The European Commission announced a provisional political agreement between the European Parliament and the Council on a targeted amendment to strengthen the Market Stability Reserve (MSR) of the EU’s Emissions Trading System (EU ETS). This agreement follows the Commission’s April 2026 proposal and aligns with the European Council’s 16 October conclusions. The timely nature of this agreement is instrumental in ensuring a stable, well-functioning carbon market within the EU, thereby bolstering the EU ETS’s resilience to excessive price volatility.
“This agreement is an important deliverable in making the ETS fit for the future and a strong response to the calls of EU leaders last week. It will strengthen market stability and predictability over the next decade, enhance EU industry and competitiveness, and give businesses greater certainty to invest. It will also support industrial decarbonisation by reinforcing the resilience of the EU ETS against future shocks and excessive price volatility,” stated Wopke Hoekstra, Commissioner for Climate, Net Zero and Clean Growth.
This development represents significant progress toward implementing the ‘One Europe, One Market’ roadmap, which aims to strengthen Europe’s competitiveness by the end of 2027. Under the existing framework, all emission allowances in the reserve exceeding 400 million are rendered invalid. However, under the new agreement, the reserve will retain up to 700 million allowances as a buffer to promote future market stability and predictability.
The new regulations will strengthen the reserve’s long-term operational capacity while upholding the system’s fundamental rules-based design and environmental integrity. The MSR works by reducing allowance supply when there is an excess and injecting allowances during periods of scarcity.
This agreement clearly signals the EU’s commitment to a predictable, reliable carbon market, providing greater certainty for businesses and stimulating investment in a clean energy transition. It also marks an initial step towards broader modernisation of the Market Stability Reserve, as outlined in further reform proposals the Commission will present during the EU ETS review on 17 July 2026.
Next, the European Parliament and the Council will formally adopt the text. The amendment to the Market Stability Reserve Decision will then take effect upon publication in the Official Journal of the EU.
