Market Stability Reserve Eu Ets

EU Unveils Market Stability Reserve for ETS

Addressing Oversupply in Carbon Market

In a significant move to stabilize the European Union Emissions Trading System (EU ETS), the European Commission has proposed a Market Stability Reserve (MSR). The MSR aims to tackle the oversupply of carbon allowances that has plagued the system in recent years, leading to low carbon prices and undermining its effectiveness.

Key Features of the MSR

The MSR is designed to adjust the supply of allowances in response to market conditions:

• When the surplus exceeds a predefined threshold, a certain number of allowances will be placed in the MSR.
• Conversely, when the surplus falls below a certain level, allowances will be released back into the market.

Stabilizing Carbon Prices

The MSR is expected to stabilize carbon prices by absorbing excess allowances during periods of oversupply and releasing them during periods of scarcity. This price stability is crucial for ensuring that the ETS effectively incentivizes emission reductions and drives investment in low-carbon technologies.

Strengthening the EU ETS

By addressing the oversupply issue, the MSR strengthens the EU ETS as a cornerstone of Europe's climate policy. It enhances the system's ability to drive emission reductions, support innovation, and contribute to the EU's goal of achieving carbon neutrality by 2050.

Next Steps

The MSR proposal is subject to approval by the European Parliament and the Council of the European Union. Once adopted, the MSR is expected to come into operation in 2023. The European Commission estimates that the MSR could reduce the EU ETS surplus by 240 million allowances by 2030, significantly improving market stability.