ETS2: boost to market stability reserve for buildings and road transport

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Stronger and smoother intervention of the market stability reserve (MSR)

Validity of allowances in the MSR extended beyond 2030
A review of the EU ETS expected in July 2026

To shield households, co-legislators have amended the market stability reserve for the EU emissions trading system for buildings, road transport and other sectors (ETS2).

On Wednesday evening, negotiators from Council and Parliament reached a political agreement on the Commission’s proposal to amend the market stability reserve (MSR) for the new emissions trading system for road transport and buildings (ETS2).

Stronger intervention of the MSR

A top-up of 20 million allowances is added to each release, doubling the volume per trigger from 20 to 40 million, and the mechanism can now be triggered twice a year. As a result, up to 80 million allowances can be injected into the market annually during the system's opening years, if the carbon price exceeds €45 per tonne (in 2020 prices). This possible annual injection therefore exceeds the required annual reduction of 60 million tCO2 in the ETS2, guaranteeing a more solid intervention if prices rise sharply.

Smoother release at the lower threshold

The co-legislators also agreed a more gradual release of allowances to safeguard market stability. Currently, 100 million allowances are released in a single step once the number of allowances in circulation falls to 210 million. Under the agreement, a smaller volume will be released as soon as circulation drops below 260 million, while remaining above 210 million, avoiding sudden supply shifts and sending a more stable price signal.

Market stability reserve post 2030

To improve long-term market predictability and confidence, the agreement removes the 1 January 2031 invalidation of allowances held in the reserve, meaning the full 600 million-allowance buffer remains available beyond this date, to be released if needed to stabilise the market.

The Commission’s review of the MSR must include the future validity of the remaining allowances taking into consideration both environmental integrity and social fairness.

The Commission also made a declaration stating that by October 2027 they will assess the application of the system to the buildings, road transport and additional sectors, taking into account the importance of all sectors contributing to emission reductions, and assess the appropriateness of the current measures to protect vulnerable households.

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The rapporteur Danuše NERUDOVÁ (EPP, Czechia) said: “Europe must do more to shield households from the potential negative social impacts of ETS2. Today, we adopted a revision that will strengthen price stability for citizens. The agreement underlines that member states must give priority to activities to address the social effects of the ETS2 when they spend its auction revenues and asses the prolongation of current price control mechanism. The Commission also declared that they will assess by october 2027 the application of the ETS2 to buildings, road transport and other sectors and the appropriateness of the current measures to protect vulnerable households.”

Next steps

The informal agreement must now be endorsed by both Parliament and Council. It will then enter into force 20 days after it has been published in the EU Official Journal.

On 1 April 2026, the Commission also proposed an amendment to the market stability reserve for ETS1, which is still to be decided on by co-legislators. A more comprehensive review of the entire EU ETS is expected to be presented by the Commission in July 2026.

Background

Following the revision of the EU Climate Law, the new ETS2 system was postponed by one year and will enter into force on 1 January 2028. The ETS2 aims to reduce CO2 emissions from buildings and road transport by 42% by 2030, compared to 2005 levels, to help reach EU’s climate neutrality goal by 2050. The Social Climate Fund will be available to help vulnerable citizens most affected by energy and transport poverty.

The MSR was established in 2015 to address the structural imbalance between the supply of and demand for allowances in the EU ETS. The MSR aligns the supply of emissions allowances in the ETS more closely with demand by reducing or increasing the total number of allowances in circulation to stabilise the market. A separate MSR for the ETS2 was created in 2023.