The chaotic fluctuations in prices on the carbon market are one of the main threats to business cost planning – and, before long, to the general public as well. Consequently, at its sitting on 15 September, the European Parliament decided to amend the rules governing the market stability reserve for the EU Emissions Trading Scheme (EU ETS) in order to make prices more predictable.
These decisions were announced on the European Parliament’s website.
Changes to ETS 1
Under the current carbon market rules, all allowances in the Market Stability Reserve (MSR) that exceed the 400 million threshold are cancelled.
EcoPolitics previously reported that the European Commission had proposed scrapping this rule entirely. In other words, the MSR was to become, in essence, an unlimited buffer to offset market fluctuations.
However, the European Parliament has adopted what MEPs consider to be a more balanced decision. It was decided to raise the cancellation threshold to 650 million from 1 February 2027. In other words, the cancellation mechanism remains in place, but the buffer is increased to absorb imbalances between supply and demand in the allowance market. At the same time, this will prevent an excessive accumulation of allowances in the reserve.
The amendments were supported by 367 MPs, with 240 voting against and 59 abstaining.
"Today’s vote strikes the right balance between climate ambitions and industrial competitiveness. Raising the cancellation threshold and setting a clear date for entry into force gives the MSR the necessary flexibility. The agreement, backed by an overwhelming majority, paves the way for a review of the ETS, demonstrating that ambitious climate and industrial policies can go hand in hand,” emphasised MEP Pierfrancesco Maran.
Changes to ETS 2
The EU ETS2 has not yet come into effect, but is already raising concerns about its financial impact on the public. This scheme will cover emissions from buildings, transport and other sectors.
The European Parliament’s second decision therefore concerned mitigating the risks of future price fluctuations for consumers. To this end, the relevant amendments were made to the MSR.
"This review will strengthen price stability for citizens. It emphasises that Member States must prioritise measures to address the social impacts of ETS2 when spending its auction revenues, and assess the continuation of the current price control mechanism. The Commission will also assess the implementation of the ETS2 by October 2027, as well as the appropriateness of current measures to protect vulnerable households,” said MEP Danuše Nerudová.
EcoPolitic reported that the European Parliament is planning to require member states to allocate 75 per cent of EU ETS revenues to support the decarbonisation of industry.
With regard to ETS2, the European Environment Agency (EEA) discussed as far back as March the need to introduce a range of measures to support the most vulnerable sections of the population. In addition to the Social Climate Fund, fiscal relief and targeted assistance should be used for this purpose.
