal, agreed on 20 October, changes the “invalidation” rules for allowances held in the Market Stability Reserve (MSR), a mechanism designed to absorb surplus permits from the market or release them to prevent sharp price swings, the Council of the EU said in a release on Wednesday.
More than 3 billion allowances have been invalidated and removed from the market since the mechanism began in 2023.
Under the provisional agreement, the invalidation mechanism will remain in place, but the threshold for when allowances in the MSR can be cancelled will rise to 700 million, from the current 400 million.
The updated threshold would take effect immediately after the changes are formally adopted.
Darragh O’Brien, Ireland’s Minister for Climate, Energy and the Environment, stated that the outcome provides “immediate flexibility” for European industry while seeking to ensure price stability and protect the “integrity” of the EU carbon market.
What happens next
The provisional agreement still needs to be confirmed by both the Council and the European Parliament before it can be formally adopted, the Council said.
The co-legislators also agreed that a gradual decrease of the invalidation threshold should be considered as part of a wider review of the emissions trading system now underway.
The Council said the European Commission had proposed an indefinite halt to invalidation, but the two institutions instead agreed to keep the mechanism while adjusting its threshold.
The Commission proposal was presented as a short-term measure linked to efforts to address high and volatile energy prices referenced by EU leaders in March.
