The European Commission has proposed an amendment to the reserve rules of the carbon market to reinforce the stability and predictability of the EU Emissions Trading System (ETS).

Under the current system of the EU ETS – which requires polluters to pay for their greenhouse gas emissions – all allowances in the reserve above 400 million are invalidated.

The latest proposed amendment to the Market Stability Reserve (MSR) Decision will stop the invalidation mechanism, allowing these allowances to be kept as a buffer that can support market stability.

The MSR reduces the supply of allowances to the market when there are too many in circulation and feeds allowances when there is market scarcity.

The Commission believes the proposed change will better equip the MSR to respond to future market developments, including potential tightness in supply in the coming decades.

Between 1990 and 2024, the EU ETS helped reduce domestic emissions by 39% while the economy grew by 71%.

The MSR, which has been operational since 2019, had invalidated around 3.2 billion allowances by the end of 2024.

Wopke Hoekstra, Commissioner for Climate, Net Zero and Clean Growth said: “Today, we are delivering on the one of the commitments made by our leaders. This marks an important first step in modernising our carbon market. 

“By strengthening the Market Stability Reserve, we enhance EU ETS’ resilience to volatility and ensure that it continues to drive decarbonisation, support competitiveness and foster clean investment.”

The proposal to amend the MSR Decision will now be submitted to the European Parliament and the Council and would need to follow the ordinary legislative procedure for adoption.

A comprehensive review of the EU ETS will follow in July 2026.